tag:blogger.com,1999:blog-6837159629100463303.post6658714653700632064..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Mathiness in modern monetary theoryJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-6837159629100463303.post-81251712489974346192017-06-20T03:17:58.789-07:002017-06-20T03:17:58.789-07:00Neil, I think it's you that has dementia (if y...Neil, I think it's you that has dementia (if you want an exchange of insults). My "at capacity" point was what's known as an A-S-S-U-M-P-T-I-O-N. Assumptions (however unrealistic) are often made in discussion in economics and almost every other subject. They help simplify issues and help everyone concentrate on points under discussion.<br /><br />As to whether the economy really is at capacity, clearly that's a moot point as anyone with half a brain realizes. For example the Bank of England is clearly contemplating raising interest rates, and nearly voted to do so at their last (as of mid June 2017) Monetary Policy Committee meeting, but didn't actually raise them. Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-44924020404623899312017-05-07T20:39:23.977-07:002017-05-07T20:39:23.977-07:00"Our defined views on NIPA database sometimes...<i>"Our defined views on NIPA database sometimes get data inconsistency with underlying NIPA database."</i><br /><br />Why would you have your own personal "defined views"?<br /><br />Why would you have your own personal "defined views" that are inconsistent with the data?<br /><br />From what I can work out, you are basically saying you have some opinion about the BEA data that is inconsistent with the BEA data that requires you to invent new accounting identities in order for you to say that it's the BEA that's inconsistent (per your links to FRED above), not your opinion.<br /><br />That's messed up.<br /><br />Say the global climate database says the Earth is warming, but your defined database view is that it isn't. Therefore you redefine the laws of physics to add in a temperature correction called "nonCO2" that makes the data no longer shows warming?Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-3885002242726475402017-05-07T15:57:49.993-07:002017-05-07T15:57:49.993-07:00It seems that you did not get my points that BEA N...It seems that you did not get my points that BEA NIPA temporal database is correct!!. That's our ground truth. Our defined views on NIPA database sometimes get data inconsistency with underlying NIPA database. Our math applications work with our defined NIPA data views only. Here we have 4 levels: <br /><br />BEA NIPA temporal database--> our defined database views --> our math apps -> narrative explanations.<br /><br />If final narratives seem limited, we can track back to see which level we made assumptions.<br /><br /><br />Our NIPA database view:<br /><br />Y ≡ C + G<br />S* ≡ Y - C - T<br /><br />If we want to define S* in terms of Y, C, and T for total saving, then we need to subtract nonG to make our view data consistent with underlying NIPA temporal database.<br /><br />Since it is tedious to get NonG (multiple NIPA time-series), <br />we can just use government investment(GI)/saving(GS) time-series to define it.<br /><br />Assuming private I = 0 since Y = C + G<br />If S* is for total saving, S* = Y-C-T-nonG = GI <br />If S* is for private saving, S* = Y-C-T-nonG = GI - GS.<br /><br />Hope to get more clear what issues we addressed.<br /><br /><br /><br /><br />pliu412https://www.blogger.com/profile/06404437429487666914noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-56408632073235934392017-05-07T09:18:13.782-07:002017-05-07T09:18:13.782-07:00Peiya,
Asserting your data consistency conditions...Peiya,<br /><br />Asserting your data consistency conditions 1&2 implies:<br /><br />S* = GI<br />S* = PS<br />PS = GI<br /><br />Why should S* = GI? Total public + private saving is not equal to public investment. Total saving is total investment.<br /><br />Why should S* = PS? Total saving is not equal to private saving. Total saving is private and public saving.<br /><br />Why should PS = GI? Private saving is public investment? That makes no sense. Total saving is total investment.<br /><br />Again, I think you've convinced yourself you are infallible and the BEA is wrong. But really you should consider that lots of people look at this stuff all the time. It would be astounding if hundreds of people have been making a mistake for 80 years and you -- a blog commenter -- found it and remain the only person who understands it.<br /><br />If you can find me a person you've convinced that you are right, then I might consider it. But for now I'm going to side with the BEA.