Spudda says this is very good

Charles Adams has a post under the above title on Progressive Pulse which explores important aspects of money creation, and cancellation, as well as the chance that monetary policy might work. I strongly recommend it.

So:

Figure 1: The government spend and tax circuit. The difference between spend and tax equals private sector saving and is known as the deficit.

No:

This is precisely what Graeber does in his video. And the conclusion is simple – private sector net saving (S-I) is a function of the size of the government’s deficit which leads one to think that the private sector cannot save unless the government is in deficit. Except that (S-I) is not “net saving” in any traditional economic perspective. (S-I) is saving net of investment. It’s extremely misleading to define private sector “net saving” as (S-I) because Saving cannot identically equal (S-I) unless I is equal to zero. Given that investment is the most important piece of Keynesian economics and the economy, it’s preposterous to present the economy in this manner because investment adds to private sector saving.

To be clear about this, the private sector’s strength does not come from the size of the government’s deficit. It comes from the productive output of its own INTRA-SECTOR claims. For instance, pull up the Fed’s Flow of Funds report. You’ll notice that households have a large financial and non-financial asset claim against other sectors (primarily the corporate sector). The fact that the financial asset claims net to zero inside the private sector is meaningless. It’s like saying that balance sheets balance (well, duh). The key point is, private sector net saving is comprised of a huge component of non-financial assets (like houses) as well as financial claims against the corporate sector (as well as other sectors). These assets only net to zero if you ignore non-financial assets (pretty sure no one ignores non-financial assets like houses after the housing crisis) or view shareholder’s equity as being a net negative for the economy (which is utterly ridiculous given that shareholder’s equity reflects the strength and quality of the private sector’s output). After all, if I walked into a bank for a loan the bank wouldn’t turn me away saying “sorry pal, but your assets are netted against a corporation so we can’t make a new loan to you”. That’s just not how the economy works in any realistic sense.

The MMT definition of “net saving” gives the reader an unbalanced and unrealistic understanding of private sector saving. To be blunt, it is a useless definition and it should not be used. But MMT does not care about that. MMT wants to emphasize the importance of the budget deficit at all times. They want you to think that the private sector cannot flourish unless the government is constantly feeding it and supporting it with what they call “net financial assets”. As if it is impossible for the private sector to be stable without a large and sustained budget deficit. Yes, that theory works great except in the case of every hyperinflation or socialist run regime where these “net financial assets” significantly contribute to private sector instability.

Sigh.

10 thoughts on “Spudda says this is very good”

  1. @Flatcap Army,

    Yep, and the other director (I guess who is paying for it) is a mate of Ritchie’s, this guy…

    http://www.peterboroughtoday.co.uk/our-region/cambridgeshire/millionaire-businessman-reveals-radical-plan-for-peterborough-if-elected-mayor-1-7737163

    Doesn’t seem to share Progressive Pustule’s view of the world, but I guess if Ritchie wants his cash that doesn’t matter.

    (and for Ritchie, didn’t do very well in the Mayoral election either so that door to influence closed as well!)

    https://en.wikipedia.org/wiki/Cambridgeshire_and_Peterborough_mayoral_election,_2017

  2. The first part of Charles first paragraph re value made good sense!

    Here’s a link (for the UK) of what Tim’s second link is talking about. Go (say) to Table C (and then freeze Window Panes at cell C6 to make it easier to navigate).

    https://www.ons.gov.uk/file?uri=/economy/nationalaccounts/uksectoraccounts/datasets/thenationalbalancesheetestimates/current/previous/v2/nationalbalancesheet2015tables1_tcm77-425494.xls

    On Tim’s second contributor / link:

    “The fact that the financial asset claims net to zero inside the private sector is meaningless.”

    Actually, that’s not true – if you look at the data, and obviously so – “private sector net financial assets” really do contra “public sector net financial liabilities” (by definition!).

    But it’s just not important, as: “To be clear about this, the private sector’s strength does not come from the size of the government’s deficit.”

    Especially when the public sector deficit often means “pissing money away”, on diversity or a multitude of other waste, when those same resources / people could be employed by the private sector generating far more useful value.

  3. i note that progressive pulses comments policy seems almost identical to the spudotollahs – agree with us or be insulted. having the misfortune to visit peterboro seveeral times in the past for very tedious training, i suggest it is donated to the usaf to use as practice for carpet bombing.

  4. Surreptitious Evil

    Well, at least the supply of morons appears to be an inexhaustible resource.

    Now, all we need to do, is to find a productive use for them.

    That’s a challenge.

    At the moment, they go to some “ex swimming pool / bus shelter”, do gender studies, and then move into some pointless public sector role.

    Their value is mostly negative to society because their very existence stifles productivity (through excess regulation).

    The alternative is that they learn a trade (or anything that is otherwise saleable to real people) straight out of school (if necessary), and at which point they are already miles ahead of their fluid studies graduate comparative self in terms of value to the country?

    Or – to put it more succinctly – they were made into morons, not necessarily born as morons?

    Taking back control of the education sector from the marxists will help solve the problem for the future.

  5. The manufacturing/training of morons is necessary as robots gradually replace people.
    Then credentialed morons will have a sense of purpose and even a uniform and even some power.
    Peacetime military , the church or civil service are all precursor examples. (or even economists) .

  6. The moron proportion is a real challenge for society. Low IQ people take low skilled jobs and low skilled jobs are decreasing as a proportion of all roles. Only trouble is low IQ people are, err, reproducing faster than high IQ people. And the state was supporting this process.

    So in summary. State subsidises stupidity with tax. Stupidity grows as it is “needed” less. State needs more tax to maintain susbisdy.

    The tide is against us here I am afraid.

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