Ramanan — Mainstream Economics Compared To Keynesian Times

Nicholas Kaldor quote.

The Case for Concerted Action
Mainstream Economics Compared To Keynesian Times
V. Ramanan

Timothy Taylor — Why Did Simon Kuznets Want to Leave Military Spending out of GDP?

Simon Kuznets (Nobel 1971) usually gets the credit for doing as much as anyone to organize our modern thinking about what should be included in GDP, or left out. But I had not known that Kuznets apparently argued for leaving military spending out of GDP, on the grounds that it wasn't actually "consumed" by anyone, but should instead be treated as an intermediate input that supported production and consumption. Here's how Hugh Rockoff tells the story in his essay, "On the Controversies behind the Origins of the Federal Economic Statistics," in the Winter 2019 issue of the Journal of Economic Perspectives. [Full disclosure: I work at JEP as Managing Editor.]...

Conversable Economist
Why Did Simon Kuznets Want to Leave Military Spending out of GDP?
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Piketty, Saez & Zucman — Simplified Distributional National Accounts

Abstract:
This paper develops a simplified methodology that starts from the fiscal income top income share series and makes very basic assumptions on how each income component from national income that is not included in fiscal income is distributed. This simplified methodology has two main goals.

First and most important, it can be used to create distributional national income statistics in countries where fiscal income inequality statistics are available but where there is limited information to impute other income at the individual level. Alvaredo et al. (2016) distributional national accounts guidelines proposed a simplified methodology for countries with less data (Section 7). The methodology proposed here can be seen as an even simpler method that can be applied to countries for which fiscal income top income share statistics exist1 and for which national accounts and fiscal income aggregates are sufficiently detailed.

Second, this simplified methodology can also be used to assess the plausibility of the Piketty, Saez, and Zucman (2018) assumptions. In particular, we will show that the simplified methodology can be used to show that the alternative assumptions proposed by Auten and Splinter (2018) imply a drastic equalization of income components not in fiscal income which does not seem realistic.

WCEG

Simplified Distributional National Accounts
Thomas Piketty, Paris School of Economics;

Emmanuel Saez, University of California, Berkeley; Gabriel Zucman, University of California, Berkeley

Gennaro Zezza and Francesco Zezza — On the Design of Empirical Stock-Flow-Consistent Models

While the literature on theoretical macroeconomic models adopting the stock-flow-consistent (SFC) approach is flourishing, few contributions cover the methodology for building a SFC empirical model for a whole country. Most contributions simply try to feed national accounting data into a theoretical model inspired by Wynne Godley and Marc Lavoie (2007), albeit with different degrees of complexity.

In this paper we argue instead that the structure of an empirical SFC model should start from a careful analysis of the specificities of a country’s sectoral balance sheets and flow of funds data, given the relevant research question to be addressed. We illustrate our arguments with examples for Greece, Italy, and Ecuador.

We also provide some suggestions on how to consistently use the financial and nonfinancial accounts of institutional sectors, showing the link between SFC accounting structures and national accounting rules.

Levy Economics Institute
On the Design of Empirical Stock-Flow-Consistent Models

Gennaro Zezza and Francesco Zezza

Brian Romanchuk

In previous articles (example), I have been arguing that investment is the major driver of the private sector cycles. (I am using the national accounting definition of investment, and not the act of purchasing financial securities.) We can now turn to the data, and the important question: how are we doing right now?…

There are a number of categories of expenditures that are all lumped under the notion of investment. The major categories of interest are:

• Investment by government (which is a policy decision).
• Private Residential (houses, apartment blocks) investment.
• Private Inventory growth (not included in fixed investment).
• Private non-Residential (includes equipment, non-residential structures, etc.).

The decision-making behind each category is different, and so there is no reason to believe that we can explain all of these types of investment with the same measured variables. (This is unlike simplified economic models, where all investment is under the control of some representative firm or household.) For example, if sales are rising, and the inventory-sales ratio is falling, we might expect firms to step up production in the near run to bring up inventory levels, regardless of their views on long-term fixed investment.

