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Sectoral balances

An interesting and well-written ("easy listening") post on MMT. This is fun:

Just as math is math, accounting is accounting. There must be balance in the balance sheet. Understanding that the balance is more macro than we commonly think is why it is so difficult for us to accept that a federal deficit is a good thing. The federal government isn’t balancing a federal budget – they are balancing an economy. These are very different things. If they were balancing a budget, like certain legislators keep insisting is a necessity, than the worry would be that income (taxes) and outgo (government spending) are balanced. This is way,WAY TOO SMALL A VIEW and it’s wrong.

Our economy is divided into three sectors and it is these sectors which need to be in balance. The three sectors are the private sector (individuals and business), the public sector (local, state and federal governments) and the non-domestic sector (foreign individuals and businesses, domestic monies which get moved into foreign tax shelters, and foreign governments). As always in accounting, one sector’s asset is another sector’s liability. This is seen in the example given above when the $90 liability of the public sector becomes the $85 asset of the private sector and the $5 asset of the non-domestic sector. MMT has, therefore, two rules: all sectors cannot be in surplus at the same time and all sectors cannot be in deficit at the same time. Accounting has these same rules. This is nothing new.

As we all know all too well, the private sector cannot last for long in deficit without the economic consequence of recession becoming apparent. Likewise, at least in the US economy, we are not going to be without a trade deficit any time soon. I’m pausing here so you can all stop on the tracks and pay attention to the gigantic epiphany train that is about to mow you down. Yes, people, if we don’t want the private sector to be in deficit and we can’t have the non-domestic sector in deficit than the only option is to have the public sector run a deficit. It’s a basic principle of accounting. It isn’t complicated.

It just isn’t what we have been taught. We have been taught to view the US budget as if it were separate of you and I, an independent entity which required internal balance. Instead, MMT proves that the public and private sectors are two of the three legs upon which this meta entity, the US economy, stands. So when you hear legislators scream about a deficit or you see a Tea Party protestor carrying a sign that says “Say NO to Socilism” on one side and “Don’t Mortage My Daugters’ Future” on the other side (after you get done laughing at the spelling) the response to this is simple – better you than me because you, meaning the US Treasury, can issue currency as you need it and I can’t.

You know ideas are getting traction when people you've never heard of study hard and start writing about them spontaneously!

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