February 6, 2019

A clueless MMTer explains macroeconomics to clueless beginners

Comment on Ellis Winningham on ‘The Budget Deficit and The National Debt: Not the Same Thing’*


(i) “The national government’s budget deficit is a condition where government expenditure exceeds what the government withdraws from the economy and destroys via taxation, fines and fees.” OK, more precisely, G>T Legend: G government expenditure, T taxes. G and T are flows, i.e. relate to a period of a given length.

(ii) “The budget deficit is what we call a ‘flow’”. False, the budget deficit is a difference of flows, i.e. G−T.

(iii) “When it [the government] runs a deficit, new dollars ‘flow’ into the private sector where they are allowed to accumulate as ‘net savings’.” False. When the government runs a deficit and the household sector balances its budget, then the business sector makes a profit Q, i.e. Q=G−T. This follows from the macroeconomic Profit Law Q≡Yd+(I−S)+(G−T)+(X−M) with the other variables blanked out for a moment.

(iv) “At the end of the fiscal year, this accumulation of ‘net financial assets’ is totaled up and recorded as a thing called ‘the national debt’.” Half-true. Roughly speaking, accumulated financial wealth is the mirror image of the national debt ($21.5 trillion and counting).

(v) “The national debt is a ‘stock’: It is the private sector’s stockpile of net savings; the sum total of all cumulative deficits since the founding of the nation minus any budget surpluses. In other words, the national debt is not your debt; it is your savings.” False, the national debt is THEIR (= the Oligarchy’s) “savings”. Financial assets are a claim against the government and the national debt is a liability of the government. Because the government represents WeThePeople, ultimately the people hold the bag. In order to eventually redeem the national debt, the government has to eventually tax WeThePeople. So, the national debt is NOT “your savings” but your deferred taxes. Note well that you pay interest on your growing tax liabilities for an indefinite time.

(vi) “When the government deficit spends, which adds more dollars to the economy, this becomes the private sector’s income.” False, it becomes the business sector’s profit, and via profit distribution the Oligarchy’s income.

Ellis Winningham is one of the many incompetent economists who do not understand the elementary logic/mathematics that underlies macroeconomics.#1

Egmont Kakarot-Handtke

* Ellis Winningham blog

#1 For the full-spectrum refutation of MMT see cross-references MMT.

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