An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
It helps to keep in mind that at the sector level the things being labeled are spending and income. It's pretty much a tautology to say unspent income doesn't finance spending.
Labels applied to spending and income in the government and foreign sectors (G,T,X,M) don't seem to get in the way of remembering what the thing is being labeled.
It's only when we apply the label of (S)aving to income and (I)nvestment to spending that some mental circuit breaker trips requiring us to torture the argument to get back to the obvious.
If saving lowers demand generally, isn't it possible that it might lower the cost of inputs in production? By lowering the cost of inputs, it could make more production plans feasible, and it could make the cost of output lower.
Typical Keynesian doubletalk for the weak-minded. Of course, an individual incidence of someone not consuming does not insure that the resources will then be properly invested or invested at all. However, resources consumed currently cannot be invested at all.
It's important to note that saving is a national account concept (income or output not consumed) whereas financing is a cash-flow concept which, for me, is access to purchasing power. Expenditures, including investment, do not require saving. They require financing. A firm can self-finance through its saving (unspent income).
…But generally doesn't. It's usually "other people's money".
If a company like Apple has 130 Billion in cash and they use a tiny portion of it to fund their operations, is Investment = Savings true in that instance? Obviously not.
seems to me Investment=Savings is only true if one ignores debt financing and several other dynamics going on in the real world.
"I gather this is what Ram is saying."
He's saying JMK is wrong. Why keep polishing a turd?That's all Ram ever does is say someone is wrong, no matter how well-regarded their work is. He is a clone of a climate-denier. Take "other-peoples work" and twist it around using obtuse comments with about as much depth as an onion skin to "prove" they are wrong. It's annoying as hell.
We need builders folks, not demolition contractors.
"Just learn some national accounts before you pontificate on economic matters and make personal remarks about me."
1. "Nein"…you're nein-ing a Keynes quote being repeated by Lars, and disagreeing…neither one of whose book bags you could carry.
2. National Accounts are a snapshot of something - one can't make any causal infernces from, National Accounts, any more than a picture can't tell you how gravity works or anything else.
3. I go after you the way you dogged Bill Mitchell and Randy Wray for over a year with your silly arguments to the point where you are nothing moere than a troll now.
4. It ain't personal…I call bullshit wherever I see it. And there's plenty with you.
"Thus, since the expectation of consumption is the only raison d’être of employment, "
[Raison d'être is a French phrase meaning "reason for existence.]
MMT makes the case that one seeks a job to get the "money" to pay ones taxes....
I personally can think of instances where people do what they do because they love what they do... ie many folks out there could quit their jobs right now and never work again but yet you see all of these old rich people still working... why? .... because they want to consume more? I doubt it...
Michael Jordan playing for the Wash Wizzards at the end of his career? Because he wanted to consume more in the future? I doubt it...
maybe Keynes is correct for a young person who "has no money", but his statement does not seem universally true to me...
Many people are in a situation where they work just because they want to... and... this takes jobs away from young people...
"MMT makes the case that one seeks a job to get the "money" to pay ones taxes...."
Matt, wrt MMT, the state "forces" participants to acquire state money for payment of taxes. So it makes use of state money a necessity for most people.
Personally Keynes reason for employment makes the most sense to me.
If one doesn't consume, one doesn't have to work.
If one doesn't work or consume, one doesn't have to pay taxes.
When was young, I worked because I "had" to - no free lunch and I didn't like the option of living off the land and sleeping under the sky.
As I got older I began to enjoy work, but because I enjoy it, I don't consider it work any longer.
Now I work also because I "need" USD balances to keep some of the stuff I have, like my house. Even though it's paid for, we still have to pay taxes and I'm attached to running water and electricity.
I still enjoy working though, and what I do kids right out of college can't do right away - it takes years to develop the skills. I could be teaching the skills to others but there doesn't seem to be much demand for them anymore so what would be the point?
Right... I just think that the Keynes statement is not universally true...
Older folks who have no need of working anymore just so that they can consume create a surplus in the economy... surpluses cause a lot of problems looks like... the area around surpluses seems like where mercantilists are able to get their fangs in...