<br /><br />Sorry, but you haven't demonstrated any credibility with these comments and you keep making mistakes in them.<br /><br />You should really consider the possibility that maybe you are deeply confused. You are starting to sound like Egmont/AXEC and you will be banned for lack of scientific integrity. You do not "lean over backwards" to show how you could be wrong but instead just assert you are right.<br /><br />This is not just because I disagree; it is because you lack introspection. You don't ask questions or yourself.<br /><br />The first question you should ask yourself is: Why would I be the first notice a mistake the BEA has been making for years?<br /><br />If you can provide me with a good answer to that question, you won't be banned.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-20458554305774370442017-05-06T22:11:50.828-07:002017-05-06T22:11:50.828-07:00Let me prove "it is you not me obviously have...Let me prove "it is you not me obviously have no idea what you are talking about formal systems".<br /><br />Y ≡ C + G<br />S* ≡ Y - C - T<br />GS* ≡ S* - PS<br />Y = C + S* + T<br /><br />Just few formula is not a complete formal system. In order to become a formal system, you need to define either <b>model theory(semantic) </b> or <b>proof theory(syntactic)</b> for these symbols/formula in this formal language. Otherwise, it is just a formal language and no interpretation on symbols and formula. For example, you don't mean that G here stands for Gravity, right?<br /><br /><br />Let me put a simple model theory for you based on your intention.<br /><br />1. G,C,Y and T here means NIPA time-series data for government investment and consumption (G=GI+GC), private sector consumption, GDP assumed private I=0, and government current receipts respectively.<br /><br />2. S* means NIPA time-series Y - C - T. I use S star for your attention since it is your definition for total sector saving. Symbol S is used for NIPA total sector saving.<br /><br />3. PS means NIPA time-series for private sector saving<br /><br />4. GS* means government saving in terms of S* - PS since S* must be equal to GS* + PS<br /><br /><br />This formal data system violates economic data consistency principles:<b> total income = total spending, and total saving = total investment</b> <br />---------------<br /><b>1. S* - GI = GC - T ≠ 0 </b><br /><br />Note NIPA data S-GI= 0 assumed private I = 0<br /><br /><b>2. Y = C + S* + T ≠ C+ PS + T</b> <br /><br />That means total spending Y is not equal to total income( government income T plus private sector income C+PS)<br /><br /><br /><br /><br /><br /><br /><br /><br /><br />pliu412https://www.blogger.com/profile/06404437429487666914noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-19489815489912970472017-05-05T20:06:47.295-07:002017-05-05T20:06:47.295-07:00You cannot "symbolically verify" a defin...You cannot "symbolically verify" a definition's "invalidity".<br /><br />If I define <br /><br />Y ≡ C + G<br />S ≡ Y - C - T<br /><br />Then <br /><br />S = C + G - C - T<br />G = S + T<br /><br />and so <br /><br />Y = C + S + T<br /><br />There is literally no way around this. You cannot prove this wrong because it is just a series of manipulations of a definition. You cannot "verify" its "invalidity". It is a <b>definition</b>.<br /><br />You obviously have no idea what you are talking about.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-71045988961163573212017-05-05T17:53:54.482-07:002017-05-05T17:53:54.482-07:00Jason,
I can symbolically verify equation's i...Jason,<br /><br />I can symbolically verify equation's invalidity. That's not my purpose. The paper idea about government deficit spending and private paying can be either good or bad depending on <br /><br />(1) how government is spending by using G, NonG, or policies, etc. <br />(2) how private sector is spending by using I, C, NonIC, stock buybacks, production reduction or increasing goods prices for excess money from government.<br /><br />We can drag a horse to a river, but we cannot enforce the horse to drink the river water. We can pump out NGDP artificially, but we cannot be sure it's higher in price level(P) or quantity (Q) since supply side(producer) determines it for their own best profits.<br /><br />Have a good weekend!<br /><br />pliu412https://www.blogger.com/profile/06404437429487666914noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-16943731343003112232017-05-05T16:42:02.441-07:002017-05-05T16:42:02.441-07:00You should really start with the prior that the BE...You should really start with the prior that the BEA and the accounting identities are correct and that you are making a mistake.