I have noted some misperceptions about the derivation, meaning and application of the so-called sectoral balances framework that is used in Modern Monetary Theory (MMT) to help explicate the relationship between the government and the non-government sectors. Some of this confusion appears to be the product of a deeper misunderstanding of the difference between stocks and flows and relationships between flows in economics. Those who conclude that this framework is really just an accounting structure are incorrect. Equally, those who conclude that the accounting relationships that are part of the sectoral balances framework are matters of interpretation are also incorrect. It should be clear that the sectoral balances framework combines accounting structures, which are derived from the national accounts framework used by statisticians to measure economic activity, and theoretical propositions, which seek to explain relationships between variables within the accounting structures. In other words, we need to understand both the accounting aspects that are true by definition as well as the underlying theoretical structures which drive the balances.…Must-read relative to understanding MMT.
Bill Mitchell – billy blog
Flow-of-funds and sectoral balances
Bill Mitchell | Professor in Ecoof the Centre of Full Employment and Equnomics and Director ity (CofFEE), at University of Newcastle, NSW, Australia
9 comments:
I'd say the misconceptions are deliberate based upon a political agenda.
This stopped being about science a long time ago - hence the constant appeal to authority of Keynes.
Sectoral balance analysis is quite simple as long as it's confined to movements of money. Once it starts messing around with "investment" it gets very complicated in my experience. Amongst other reasons, that's because there is no sharp dividing line between investment spending and current spending.
Or have I missed something?
Ralph that might be where the two strict approaches to accounting come in, the "Cash Basis" and the "Accrual Basis"...
https://en.wikipedia.org/wiki/Basis_of_accounting
You have to use EITHER one or the other ALL the time...
You have to decide right up front which basis you are going to use and then STICK to it...
I think the NIA people use Accrual Basis, this could be where you see the problems crop up in the area of investment vs. current spending...
'investment' implies accrual basis whereas 'spending' implies cash basis...
Ive always preferred Cash Basis but I am very biased via my training in engineering where everything is evaluated via system components over delta t...
At least Petifor admits it!
If the Labour lefties were smart they would bring in Bill and Neil for a seminar and PRONTO....
Ralph
farmer goes out and pays cash for a new tractor $70,000
Under Cash Basis he spent $70,000 that year...
Under Accrual, if the equipment is classified as having a 7 year useful life expectancy, then (using straight line) the farmer only spent $10,000 (first of seven year's portion)...
BUT.... MEANWHILE... the guy actually spent $70,000 the first year...
Which methodology is more accurate? I say the Cash Basis hands down...
the whole Accrual Basis comes from the "we're out of money!" morons who dont want to let the farmer deduct the whole price he paid as this will reduce his deductions and result in higher current year taxes as the morons think "we're out of money!"...
"If the Labour lefties were smart they would bring in Bill and Neil for a seminar"
We had a seminar where both Bil and I (and Ann) were there. Not really anybody from Labour there.
It looks to me like we're going to need a couple more train wrecks before the silly ideas are discarded.
"Once it starts messing around with "investment" it gets very complicated in my experience."
The problem is when people start mistaking non-financial investment with financial investment. I see that a lot with Keynesians who can't seem to get their head around the idea that a car isn't a loan.
And that's because they are struggling with Quadruple entry accounting where there are two entries in the financial account and two entries in the non-financial account for every transaction. So you can have 'investment' in the financial account due to a loan being taken out for a car, but consumption in the non-financial account because the car is only for domestic purposes, not commercial.
Well Neil it seemed from the video that went very well now what has to happen is the 'follow up'...
iow people have to come out of that with action items assigned...
so someone, the proper person with the connections, should have been assigned to get some higher level labour people to attend a follow on event.... even if its just staffers at first...
It should ALL lead to a presentation to Corbyn as the ultimate goal...
does the Corbyn guy not maintain a calendar? If he maintains a calendar then the goal becomes "to get on his calendar..." , you have to work your way thru the gatekeepers... should only take at most 3 more stops to get to Corbyn....
Labour just want 'names'. I believe that higher up's in the LP invited but didn't want to know.
Mcdonnell's advisors are
Piketty, Blanchflower, Wrenn-Lewis, Stiglitz from the orthodox
Less so
Pettifor,Mazzacueto, Nesvetailova (dont know much about her, Minsky type who apparently has some reservations about MMT, no idea what they are though).
He tried to get James Meadway (sort of Marxist, head of the NEF, get on with him quite well with him but he does bang on about the CA deficit & borrowing from foreigners meme, had a couple of tiffs with him over it) on as well but James knocked about with Galloway & the Respect party so a step too far for the bulk of the Parliamentary party.
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