As a result, we need to break our analysis of investment by category. This article focuses on the last category -- private fixed non-residential investment -- which is depicted in the chart at the top of the article....

Bond Economics
Initial Comments On U.S. Fixed Investment
Brian Romanchuk

Dirk Ehnts — German GDP for students of economics

I just stumbled over a very nice figure from Destatis, Germany’s statistical office. It shows GDP and how you arrive at the correct number using the production, expenditure and income approaches.

econoblog 101
German GDP for students of economics
Dirk Ehnts | Lecturer at Bard College Berlin

Thomas Piketty, Emmanuel Saez, Gabriel Zucman — Economic growth in the US: A tale of two countries

The rise of economic inequality is one of today’s most hotly debated issues. But a disconnect between the different data sets used to measure and understand inequality makes it hard to address important economic and policy questions. In this column, the authors highlight the findings from their attempt to create inequality statistics for the US that overcome the limitations of existing data by creating distributional national accounts.

Vox.eu
Economic growth in the US: A tale of two countries
Thomas Piketty, Emmanuel Saez, Gabriel Zucman

Bill Mitchell — Australian national accounts – inexorably marching towards recession

Illustration of how to look at national accounts data from the MMT POV.

Bill Mitchell – billy blog
Australian national accounts – inexorably marching towards recession
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Steve Roth — Why Economists Don’t Know How to Think about Wealth (or Profits) Evonomics

What's wrong with economics? "It's a dumpster fire."

Evonomics
Why Economists Don’t Know How to Think about Wealth (or Profits)

Steve Roth

Brian Romanchuk — Book Review: Diagrams & Dollars

Diagrams & Dollars: Modern Money Illustrated by J.D. Alt is a brief ebook that introduces the national accounts flow concepts used by Modern Monetary Theory (MMT). The book is written for a general audience, covering what is unfortunately the most non-intuitive parts of Functional Finance. The concepts are actually easily understood if they are taught properly, but are difficult to understand if you have been taught that the central government is just like a household.

Bond Economics
Book Review: Diagrams & Dollars
Brian Romanchuk

Jason Smith — Does saving make sense?

Jason Smith jumps in on "saving."

Information Transfer Economics
Does saving make sense?
Jason Smith

Bill Mitchell— Flow-of-funds and sectoral balances

I have noted some misperceptions about the derivation, meaning and application of the so-called sectoral balances framework that is used in Modern Monetary Theory (MMT) to help explicate the relationship between the government and the non-government sectors. Some of this confusion appears to be the product of a deeper misunderstanding of the difference between stocks and flows and relationships between flows in economics. Those who conclude that this framework is really just an accounting structure are incorrect. Equally, those who conclude that the accounting relationships that are part of the sectoral balances framework are matters of interpretation are also incorrect. It should be clear that the sectoral balances framework combines accounting structures, which are derived from the national accounts framework used by statisticians to measure economic activity, and theoretical propositions, which seek to explain relationships between variables within the accounting structures. In other words, we need to understand both the accounting aspects that are true by definition as well as the underlying theoretical structures which drive the balances.…

Must-read relative to understanding MMT.

Bill Mitchell – billy blog
Flow-of-funds and sectoral balances
Bill Mitchell | Professor in Ecoof the Centre of Full Employment and Equnomics and Director ity (CofFEE), at University of Newcastle, NSW, Australia

Steve Roth — Thinking about Value, and the National Accounts

The implication: as with any economic model, to understand what you’re seeing, you need to look not only at the results presented within the model, but at the model itself. You need to (at least) consider not just potential errors within a model, but model error itself. To get very philosophical: National account structures are, ultimately, epistemological structures — systems for trying to “know” things.

The national accounts, by their very status and position, discourage examination of their model. The notion that they’re “just accounting,” adding and subtracting straightforward measures, reifies them, and the model they present. The assumptions underlying that model are rendered invisible, apotheosized as god-given truths.