<br /><br />You should work on it until you get them to match.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-28714056155315948002017-05-05T16:36:56.705-07:002017-05-05T16:36:56.705-07:00Let NIPA data speak themselves. By the way, I neve...Let NIPA data speak themselves. By the way, I never define NIPA data terms and just <b>read out</b> data semantics from BEA NIPA guide <a href="https://www.bea.gov/national/pdf/nipa_primer.pdf" rel="nofollow"> https://www.bea.gov/national/pdf/nipa_primer.pdf</a>. Many people just <b>read in</b> their own interpretation without checking NIPA economic data. <br /><br />You think what you think is not what NIPA data sayings. For proof of that, I add government saving(GS) even I think S here is only private saving. I also add statistical discrepancy(SD) data series into your income accounting identity.<br /><br />It gets worse since you miss out NIPA data semantics.<br /><br /><b>Blue line(GDI+SD)=red line=black line(GDP)≠ C+S+T+GS+SD</b><br /><br /><a href="https://fred.stlouisfed.org/graph/?g=dCla" rel="nofollow"><br />https://fred.stlouisfed.org/graph/?g=dCla</a><br /><br />Note that meta logic theories for proving empirical invalidity.<br /><br /><b>Models with this tradition definition ⊨ ¬ O(Observations)</b>.<br /><br />As a consequence, it creates further empirical invalidity.<br /><br /><b> ¬O => ¬O1 V ¬O2 V ¬O3 V ...V¬On </b><br />if O is involved with O1,..,On in another accounting identitypliu412https://www.blogger.com/profile/06404437429487666914noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-89090863222065355742017-05-05T15:55:07.721-07:002017-05-05T15:55:07.721-07:00Okay, well i am aware i am spending time on someon...Okay, well i am aware i am spending time on someone else blog instead of doing something for myself like going to gym and i know you can do here whatever you like. I should just blame myself.<br /><br />About DeLOng assertion that Fama cant understand accounting identities it is false and, speaking of integrity, misleading. I do not trust him.<br />Accounting identities are just a convention, being identities the two sides express the same thing or phenomenon statistically measured in different ways.<br />So everybody knows what I (investment) includes.<br />Fama as all zealots and fanatics assumes that everything is going well according to Say law and so on.<br />Hence what he says is logically coherent according to his vision or model. I repeat that it is not a problem of understanding accounting identities as DeLOng claims. Maybe he is the one not understanding well the issue or he is just a bit intellectually dishonest. <br />M<br /><br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-80358072098227989022017-05-05T15:22:50.120-07:002017-05-05T15:22:50.120-07:00Dear Jamie thanks for your attention and i must vo...Dear Jamie thanks for your attention and i must voice that i agree with your feelings about economy and capitalism. I just do no think necessary trying to explain JMK in a confused or wrong way. And wasting time in irrelevant entertainments.<br /><br />The main problem raised by JMK (in his short run perspective) is that in capitalism and specially in an advanced capitalism savings are in excess, causing big troubles. Of course at first a big war is always a solution.<br />MMT shares that vision therefore considers public sector spending an offsetting necessity.<br /><br />About your accounting identities handling you write "Now imagine that the government spends the €20 by buying my labour. This time the government loses the money and I gain it. T is -€20 while S is €20. Again, T + S = 0."<br />If the government buys your labor you get a higher income, gdp is greater and government revenues should increase too. And all this will be recorded in accounting identities. <br />M <br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-72572947774714510672017-05-05T14:46:40.024-07:002017-05-05T14:46:40.024-07:00Maiko,
You know that just ad hominem calling peop...Maiko,<br /><br />You know that just ad hominem calling people "jokes", "incompetent", or "asylum inmates" or referring to things as "fictional" or "nonsense" without any supporting evidence or references is just childish name-calling.<br /><br />If this continues, you will be banned from my blog as your comments do not display academic integrity.<br />Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-53684091984553543412017-05-05T14:41:01.746-07:002017-05-05T14:41:01.746-07:00DeLong is a joke and as much incompetent as Fama.
