Bill Mitchell – billy blog
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
Sunday, November 1, 2015
Bill Mitchell — The tide is turning but there is a long way to travel yet
Bill Mitchell – billy blog
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11 comments:
But with corporate surplus and large current account deficit, Bill has shown the crazy attempts to create a "budget surplus" are EVEN WORSE for households. Especially for low income households, Graeber's analysis is spot on. The tax credits cuts will cause these people to go into debt.
The household sector is already a net borrower (see Neil Wilson's sectoral balances.)
Also, Bill makes an error in his article by not mentioning households have to go into debt OR run down savings. He dosen't mention savings rundown.
If the government steals money from households, assuming everything STAYS THE SAME, households run down savings or go into debt.
So I disagree. Not only is Graeber right, it is MUCH WORSE than he suggests.
http://bilbo.economicoutlook.net/blog/?p=32237
New Billy Blog
So I disagree.
Bill's argument is based on 1) conflation of domestic private balance and nongovernment balance (domestic private balance and external balance) and 2) the assertion that the private sector being in deficit implies that "everyone" must be increasing debt — that's not only not necessary but unlikely.
OK. I still think he is splitting at hairs a bit. But never mind. If some households net save/lend then other households must net borrow. That is even more unsustainable. Most households are net borrowing due to house prices - large mortgage or rent.
And the UK govt policy is cutting mainly at the poor.
Tom, is it correct that in most countries the corporate sector net saves, wealthy households net save and the current account is in deficit? So permenant deficits are necessary.
For example the UK govt has passed a law "outlawing" budget deficits "in normal times." It is called the Fiscal Charter. This strikes me as utterly insane.
How long do you reckon this can continue?
Tom, is it correct that in most countries the corporate sector net saves, wealthy households net save and the current account is in deficit?
Well, the wealthy net save (consume) less than they earn) since that is what makes them wealthy.
I don't think it's possible to generalize about the others
Under normal conditions, firms should be net borrowers to finance investment. It generally doesn't make business sense for firms to net save (hold cash balances). They should either distribute earnings or invest them in stead of retaining them. The only reason for firms to save is to provide liquidity for cash flow. Firms will hold greater amounts in reserve in the face of uncertainty.
Some countries tend to be net exporters which means that they must also be net savers. Others are chronic net importers, which means they must be net borrowers. But that depends on changing conditions.
I see, so distributed earnings say dividends increase corporate profits? Because they are spent and then become profits again? IIRC Cullen Roche mentioned this in a piece I was reading.
http://www.pragcap.com/dividends-the-secret-sauce-in-corporate-profits/
Here it is.
"Well, the wealthy net save (consume) less than they earn) since that is what makes them wealthy. "
What if there was high inflation? Would this help prevent this problem?
Graeber/Guardian ripped off one of Bill's charts without attribution....
Perhaps Guardian should have just got Bill to write it.... or Graeber could have collaborated with Bill...
o distributed earnings say dividends increase corporate profits? Because they are spent and then become profits again?
Circular flow. Saving (hoarding) inhibits circular flow through "demand leakage."
What if there was high inflation? Would this help prevent this problem?
A reason that cb's aim for a positive inflation rate is to discourage saving that results in demand leakage.
The whole foundation of capitalism is to keep money (financial capital) working. Just as firms don't want real capital lying around idle and not producing anything, they don't want financial capital not producing anything.
This becomes a problem when passive rents exceed the expected return on investment in capital goods. Then firms seek rent rather than invest as the "rational" thing to do. It's rational from the POV of the firm but irrational from the POV of business and the economy, since it leads to stagnation.
I would really like to see Bill Mitchell or Neil Wilson in comment is free :)
How do you "apply"?
Random said...
I would really like to see Bill Mitchell or Neil Wilson in comment is free :)
How do you "apply"?
Just an FYI
Professor Mitchell has been published in the Guardian
http://www.theguardian.com/commentisfree/2015/feb/24/punishment-dished-out-to-unemployed-is-on-par-with-our-treatment-of-refugees
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