The MMR conversation on savings and investment has now raged to over 600 comments. It would be an understatement to say that the conversation has been illuminating. To me, one of the more interesting facets of this discussion is the fact that we have MMTers, horizontalists (like Ramanan), MMRists and previously undecideds (like the mysterious JKH) all agreeing! I think this speaks volumes about the merits of what MMR is building. Our flexible, fact based and apolitical approach is proving agreeable to many and I hope we’ll continue to embrace even those who might disagree with much of what we say.
But the most illuminating point that came from the discussions was the point on S = I + (S-I), where S = Savings, I = Investment. Now, for the layman, I will try to break this down as best I can so bear with me. What we learn from the sectoral balances approach is that the government’s deficit is the non-government’s surplus. If the government taxed all your assets at a rate of 100% then you’d have no dollar denominated assets. That’s simple enough. The sectoral balances is a powerful concept as it highlights the power of the government and helps explain why a sovereign currency issuer might run persistent budget deficits without running into a Greek problem (the USA for instance has pretty much always run deficits so the idea that deficits are inherently bad, is inherently wrong!). But when we break this equation down we have to be very precise about what it means because improper explanation will lead one to put the cart before the horse.
Read it at Pragmatic CapitalismCapitalism Makes Socialism Acceptable
by Cullen Roche
(h/t Kevin Fathi via email)