...DeLong is a joke and as much incompetent as Fama.<br />The problem is not that Fama doesn't understand accounting identities which are just a convention, (he understands them very well) but that Fama according to asylum inmates of whom he is a honor member gives a fictional interpretation apparently similar to the "Treasury View".<br />If two individual spend a week counting people passing in front of a door their statistic should be equal and an identity disregarding some minor errors. <br />If one of them additionally assumes that all those people are going to Miami that's usually just a sign of insanity. <br />M Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-69914744165895634682017-05-05T14:05:52.549-07:002017-05-05T14:05:52.549-07:00That's a great post.That's a great post.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-42303828901257158292017-05-05T12:05:42.104-07:002017-05-05T12:05:42.104-07:00You left out net government saving and used gross ...You left out net government saving and used gross private saving instead of net private saving. <br /><br />Those are at least two errors. You also neglected the statistical discrepancy:<br /><br /><a href="https://fred.stlouisfed.org/series/SB0000081Q027SBEA" rel="nofollow">https://fred.stlouisfed.org/series/SB0000081Q027SBEA</a><br /><br />which accounts for the measurement errors associated with compiling data in different ways.<br /><br />Look, the BEA isn't a bunch of morons. You should probably work at it until you figure it out and get the accounting identities to work out right.<br /><br />You might learn something!<br /><br />Here's a good resource:<br /><br /><a href="https://faculty.washington.edu/ezivot/econ301/nipa.htm" rel="nofollow">https://faculty.washington.edu/ezivot/econ301/nipa.htm</a>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-75317314444675505752017-05-05T11:13:33.855-07:002017-05-05T11:13:33.855-07:00Jason,
Have you seen this post from 2009? It is ...Jason,<br /><br />Have you seen this post from 2009? It is one of my all-time favourites. It is Brad DeLong (pretending to be a governor of the Bank of England from the 1920s) pointing out that Eugene Fama doesn't understand accounting identities. <br /><br />It was this post which first sparked my interest in accounting identities. How could a famous economist (now a Nobel winner) fail to understand a simple identity which is taught in entry-level courses? This could happen only in economics.<br /><br />Note that the problem is that Fama doesn't understand the meaning of at least one of the terms.<br /><br />http://www.bradford-delong.com/2009/01/eugene-fama-rederives-the-treasury-view-a-guestpost-from-montagu-norman.html Jamiehttps://www.blogger.com/profile/03489060325921337036noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-83536805915445780102017-05-05T11:04:35.522-07:002017-05-05T11:04:35.522-07:00"For the purposes of this blog, we'll sti..."For the purposes of this blog, we'll stick to the traditional definition unless there is e.g. a model of empirical data that warrants a change of definition"<br /><br />Here is the chart to illustrate <b> C+I+G+X-M ≠ C+S+T</b>. <br />Red line = C + I + G + X - M<br />Green line = C + S + T<br />Dot black line = Y = GDP = Red Line<br />Blue line = X - M<br /><br /><a href="https://fred.stlouisfed.org/graph/?g=dC1E" rel="nofollow">1. Dot Black line = Red line ≠ Green Line</a> <br /><a href="https://fred.stlouisfed.org/graph/fredgraph.png?g=dC1E" rel="nofollow">2. Image version </a><br /><br /><br />I read out NIPA semantics, put out correct identities<br />and verify them with empirical data. I put a blue line to show the difference between red line and green line is not due to X-M. It is due to NonG part. NonG is increasing due to government non-discretionary spending.<br /><br />I can formally prove <br /><br /><b> Models with this tradition definition ⊨ ¬ O(Observations)</b>.<br /><br />NIPA data is a temporal model!!pliu412https://www.blogger.com/profile/06404437429487666914noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-57340907252382287602017-05-05T10:51:13.508-07:002017-05-05T10:51:13.508-07:00Maiko11,