National-accounting sages are very much aware of this reality. Check out Jorgenson, Hulten, Hall, etc. on the “zero-rent” economic model that lies (hidden) at the core of the national accounts as constructed. (They mostly argue: appropriately so.) Or spend some time in that Interfluidity comments thread. If you haven’t thought critically and carefully about the national accounts’ economic model, you don’t understand the national accounts. (I’m not, by the way, claiming that I do. Despite lengthy exertions. Necessary versus sufficient and all that.)

That goes for any model. Models are epistemological structures for organizing understanding. Humans necessarily think in models and metaphors. Highly developed models may use high levels of abstraction and be considerably removed from experience. As a consequence, without logical analysis the working of the model may be misunderstood. A model might in saying either more or less than is generally understood in its interpretation.

Since economic models are largely based on market prices, they are heavily dependent on accounting. But many people using them are not experts in accounting and come to erroneous conclusions. Even experts disagree over what the accounting implies. The issue is epistemological, on one hand, dealing with knowledge — how we know and what we know — and also logical, as Ludwig Wittgenstein sought to show.

A descriptive proposition is a model of reality, the logic of which is similar to a map or picture, as Wittgenstein showed in the Tractatus Logico-Philosophicus. In Philosophical Investigations and notes published posthumously by his literary executors, he explored how even the logic of apparently descriptive statements that are putative about facts can function as norms in a logical framework in that they are privileged from error, making them criteria for the justification of other statements, which become subordinate to them. Failing to see the deep logic involved can "bewitch" intelligence and rigorous logical analysis is the "therapy" for it.

Steve Roth is correct about the need to penetrate the foundations of models, which lie in definitions, rules, and assumptions, explicit and hidden. National accounts involve a high degree of abstraction, for instance, and a temptation is to reify matters in ways that lead to confusion, for example.

One has to think one's way through these thickets to gain understanding, and one is greatly helped by doing it with others. I've learned a lot reading the comments at his place and at Interfluidity, where many smart and knowledgeable people contribute.

Asymptosis
Thinking about Value, and the National Accounts
Steve Roth

Who's Holding The Reins? Literally, No One! Electorates Are Some Data Late And A Context Short Of National Return-On-Coordination.

   (Commentary posted by Roger Erickson)

When systemic accounts decline, who, in the end, is accountable? Where does the fiat stop?




This matters because Bill Mitchell notes that "National Accounts" are continuing to decline.

And it's not just Australia.

You know, Bill, reading all your useful summaries of already published data ... one can't help recognizing how droll this all is.

The so-called "Business Cycle" - and bubbles/booms/busts/Bull-Mkts & Depressions too - are simply the result of various permutations of old/young buffoons failing to network adequately.

When distributed components of a SYSTEM quit sending/receiving/analyzing and testing collective responses to enough of their own distributed feedback .... well, then their system breaks down.




Then the insane return-on-coordination that we call human culture rapidly declines, as an inevitable result.

That core reason WHY cultural systems get too far from unpredictable Cultural Survival Paths is the same old story throughout the history of planet Earth.

[semi-social amoeba, Dictyostelium discoideum]

The real message is that if WE don't evolve a BETTER WAY - ASAP - to manage our own affairs, then some other system WILL quickly replace us, as sure as permanently multi-cellular species replaced single-cell cultural approaches.

It's all about our NET Policy Agility, in our demanding race to explore Policy Space (aka, perceived or allowable options). Until these phrases are familiar to every citizen, we'll continue to do less than we're capable of doing.

Any combination of young-to-old buffoons can quickly run whole cultures off a cliff, or linger too long in the past, long past when context has changed - IF THE WRONG SPECTRUM OF PEOPLE ARE HANDED THE POLICY REINS!!! If policy attempts proceed without adequate feedback .. the result is random, which is bad ... by simple statistics alone. The bigger the system, the smaller the ratio of adaptive to maladaptive action patterns there are. We have to ramp up our distributed selection efforts as fast as our options accumulate, or else we end up consuming ourselves.

With the proverbial wave of a little pinky, clumsy policy can undo any amount of agile strategy, tactics, technology and distributed brilliance & effort. Democracy works exactly to the extent that NO ONE tries to just do "their" job, and ignores participation in distributed feedback.

A system really does mean a system, and only the most agile systems survive to keep evolving.

