February 23, 2019

Dear idiots, time to get saving and investment straight (I)

Comment on Charlie Price on ‘Would Attempts to Increase Saving Damage Recovery?’

Blog-Reference (Twitter link)

Murray Rothbard argued: “In short, what can help a depression is not more consumption, but, on the contrary, less consumption and more savings (and, concomitantly, more investment).”

Charlie Price argues: “… you can’t create investment by saving. In fact, attempts at saving will reduce investment.”

Keynes argued: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63).

Here is the short proof that economists are to this day too stupid to put 2 and 2 together.

(i) The elementary production-consumption economy is given by three macroeconomic axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(ii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. X=O.

(iii) The monetary profit of the business sector is defined as Q≡C−Yw,

(iv) The monetary saving of the household sector is defined as S≡Yw−C.

(v) Ergo Q≡−S.

The balances add up to zero. The counterpart of household sector saving S is business sector loss −Q. The counterpart of household sector dissaving (-S) is business sector profit Q. Both Q and S are measurable with the precision of two decimal places.

From (v) follows immediately that saving is NEVER equal to investment.#1, #2

For the elementary investment economy holds Q≡I−S. From this follows that (1) saving and investment are causally independent and NEVER equal, (2) all I=S/IS-LM models are false, (3) Keynesianism, Post-Keynesianism, New Keynesianism are scientifically worthless (4) Murray Rothbard and Charlie Price, too, are brain dead blatherers.

Egmont Kakarot-Handtke

#1 Settling the Theory of Saving
#2 Squaring the Investment Cycle

Related '“But economics is not pure mathematics or logic” No, it is pure blather' and 'Why is 0!=1? And why is I≠S? And why economics teaching is rotten' and 'Dear idiots, time to get saving and investment straight (II)' and Ch. 13, The indelible scientific disgrace of economics, in SovereignEconomics. For details of the big picture see cross-references Refutation of I=S.