I am happy to discuss this but you need ...Maiko11,<br /><br />I am happy to discuss this but you need to use logic rather than making sweeping statements.<br /><br />Neil’s model has two sectors – public and private. Logically, there are four type of exchange that can occur in such a model:<br /><br />Someone in private sector buys something from someone else in the private sector<br />Someone in the public sector buys something from someone else in the public sector<br />The public sector taxes the private sector<br />The public sector buys something from the private sector.<br /><br />There are no other logical possibilities. I discussed the latter two in my previous post. The first two are trivial but I will discuss them here for completeness.<br /><br />If I sell a bicycle to Jason for €100 then Jason’s €100 moves from Jason to me. Meanwhile, the bicycle moves from me to Jason. There is still one bicycle and €100. At a macro sector level, nothing has changed. The macro-economy doesn’t care if Jason or I have the bicycle or the €100.<br /><br />This would be different if we had a three-sector model – with businesses and households split and with me as a business and Jason as a household. If that were the case, the bicycle transaction would cross a sector boundary and would be relevant at a sector level. However, that is not the case here.<br /><br />The argument is similar if someone in the public sector buys something from someone else in the public sector.<br /><br />Even if we had a three sector model (or any other number of sectors), the public sector can collect tax only if it comes from the private sector.<br /><br />If you disagree with this, please present a logical argument. I am not interested in name calling.<br />Jamiehttps://www.blogger.com/profile/03489060325921337036noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-82203579116726345822017-05-05T09:23:23.540-07:002017-05-05T09:23:23.540-07:00All this stuff is a bit off topic neither necessar...All this stuff is a bit off topic neither necessary for the specific issue.<br />However, the identities do not describe much economic principle, they rather show some (biased) point of view about describing economic system and capitalism.<br />With statistics always there are many problems, but one can take net taxation and simplify. More than enough in this case.<br />MAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-16617312070038453702017-05-05T08:57:52.155-07:002017-05-05T08:57:52.155-07:00I am reposting maiko11's comment, removing the...I am reposting maiko11's comment, removing the dollar signs that interfere with my set up of mathjax:<br /><br /><i>JS is quite right and the issue is not accounting identities, maybe by nature he is just harsher on confused post keynesians and more compliant with asylum inmates.<br />Neil's story beside using a not needed math is flawed and hijacks JMK, independently of his good intention and correct perception of capitalism working.<br />YOur considerations on accounting identities are a bit off topic and confused, but even worse you write a sort of non sense story.<br />It doesn't seem you master them well yet.<br />The €20 you pay in taxes maybe reduce your consume not your saving. Nevertheless, when government buys your labor force accounting identity is going to change. The €20 you get even though you do not spend in consume and save them have changed a bit the situation.<br />M </i>Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-57522101568987316082017-05-05T08:06:20.525-07:002017-05-05T08:06:20.525-07:00Peiya,
You said:
Traditional definition of the &...Peiya,<br /><br />You said:<br /><br /><i>Traditional definition of the "income accounting identity" (C+I+G = C + S + T or S-I = G-T) is widely-misused with implicit assumption NonG = 0.</i><br /><br />For the purposes of this blog, we'll stick to the traditional definition unless there is e.g. a model of empirical data that warrants a change of definition. Changing definitions of accounting identities and saying <i>"Many economic theories are based on wrong interpretation on accounting identities"</i> is a bit disingenuous.<br /><br />Imagine if I said you were wrong because I define accounting identities as <a href="http://informationtransfereconomics.blogspot.com/2015/04/economic-potentials-or-how-to-define.html" rel="nofollow">statistical equilibrium potentials</a>? I could say that there is no entropic force associated with your "nonG" term, therefore you have a wrong interpretation of the accounting identities.<br /><br />But I don't say that. And you shouldn't say that about the "traditional" definition of accounting identities unless you have a <b>really</b> good reason backed up with some peer-reviewed research or at least open presentations of that research.<br /><br />You must always try to "bend over backwards" to consider the fact that you might be wrong. Or at least note when you are considering some definition that is non-standard that it is in fact non-standard. In my link above, I admit the approach is speculative. I say "At least if [the equation presented] is a valid way to build an economy." I recognize that it is a non-standard definition of the accounting identities.<br /><br />Saying people misunderstand a definition and then presenting a non-standard version of that definition is not maintaining the necessary integrity for intellectual discussion and progress.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-70506200663020265762017-05-05T07:56:35.945-07:002017-05-05T07:56:35.945-07:00This comment has been removed by a blog administrator.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-38144752190288928712017-05-05T02:03:28.622-07:002017-05-05T02:03:28.622-07:00Jason,
