D.T. Cochrane argues: “Changes in the financial assets of the government and the private sector mirror each other. Government debt equals private sector financial assets, by definition. When the government posts a deficit, the private sector’s financial assets increase. When the government posts a surplus, the private sector’s financial assets decrease. In other words, when the Canadian Taxpayers Federation hauls out their debt clock, showing the federal government’s increasing debt, they are also showing the private sector’s increasing financial wealth.”
This is not correct and the reason is that D.T. Cochrane is too stupid for the elementary mathematics that underlies macroeconomics.
Here is the correct macroeconomics in a nutshell.
(i) The elementary production-consumption economy is given by three macroeconomic axioms: (A1) Yw=WL wage income Yw is equal to the 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/loss of the business sector is defined as Q≡C−Yw,
(iv) The monetary saving/dissaving of the household sector is defined as S≡Yw−C.
(v) Ergo Q≡−S.
The balances add up to zero. The mirror image of household sector saving S is business sector loss −Q. The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.
To start, we have only two sectors: the household and the business sector. The surplus of the business sector, i.e. profit, is the exact mirror image of the deficit of the household sector, i.e. dissaving. The deficit of the business sector, i.e. loss, is the exact mirror image of the surplus of the household sector, i.e. saving.
Now, the government sector is brought into the picture.
The complete macroeconomic Profit Law is given by Q≡Yd+(I−S)+(G−T)+(X−M). In order to focus on the interactions between household, business, and government sector, it is here reduced to Q≡−S+(G−T). Legend: Q macroeconomic profit, S household sector saving, G government expenditures, T taxes, (G−T)>0 government deficit.
If the government’s budget is balanced, i.e. G=T, and if the households dissave then the business sector makes a profit, i.e. Q is positive.
If the government’s budget is balanced and the households save, i.e. S≡Yw−C>0, then the business sector makes a loss, i.e. Q is negative.
If the government’s budget deficit, i.e. (G−T)>0, is equal to the household sector’s saving, i.e. (G−T)=S, then macroeconomic profit Q is zero.
If the government’s deficit is greater than household sector saving, then the business sector makes a profit.
If the household sector’s saving is zero, i.e. S=0, and the government deficit is greater than zero, i.e. (G−T)>0, then it holds Q=(G−T), i.e. business sector profit equals government deficit, in other words, Public Deficit = Private Profit.
So, there are two limiting cases, (i) government deficit equals household sector saving, (ii) government deficit equals business sector profit.
There is NO such thing as ‘government deficit equals private saving’ or “government deficits fund private savings”.
Whether the term “private savings” is introduced because of terminological sloppiness or intentionally in order to hide the fact that a government deficit is a free lunch for the Oligarchy to the extent that the public deficit is greater than household sector saving. The word profit does not appear once in D.T. Cochrane’s article.
For the simplified case, i.e. Yd, (I−S), (X−M)=0, financial wealth of the Oligarchy is the exact mirror image of public debt (currently $22 trillion). In this limiting case, the (net) financial wealth of WeThePeople is exactly zero. The talk of “private” financial wealth obscures the distributional reality.
It holds in any case that MMT is either a blunder or a fraud and that MMTers are either stupid or corrupt.
* The Conversation
Related 'The Kelton-Fraud' and 'Down with idiocy!' and 'MMT: Just another political fraud' and 'Stephanie Kelton’s legendary Plain-Sight-Ink-Trick' and 'MMT Progressives: The knife in the back of WeThePeople' and 'MMT and the magical profit disappearance' and 'MMT: fundamentally false' and 'Dear idiots, time to get saving and investment straight (II)' and 'Dear idiots, time to get saving and investment straight (I)' and 'Dear idiots, Marx got profit and exploitation wrong' and 'Dear idiots, government deficits do NOT cause inflation' and 'The clock runs down on economics'.
|Source: The Conversation|
The graph suffers from the Humpty Dumpty Fallacy. For details see Profit, income, and the Humpty Dumpty Fallacy and Down with idiocy!.
You say: “Your entire response has nothing to do with the issue raised here, which is the relationship between government debt and private sector wealth. The relationship described here is empirical fact, which you can confirm by following the data source for the graph.”
The title of your post reads: ‘How government deficits fund private savings’. My comment contains proof that this statement is false. The correct formulation should read: ‘How government deficits fund private profits.’
The macroeconomic Profit Law implies Public Deficit = Private Profit and NOT Public Deficit = Private Saving. From this follows, in turn, that the MMT policy of deficit-spending/money-creation benefits the Oligarchy and harms WeThePeople.
You are obviously unable to realize that MMT theory is refuted on all counts#1, #2 and that MMT policy is distributional infamy.
MMT claims that public deficits increase “private” financial wealth. This is not quite correct because, more specifically, public deficits increase the financial wealth of the one-percenters and NOT of the ninety-nine-percenters. The weasel word “private” obscures this distributional fact. The MMT policy of permanent deficit-spending/money-creation amounts to a permanent self-alimentation of the Oligarchy to the detriment of the ninety-nine-percenters.#3
Clearly, MMT is a scientific/social/political fraud. Obviously, you are part of it.
#1 Refuting MMT’s Macroeconomics Textbook
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 MMT = proto-scientific junk + deception of the 99-percenters
You say: “The word ‘profit’ does not appear in my article because I do not deal with the distribution within the private sector. So, once again, my argument is based on facts, which demonstrate given accounting identities.”
There is no such thing as the “private sector” there is the household sector and the business sector and both cannot be lumped together. This is the Humpty Dumpty Fallacy. The “private sector” is an MMT construct.
You have not realized that the MMT accounting identities are provably false because MMTers are too stupid for the elementary mathematics that underlies macroeconomic accounting.#1, #2
This is the false MMT sectoral balances equation: (I−S)+(G−T)+(X−M)=0. And this is the true equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0. All variables are measurable with the precision of two decimal places. Therefore, the matter can be decided empirically.
The disappearance of profit in the mirror graph is the smoking gun proof that MMT deceives the general public.#3
#1 Wikipedia and the promotion of economists’ idiotism (II)
#2 See cross-references Accounting
#3 MMT and the magical profit disappearance
You say: “We’re done”
No. YOU are done. Your mirror graph is false. There are THREE sectors household, business, and government. So there should be THREE curves that show the balance of each sector. The balances are called saving/dissaving, profit/loss, and government deficit/surplus. In your graph, though, there are only TWO curves because you lump saving and profit together and call the sum private saving. Thus profit vanishes. This is the MMT deception. MMTers claim to benefit WeThePeople while the exact opposite is true.