Blog-Reference and Blog-Reference
Dirk Ehnts argues: “The problem stems from the fact that the affluent, which include successful entrepreneurs and capital owners, save relatively more than average or poor households … For this to work out, additional demand would have to be created … The implication of this is that there’s a macroeconomic requirement to run public deficits, founded on a demand gap that arises from households and firms wanting to set aside savings in the form of money … This demand gap cannot be closed but by an increase in government spending and hence debt.”
This is at best a half-truth.
The macroeconomic Profit Law is given by Q≡Yd+(I−S)+(G−T)+(X−M). In order to focus on the interaction between the household sector and the government sector, it is here reduced to Q≡−S+(G−T). Legend: Q macroeconomic profit, S household sector saving, G government expenditures, T taxes.
If the government’s budget is balanced, i.e., G=T, and if the households dissave, i.e., S≡Yw−C<0, Legend: Yw wage income, C consumption expenditures, then the business sector makes a profit, i.e., Q is positive. This is a sustainable situation for the business sector; however, since the household sector’s debt grows, it all depends on how long this can go on, which, in turn, depends on the institutional make-up of the banking sector.
If the government’s budget is balanced, i.e. G=T, and the households save, i.e. S≡Yw−C>0, then the business sector makes a loss, i.e. Q is negative. This is not a sustainable situation.
However, 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. This is the minimum condition for the market economy to function. If the government’s deficit is greater than household sector saving, then the business sector makes a profit. This is a sustainable situation for the business sector; however, since the government sector’s debt grows, it all depends on how long this can go on. MMTers claim that, as a matter of principle, sovereign debt can grow indefinitely. #1
So, government deficit spending in excess of household sector saving, i.e., (G−T)>S, makes the overall profit positive, and this prevents the breakdown of the market economy. In other words, the so-called free market economy hangs in the life-support of the State. In still other words, fabulous financial wealth is the mirror image of fabulous public debt ($22 trillion).
It is correct to say that a minimum government deficit, i.e., (G−T)=S, is necessary in order to secure the very existence of the market economy. From a systemic standpoint, the historically evolved economic system has a serious construction flaw. And the claim of the free-market champions that the State should keep out of the economy is suicidal stupidity.
However, as far as the government deficit exceeds saving, i.e., (G−T)>S, this amounts to a free lunch for the Oligarchy. So, in the final analysis, the MMT policy of permanent deficit-spending/money-creation does NOT benefit WeThePeople but the Oligarchy. #2
The public-debt pusher Lars Syll/Dirk Ehnts either do not understand macroeconomics #3, or they are two of Wall Street’s many academic trolls. #4
Egmont Kakarot-Handtke
#1 Some nasty MMT surprises behind the time horizon
#2 MMT Progressives: stupid or corrupt or both?
#3 Keynesians ― terminally stupid or worse?
#4 MMT: The fusion of Wall Street and Academia
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Twitter WEF Mar 22