I agree that Neil’s post is an example of ...Jason,<br /><br />I agree that Neil’s post is an example of mathiness. However, I think that your reply is also mathiness.<br /><br />Let’s stand back a little. The problem with these conversations is that everyone asks and answers different questions at the same time. As a result, there is never a meeting of minds. I’m never sure whether you want to engage with the PK / MMT guys or whether you just want to criticise them. If you want to engage, you need to separate out the various questions and answers. The questions are something like:<br /><br />Q1: What is the point of accounting identities?<br />Q2: How do accounting identities work in the simplified world of economic theory and why are they still the source of such controversy?<br />Q3: How do accounting identities work in the real world i.e. NIPA?<br />Q4: How can accounting identities be used in forecasting? Is it the stock-flow consistency or the modelling assumptions which do the work?<br />Q5: What are the implications for Keynesian policy prescriptions e.g. Keynes said that governments should run a deficit in recessions but run a surplus in booms; modern mainstream Keynesians seem to sorta kinda agree with this but have fluctuating definitions of when we are in a recession / boom; MMTers say the government should run a deficit until the point at which inflation occurs; you say inflation is not caused by government deficits, so under what conditions do you think the government should run a deficit?<br /><br />I think that the questions need to be answered in roughly the order shown. You are mostly interested in Q4 but, as far as I can see, Neil is interested in Q1, Q2 and Q5. My perception is that you and Neil parted company at Q1. Neil thinks that the point of accounting identities is to tell a logically consistent story which can be understood by non-economists. I am on Neil’s side. You might argue that telling a story is not science but Einstein told stories about people on trains and people on platforms watching each other. If stories are good enough for Einstein, they’re good enough for me.<br /><br />Regarding the technicalities of how accounting identities work in the simplified world of academic theory, I will re-iterate a comment I have made several times previously. If an accounting identity holds in ANY economy, we can carry out a thought experiment on how the identity holds in an economy with just ONE single transaction. We can then catalogue the identity behaviour for each type of transaction. The economy is just a sum of these building blocks in various combinations.<br /><br />Imagine that the single transaction is that I pay €20 in tax to the government. Note that I lose €20 from my saving (that’s the S term in the identity) and the government gains the €20 (that’s the T term). Hence, T + S = 0.<br /><br />Now imagine that the government spends the €20 by buying my labour. This time the government loses the money and I gain it. T is -€20 while S is €20. Again, T + S = 0.<br /><br />Hence, if we imagine an economy made up of millions of tax transactions and millions of government spending transactions, the sum of the T + S terms will indeed be zero as in Neil’s argument. However, that is because all of the T + S terms are zero. We don’t need complicated mathematics to understand this. This is just a consequence of what should be the first law of economics - money is conserved under exchange. <br /><br />If the government wants to run a deficit, we can create a new type of transaction(s) where the government obtains the extra money before it spends it. Neil and I would disagree about how that occurs. In the real world, the government creates bonds and sells them to the private sector. In MMT-world something else happens. Nevertheless, in either case, we can imagine an economy where the only thing that happens is that the government obtains the money for deficit spending and we would need to say explicitly how that process impacts the accounting identity.<br />Jamiehttps://www.blogger.com/profile/03489060325921337036noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-72953959763476748462017-05-04T22:38:53.656-07:002017-05-04T22:38:53.656-07:00Jason,