"Thus, since the expectation of consumption is the only raison d’être of employment, "
Even JMK was taken in by Bentham's ethical and motivational fallacy of maximizing utility.
There is a good reason for economists wanting to adopt a patently false theory. Ethics and motivation, which are essentially qualitative and intractable, become quantifiable and tractable by assigning unit of utility in terms of consumption potential.
IT's not only totally dumb factually, it is highly offensive to moral and aesthetic people, and it leads to pernicious social consequences, which is ironic since this ethical approach is consequentialists. This internal contradiction shows that the proponent have not though this through.
When I was in high school and college I occasionally worked summer jobs. Based on that experience, I vowed never to "work" again. And I didn't, following the principle, "Do what you love and the money will come."
To paraphrase the above (Gita, II.47): "You have control over the actions you perform, but never of the fruits of action. Do not be motivated by results of action."
It may be difficult to understand this out of the context of the whole, however. It's all in the Gita, the Gita being one of the quintessential summaries of perennial wisdom.
25 comments:
Duly Evernoted!
Nein.
(Nice quote of Keynes though).
While it is true that investment creates saving, you cannot state it in this manner ("Saving does not finance investment").
For corporations, both borrowing and undistributed profits (which is saving) finances investment
Saving does not necessarily finance investment. There can be saving without investment...
Something I've been shouting from the rooftops for ages here…
…and it pleases me to no end to see that once again Ramanan disagrees.
I would be very, very worried if he didn't.
@ Ramanan,
"For corporations, both borrowing and undistributed profits (which is saving) finances investment"
Is borrowing saving?
It helps to keep in mind that at the sector level the things being labeled are spending and income. It's pretty much a tautology to say unspent income doesn't finance spending.
Labels applied to spending and income in the government and foreign sectors (G,T,X,M) don't seem to get in the way of remembering what the thing is being labeled.
It's only when we apply the label of (S)aving to income and (I)nvestment to spending that some mental circuit breaker trips requiring us to torture the argument to get back to the obvious.
If saving lowers demand generally, isn't it possible that it might lower the cost of inputs in production? By lowering the cost of inputs, it could make more production plans feasible, and it could make the cost of output lower.
RVMarkov,
"Is borrowing saving?"
No.
Typical Keynesian doubletalk for the weak-minded. Of course, an individual incidence of someone not consuming does not insure that the resources will then be properly invested or invested at all. However, resources consumed currently cannot be invested at all.
It's important to note that saving is a national account concept (income or output not consumed) whereas financing is a cash-flow concept which, for me, is access to purchasing power. Expenditures, including investment, do not require saving. They require financing. A firm can self-finance through its saving (unspent income).
I gather this is what Ram is saying.
"A firm can self-finance through its saving"
…But generally doesn't. It's usually "other people's money".
If a company like Apple has 130 Billion in cash and they use a tiny portion of it to fund their operations, is Investment = Savings true in that instance? Obviously not.
seems to me Investment=Savings is only true if one ignores debt financing and several other dynamics going on in the real world.
"I gather this is what Ram is saying."
He's saying JMK is wrong. Why keep polishing a turd?That's all Ram ever does is say someone is wrong, no matter how well-regarded their work is. He is a clone of a climate-denier. Take "other-peoples work" and twist it around using obtuse comments with about as much depth as an onion skin to "prove" they are wrong. It's annoying as hell.
We need builders folks, not demolition contractors.
How is money consumed Bob? Is it melted down and made into a necklace?
"He's saying JMK is wrong."
Nope I did not say JMK was wrong. In fact I said nice quote.
I said "saving doesn't finance investment" is a wrong statement which was not in the quote of JMK.
The rest of your comment is total trash. Total saving is always equal to total investment for an economy.
Just learn some national accounts before you pontificate on economic matters and make personal remarks about me.
"Just learn some national accounts before you pontificate on economic matters and make personal remarks about me."
1. "Nein"…you're nein-ing a Keynes quote being repeated by Lars, and disagreeing…neither one of whose book bags you could carry.
2. National Accounts are a snapshot of something - one can't make any causal infernces from, National Accounts, any more than a picture can't tell you how gravity works or anything else.