An agile system means one that oscillates back and forth between resiliency and efficiency, as frequently as needed, no matter how fast it grows. Switching between resiliency and efficiency means QUICKLY reconnecting all feedback to all feedback, on demand, before just as quickly relaxing to a just-adequate solution to a transient context, before it changes again.

We can talk and argue endlessly about all the details of all the late, expensive repairs to degraded systems (call them various ideologies) ... but the approach that will win in the end is to raise citizens who first gain, early on, an appreciation for their own, evolving cultural system, and then NEVER LOSE IT! That's the only way to have citizens who know how to leverage culture and policy space, not just their personal space.

Every other approach is a losing strategy. No organically growing system can keep up with expensive repair alone. Only cheap, prevention adaptation works. We won't recover or move on until this message results in very systemic overhaul of K-12 education. Until then, we'll keep churning out a majority who are some data late and a context short of national return-on-coordination.

A Group Intelligence is a terrible thing to waste, but we're trying our best to do it.

Merijn Knibbe — Oh my. Do DSGE economists really misunderstand the concept of ‘government consumption’?

Do DSGE economists really exclude ‘government consumption’ from their concept of household prosperity? Yes, they do.

Real-World Economics Review Blog
Oh my. Do DSGE economists really misunderstand the concept of ‘government consumption’?
Merijn Knibbe

Ramanan — James Tobin Already Knew The Answer

John Maynard Keynes’ biggest disservice to the economics profession is to not start with an open economy. In a world of free trade and free movement of capital, a nation’s biggest constraint on raising output is the “balance-of-payments constraint”. It is sad that in spite of the crisis the economic profession has not even started debating on the constraints imposed on nations due to free trade (and the whole world as a consequence).

Intuitively I agree with Ramanan on this although I do not have the expertise in the subject to make a deeply informed judgment. But my sense is that until economists and especially political economists aka macroeconomists start with the global economy as a closed system, we are going to keep looking for solutions in the wrong direction. A lasting solution has to be social and political as well as economic, and the notion that nations get it right by each pursuing maximum utility in the form of "national interest" will be about as effective as individuals pursuing their own interest in achieving general equilibrium through markets. It's nonsense.

Historically, economics really begins with trade. Even communal tribes that operated on the gift economy internally traded with neighboring tribes and over time, trade encompassed most of the world, providing the first contact and later communication among different people, resulting in shared knowledge and cultural and institutional influence. So it is quite amazing to me as an outsider looking in at economics to find what seems obvious being relegated pretty much to an afterthought.

The world will not work and humanity will not see peace until the world works for everyone. What's good for humanity is good for the world economy rather than vice versa, as neoliberalism assumes.

The Case of Concerted Action
James Tobin Already Knew The Answer
Ramanan

Steve Roth — Identity Games: Saving ≠ Saving? Whodathunkit?

Before I go, one more thought: After coming up with this “accumulation” notion/usage, Very Little Googling revealed that (no surprise) it’s hardly original. It’s right there in Volume I of Das Kapital. (I just discovered this? Hey, I’m self-taught, with the resulting predictably spotty/spotlight reading background. I’m working on it!)

And let’s not forget: It was the 1930s. Kuznets and co. were developing the national accounts, and they were devoted capitalists. They’re gonna use Marxist language, much less concepts and theory? In the National Accounts? Of The United States of America? Not gonna happen.

Asymptosis
Identity Games: Saving ≠ Saving? Whodathunkit?
Steve Roth

Ramanan on some interesting history of economics

Contains some nice finds for those interested in the history of national accounting in economics.

The Case for Concerted Action
Random Tidbits On National Accounts And Keynesian Models Of Income And Expenditure
Ramanan

Neil Wilson — Reconciling S = I + (S - I) to the national accounts

Read it at 3spoken
Reconciling S = I + (S - I) to the national accounts
by Neil Wilson
(h/t Kevin Fathi via email)

Steve Roth — How Accounting “Constrains” Economics

Read it at Asymptosis
How Accounting “Constrains” Economics

by Steve Roth

Getting into the nitty gritty of the foundations of MMT.