Traditional definition of the "income...Jason,<br /><br />Traditional definition of the "income accounting identity" (C+I+G = C + S + T or S-I = G-T) is widely-misused with implicit assumption <b> NonG = 0 </b>. NonG = government nonIC spending = government transfer/interest/rental/others payments to private sector. This implicit assumption is not a realistic assumption when addressing government deficit spending issues based on this equation. In US government spending, NonG ≈ G,<br /><br />Derivation steps:<br />Total IC spending(GDP=C+I+G) = total earned income(i.e GDI) <br />private earned income = C+S. <br /><b>government earned income = GC + GS = T - nonG</b><br /><b>government total income = T (i.e. tax)</b> <br />government IC spending = G = GI + GC<br />government nonIC(nonG)spending= Transfer/Interest/others payments<br />total earned income(GDI)= C+S + T - nonG <br /><br />Definitions of S, GS and G<br />(a)S(Private sector saving) = I + private total income - private total spending. <br />(b) GS(Public sector saving) = GI(government investment) + <br /> T(government total income) - government total spending.<br />(c) G = GI(government investment) + GC(government Consumption) <br /><br /><br />Two kinds of income and spending are in NIPA detailed <a href="https://www.bea.gov/national/pdf/nipa_primer.pdf" rel="nofollow">NIPA Primer</a><br /><br />For earned income(GDI) and IC spending(GDP),<br />GDP = I + C + G<br />GDI = Wages + NetOperatingSurplus + CFC + Tariffs-Subsides <br /><br />For each sector, there are also unearned income/nonIC spending such as tax receipts/payments, interest receipts/payments, transfer receipts/payments, rental receipts/payments, etc. These unearned income/nonIC spending are not counted as productive GDI/GDP.<br /><br />δNonG is used for government nonIC spending change since G is already used for government I + Gov C in GDP formula.<br /><br />δNonIC is used for private sector nonIC spending change since I and C are already used for private I and C in GDP formula.<br /><br />Top-level NIPA accounting identities:<br />(1) total income = GDI + total unearned income(all sectors) <br />(2) total spending = GDP + total nonIC spending(all sectors)<br />(3) GDI = GDP<br />(4) total unearned income=total nonIC spending(all sectors)<br /><br />Basically, these 4 identities describe economic principles: <br />(a) my expense is your income, (b) my IC spending is your earned income, and (c) my nonIC spending is your unearned income.<br /><br />Now you can see what is wrong in this ad-hoc formula: C+I+ G = C + S + T or S-I = G-T<br /><br />For comparison purpose, correct variations are as follows:<br />(1)C+I+G = C+ S + T - NonG <br />(2)S-I = GI - GS<br />(3)C+I+G=Wages+ NetOperatingSurplus + CFC + Tariffs-Subsides<br />(4)private total income - private total spending(I+C+NonIC) <br /> = government total spending(G+NonG) - T<br />(5) GDP = Total Income - Total NonIC Spending<br /><br /><br />Typical production money flows from deficit spending to private sector are: <br /><br />(1) NonG --> private unearned income --> private IC spending or private nonIC spending or private saving. <br /><br />(2) Government IC spending(G) --> private earned income --> private IC spending or private nonIC spending or private saving.<br /><br />Note that private sector income can come from private sector itself. For example, private sector wages are from private corporation spending.<br /><br /><br /><br /><br /><br /><br />pliu412https://www.blogger.com/profile/06404437429487666914noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-11235391802967866192017-05-04T13:57:27.277-07:002017-05-04T13:57:27.277-07:00The next step would be to compare it to some data....The next step would be to compare it to some data. A lot of data is available here for the US (as well as other countries):<br /><br /><a href="https://fred.stlouisfed.org/" rel="nofollow">https://fred.stlouisfed.org/</a><br /><br />As a side note, the equations of the form<br /><br />(∂x/∂t) (t/x) = τ<br /><br />are <a href="http://informationtransfereconomics.blogspot.com/2017/04/a-tour-of-information-equilibrium.html" rel="nofollow">information equilibrium conditions</a> x → t with information transfer index τ.<br />Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.com