3. I go after you the way you dogged Bill Mitchell and Randy Wray for over a year with your silly arguments to the point where you are nothing moere than a troll now.
4. It ain't personal…I call bullshit wherever I see it. And there's plenty with you.
First, I explicitly stated it was a nice quote of JMK. Look at my first comment.
About BSing, you always make the most amateurish mistakes when it comes to discussions on saving, investment, national accounts etc.
Your point 3 is irrelevant here. You do not even know the kind of research by others which exists there.
But how would you know? - you struggle with most definitions and discussions on saving, investment etc.
@Ramanan,
""Is borrowing saving?"
No."
Which shows investment is first, saving follows.
Deadly Innocent Fraud #6:
We need savings to provide the funds for investment.
Fact:
Investment adds to savings.
This from Keynes via Lars:
"Thus, since the expectation of consumption is the only raison d’être of employment, "
[Raison d'être is a French phrase meaning "reason for existence.]
MMT makes the case that one seeks a job to get the "money" to pay ones taxes....
I personally can think of instances where people do what they do because they love what they do... ie many folks out there could quit their jobs right now and never work again but yet you see all of these old rich people still working... why? .... because they want to consume more? I doubt it...
Michael Jordan playing for the Wash Wizzards at the end of his career? Because he wanted to consume more in the future? I doubt it...
maybe Keynes is correct for a young person who "has no money", but his statement does not seem universally true to me...
Many people are in a situation where they work just because they want to... and... this takes jobs away from young people...
rsp,
"MMT makes the case that one seeks a job to get the "money" to pay ones taxes...."
Matt, wrt MMT, the state "forces" participants to acquire state money for payment of taxes. So it makes use of state money a necessity for most people.
Personally Keynes reason for employment makes the most sense to me.
If one doesn't consume, one doesn't have to work.
If one doesn't work or consume, one doesn't have to pay taxes.
When was young, I worked because I "had" to - no free lunch and I didn't like the option of living off the land and sleeping under the sky.
As I got older I began to enjoy work, but because I enjoy it, I don't consider it work any longer.
Now I work also because I "need" USD balances to keep some of the stuff I have, like my house. Even though it's paid for, we still have to pay taxes and I'm attached to running water and electricity.
I still enjoy working though, and what I do kids right out of college can't do right away - it takes years to develop the skills. I could be teaching the skills to others but there doesn't seem to be much demand for them anymore so what would be the point?
Right... I just think that the Keynes statement is not universally true...
Older folks who have no need of working anymore just so that they can consume create a surplus in the economy... surpluses cause a lot of problems looks like... the area around surpluses seems like where mercantilists are able to get their fangs in...
rsp,
A good paper on this topic
Saving does not finance
Investment: Accounting as an indispensable guide to economic theory
http://www.boeckler.de/pdf/p_imk_wp_100_2012.pdf
"Thus, since the expectation of consumption is the only raison d’être of employment, "
Even JMK was taken in by Bentham's ethical and motivational fallacy of maximizing utility.
There is a good reason for economists wanting to adopt a patently false theory. Ethics and motivation, which are essentially qualitative and intractable, become quantifiable and tractable by assigning unit of utility in terms of consumption potential.
IT's not only totally dumb factually, it is highly offensive to moral and aesthetic people, and it leads to pernicious social consequences, which is ironic since this ethical approach is consequentialists. This internal contradiction shows that the proponent have not though this through.
When I was in high school and college I occasionally worked summer jobs. Based on that experience, I vowed never to "work" again. And I didn't, following the principle, "Do what you love and the money will come."
Tom,
"And I didn't, following the principle, "Do what you love and the money will come.""
Bhagawat Gita?
"Karmanye Vadhikaraste, Ma phaleshou kada chana,
Ma Karma Phala Hetur Bhurmatey Sangostva Akarmani"
:-)
To paraphrase the above (Gita, II.47): "You have control over the actions you perform, but never of the fruits of action. Do not be motivated by results of action."
It may be difficult to understand this out of the context of the whole, however. It's all in the Gita, the Gita being one of the quintessential summaries of perennial wisdom.
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