Here's a rule of thumb for talking about accounting identities: Accounting identities do not constrain behavior; they constrain accounting. If you find yourself saying or implying that an economic actor cannot do something they want to do because of an accounting identity, you have lost the thread. Backtrack and rethink.
Mean Squared Errors
Economists and accounting identities
JEC
ht Mark Thoma at Economist's View
4 comments:
Well, it's sort of the same thing. If economic propositions is true by definition, then nobody can do anything that would entail the falsity of that proposition.
In other words, if you have some purported economic identity P, and an argument from P that purports to prove some conclusion Q; and if you are convinced Q is sometimes not true; then it follows that either the argument is fallacious, or the supposed identity P is not really an identity after all.
The most common source of fallacies and disagreements in these areas is a fallacy of equivocation. The same term, such as "private savings", is being used in one way in the premise P and a different way in the conclusion Q.
Maybe the accounting identity doesn't contrain behaviour exactly, but they sure constrain results. The Europeans can all try to run balanced budgets and be net exporters all they want, but the results sure won't end up that way... Flows match, and results will conform.
"If economic propositions is true by definition, then nobody can do anything that would entail the falsity of that proposition."
What do you mean? I've had people insist to "agree to disagree" on whether everyone can run surpluses simultaneously. Whether something is true by definition or not doesn't seem to matter to most people.
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