Read it at Winterspeak
Honestly, I'm having difficulty making head or tail of the discussion. I'm not sure what distinction they are making, and I don't know why the distinction I think they are making is important. It seems to be that, the usual sector de-composition is between the Government and non-Government sector, where Government is the currency issuer (consolidated Treasury and Federal Reserve function) and non-Government is everyone else (all currency users, includes foreign Governments). I think they are saying that within the non-Government sector, distinguishing the household from commercial sector is important, but I don't know why.
Anyone care to enlighten me?
S=I+(I-S)?
by Winterspeak
7 comments:
Tom, This post of mine might help – or I might be talking bo**ocks.
http://ralphanomics.blogspot.com/2012/02/alternative-sectoral-balance-equation.html
In my overly simplified view, going down the rabbit hole of debating the finer points of what the terms saving and investment mean in various contexts is to lose sight of what MMT is talking about in the first place.
Putting aside nomenclature for a moment, I see:
private(flow of dollars in - flow of dollars out) + (G-T) + (X-M)=0
The net residual between two flows is the thing being described. This is too easily lost in haggling over what labels to pin on the flows.
Just to be clear, the JKH's identity is S = I + (S-I), not S = I + (I-S).
I agree with geerussell, though, that the focus should just be on flows, rather than on customary categories of though like "savings", "investment", "taxes", etc. All of those terms have common sense meanings, and trying to get the flows to match up with the connotations of those traditional designations can be misleading.
I'll 3rd that. I wanted to say that traditional designations were meant to be misleading, but the designers only have to screw up a few important ones to sow profitable chaos down the line. Just leave a few that lend verification....
The ongoing MMR discussion is creating huge amounts of fog in my opinion. Hopefully the fog will lift soon.
They keep talking about the net financial assets held by households that MMT supposedly overlooks but I haven't seen anyone mention that the $15 Trillion ($10 Trillion in public debt) accounts for almost all of the NFA's in the economy, and those are treasuries - read accumulated wealth - by the rich. I don't think that plays a big part in fueling the economy.
I don't know about you guys but I don't know many middle-class people that hold a lot of their wealth in treasuries. We have cash in our savings account. Net of our obligations that is our financial wealth.
Plus, The treasuries mainly exist as a means for the government to get permission to spend dollars into the economy.
To me, that's what matters, how many dollars (unencumbered) exist in the non-government. JKH estimates that about $2 Trillion in dollar NFA's exist in the non-government, so obviously the idea of paying off the National Debt™ is absurd if not impossible.
It would require deficit spending without issuance of treasuries to do it, which by definition is illegal.
Oh and Dan K. - no I'm not stalking you
Dividing the private sector into households and firms - how profound! Of course households can save while the whole sector is in deficit, who knew? Bill had a couple of posts on it and a ton of quiz questions. MMR seems to be desperate to come up with something, anything, original to add to MMT.
They are also mixing real with nominal. Accounting identities do not reflect the growing value of real assets, they think that increase in value of real assets is part of the S or I. Nonsense. Yes, it could be called "saving" but it would be saving coconuts, the preferred thing for Austrians to do. And no MMT was ever unaware that rising real assets buoy the balance sheets of the private sector, contrary to what they try to imply.
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