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So sectoral balances isn't economics any more?
@AnonymousWith all due respect to JKH, he is in finance, where is certainly knows his stuff, but he is not a professional economist. I've tweaked him before about speaking out of his field of expertise.
Tom,That quote in your post isn’t me. It’s John.No serious harm done.
Also, I’m not sure of the context of the post that follows this one, but:“Nobody thinks, or at least I don’t think, that MMTers haven’t considered issues of horizontal analysis. However, it is clear that their usual presentation favors SFB in the chosen mode of private sector consolidation. They have made presentations at times that include private sector deconsolidation, but this is not their preferred mode.” http://monetaryrealism.com/paul-krugman-does-s-i-s-i/#comment-2164Again, I don't know the exact context for the following post, but if it applies to something I've written, it seems to be a compound straw man from my perspective.
And with all due respect to John Carney, I think he might want to take a breath and familiarize himself with the wide-ranging and organic body of thought from the MMT economists before jumping to the superficial conclusions he is jumping to.Go to the Levy Institute site and check out the large number of papers by Randall Wray. Randy is a student and editor of Minsky, and also seems to have a deep appreciation of Schumpeter, Keynes and a lot of the American Institutionalists. Read those papers and then try to argue that Wray is deficient in his understanding of the processes of private sector investment and capital development. Read, for example "What Should Banks Do? A Minskyan Analysis."You can't understand everything about MMT just by reading a dozen pages or so in Warren's mandatory readings section, or a few blog discussions.MMT does discuss certain issues from high-level sectoral point of view to draw important conclusion that can be drawn from that simplified and general perspective. It's just like the way you can draw certain conclusions about a mechanical system from the Hamiltonian for that system, without solving the N-body problem for collections of bodies in the system. That doesn't mean that the mechanical theorist doesn't know the N-body problems are there and are important for a whole host of applications.Talking about the saving of the whole private sector is "confusing"? Really?Plus, one is really missing something important if one just focuses on the three sectors as three arbitrary sectors, and forgets the crucial part about the special nature of the government sector and its administration of the public monopoly over the currency. The MMT point is not just that any sector's net surplus must be composed of claims on the other sectors. The three sectors are not theoretically symmetric. You need to add in that the government sector is the only one of the three sectors that can expand its so-called monetary liabilities without financing that expansion.Anyone, in any sector, can create an IOU for dollars, and banks have a special charter to do this in an active way that is underwritten by the government. But the government's "liabilities" for dollars in our modern fiat system are liabilities for nothing but the dollars themselves. They can be freely created by the central bank without regard to its balance sheet position, and subject only to the aims of the bank's monetary policy. Even to call these dollars "credit instruments" is a misleading holdover of gold standard days.
To be quite honest if we had currency area accounts rather than national accounts we could do away with the external sector.It's all down to the scope of influence of your central bank - and that doesn't necessarily stop at national borders (or in some countries extend very far at all).Then we could analyse on two axis - currency issuer and currency user. Vertical and Horizontal.MMT rightly focuses on the interface with those two.Steve Keen has the horizontal circuit pretty much covered in terms of its inherent dynamic instabilities. And even one of Steve's prototype models shows that if a very simple facsimile of a government can counter cyclically dampen unemployment caused by private sector Minsky instability.The MMT analysis of the horizontal circuit is not as in depth as Steve's, but the macroeconomic policy prescription are pretty similarControl the amount of private debt and prevent unemployment.I get the sense that the MMTers just didn't feel they needed to repeat what Minsky had already discovered.
Tom,I should have added, I have no problem with John's summation."No serious harm" meant, as far as I'm concerned, you can leave as is. Either way.Just pointing it out for the accuracy of the record.
I posted this over at the Winterspeak thread. Might as well post it here for (constructive) criticism by the hive mind.(I - S) + (G - T) + (X - M) ≡ 0, being an identity, defines Savings and Investment explicitly.(I - S) is defined as net savings or net change in financial assets over the budget cycle; positive if in deficit, negative if in surplus. Then:-∆S = (I - S); where ∆S is the net change in financial assets over the budget cycle. Then:∆S = (S - I); rearranging terms:I = S - ∆S; it follows that:S = ∑∆S(n); "S equals the sum of ∆S over all budget cycles of which there have been n cycles to date". Then:I = ∑∆S(n) - ∆S; therefore:I = ∑∆S(n-1); QED; stated in english:I (Investment) is defined as the sum of all net changes in savings over (n-1) budget cycles; andS (Savings) is defined as the sum of all net changes in savings over (n) budget cycles.S is total savings over all budget cycles - it is a running total.The difference between the two is net savings over a budget cycle (n=i)This follows from the identity itself so the question is "What does savings mean in the NIPA or FoF context?
Thanks for clarifying that JKH. I have taken that part down. If people want to read the post, they can come to their own conclusions.
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