Friday, August 6, 2010

Krugman: Higher Taxes Are A Net Plus

As I have noted before, Paul Krugman told me during a Q&A in a session at the 2004 Southern Economic Association meetings (Dr. Joseph Salerno was sitting next to me and he can verify what I am writing) that the 70 percent tax rates that existed before 1981 were "insane." Given what Krugman has written in a recent blog post, my sense is that he has repudiated his 2004 statement.

He writes:
If we could wave away political reality, I’d let all the Bush tax cuts expire, and use the improvement in the budget outlook to justify a large, temporary increase in public spending.
However, he notes, so he goes to the next best thing: raising only the top marginal rates. His justification is pure Keynesian and it leads to asking the following question: If government spending always is better than private spending, then why not have a 100 percent tax rate on ALL income? Let me explain.

Krugman declares that wealthy people might not spend all of the income that accrues to them (they save it, and everyone knows that Keynesians believe that saving is bad, bad, bad), so government must confiscate as much as possible, since government always spends what it gets (and more). As for lower-income people, they are not so willing to save, so they spend their money, which is good for the economy:
It comes down to the dual fiscal problem the U.S. economy faces: short-term, the government needs to do all it can to prop up spending; long-term, it needs to reduce the deficit. The latter concern means that it would be a terrible idea to make the high-end tax cuts permanent; that would be a huge drain on the public finances, serving no good purpose. But why not a temporary extension? Because it would do very little to promote spending.

The basic framework we have for thinking about consumer spending goes back to none other than Milton Friedman, whose “permanent income” hypothesis says that people will save most of any income change they see as merely transitory. Telling rich people that we’ll keep their taxes low for a couple more years is, for them, a transitory income gain; they’ll save the bulk of it.

Isn’t the same true for lower-income people? Not to the same extent. Permanent-income reasoning doesn’t fully apply when some people are “liquidity-constrained” — they have depressed income, which would make them want to spend more than they earn right now, but they’re out of assets and unable to borrow, or unable to borrow except at relatively high interest rates. People in that situation will spend much or all of any temporary windfall.

So if we give money to people likely to be liquidity-constrained, they are likely to spend it. That’s why aid to the unemployed is an effective stimulus; it also suggests that tax cuts for lower-income workers will be relatively effective at raising demand. But the affluent, who typically have lots of assets and good access to borrowing, are much less likely to be in that situation. So tax cuts for the lower 60 or 80 percent of the population are an OK, not great but OK, form of stimulus; tax cuts for the top 2 percent, not at all.
Notice that Krugman says that letting lower-income people keep some of their money is "OK," but not "great." What is "great," obviously, is government spending.

So, I ask the question again: Given Krugman's logic, is it not better for government to confiscate ALL earnings from everyone and spend the money on what the Political Classes believe to be important? After all, Krugman clearly states in this post that government spending is better for the economy than private spending, so it seems to me that logic should prevail and all of us work for the government for free.

27 comments:

AP Lerner said...

The title of this blog sums up its content: one big misrepresentation of the facts.

I’m sorry, but maybe I missed the legislation where Bush cut the top tax rate down from 70%. Did that really happen? Did Bush lower the top tax rate from 70% to the current level? Of course not. So when you say “my sense is that he has repudiated his 2004 statement” you are misrepresenting the facts since supporting the expiration of the Bust tax cut for the highest bracket is not the same as moving it up to 70%. Not even close.

“Notice that Krugman says that letting lower-income people keep some of their money is "OK," but not "great." What is "great," obviously, is government spending.”

This is not what he said at all. Not even close. You left out the most important part of his statement out when he said “not great but OK, form of stimulus”. Form of stimulus. He is talking about stimulus and how tax cuts are not great forms of stimulus. He does not believe tax cuts are an appropriate form of stimulus when we are in a liquidity trap. Now that’s debatable (I actually disagree with Krugman on this) but to jump to the conclusion that he believes “all of us work for the government for free” is just complete and utter nonsense, and again, a complete misrepresentation of what he writes.

Look, it all comes back to this chart:

http://2.bp.blogspot.com/_eB31NsfANe8/S0OGV5nxU-I/AAAAAAAABCE/JOB47M0fWMM/s1600-h/100105+sector+fincl+balances.jpg

And at least Krugman sort of recognizes we need to maintain a deficit to provide the financial surpluses to the private sector to allow the private sector to delever. It’s debatable if deficits should be maintained with higher spending or lower taxes, but you have chosen not to enter that debate. But what’s not up for debate (well, it should not be, but those in the debate are pretty clueless) is deficits are required to maintain a private surplus. Historical fact: every time the US government has run a surplus, and massive drop in output has followed. See the chart above it.

I know, I know. You have little interest in understanding the monetary system of the US, and just do not want to recognize how financial balances shift around the economy. Because if you accept this reality, then all the empirical evidence stacks up against everything Austrians have written the last three years. But if you are going to ignore the simple realities of the economy and the basic operating realities of the monetary system, could you at least come up with an alternative argument or solution than what Krugman writes supported by facts, data, and reality instead of constantly misrepresenting, misinterpreting, and flat out making things up that are just nonsense?

David said...

AP Lerner,

I just want to be clear, do you support the belief that private surplus, i.e. the measure of the total utility realized through market transactions, is precisely quantifiable?

David

Edward said...

AP. Lerner,

Over the past couple of weeks, I've heard you previously make the claim that public sector deficits equal net private financial savings. if I am reading you correctly. You do realize, of course, that if taken to its ultimate conclusion, you would make Bush into a hero, at least in regards to the deficit. (Or blame him for not doing enough to stimulate private savings in the U S.)

Also, if get you correctly, every asset is someone else's liability. I can understand it for stocks, bonds etc, what about cash? Cash that has no velocity in Joe Schmoe's matress or green pieces of paper in XYZ bank's reserves, isn't someone else's deficit, the bank can be earning money to make the liability trivial

AP Lerner said...

@ Edward – yes. Exactly. I completely agree it was appropriate for Bush to increase the deficit during the early 2000’s. The Bush tax cuts saved the economy from falling into a much deeper, more prolonged slump, in my opinion. Now, it’s debatable if those tax cuts were fair, went to the right people, and yadda, yadda, yadda, but I’m not interested in having that debate. I’m interested in debating the value of deficits, and the reality of when deficits get too small, they suck financial equity from the private sector. This may come as a surprise, since most people on this blog think I’m a blind Keynesian disciple of Krugman (I'm not - just look at my alias), but I 100% believe Bush let the deficit get too small in 2006. I’m not saying that’s the only reason why the economy tanked in 2007, but it was a major factor. Just look at the chart. If the deficit had not shrunk from 2004 to 2005, savings would have continued to increase and turned positive. It’s impossible for the private sector to build financial equity if they are being taxed too much, or the government is not spending enough. Instead, the smaller deficit reversed the trend in private savings. The size of the deficit should always be determined by the savings demands of the private sector, not some ridiculous, unsubstantiated, and baseless claim that the US government is heading for imminent bankruptcy. Solvency is never an issue in a monetary system such as the US’s.

And just to be clear, I have never criticized the Bush deficits on this blog. I recognize the benefits they provided the private sector. The ‘fairness’ of those tax cuts is an entirely different subject/debate.

@ David – sorry, I’m not sure I fully understand the question. I think I may, but I don’t want to reply to the wrong question, and get trapped into an answer. Could you explain further?

Edward said...

AP Lerner,

Wow, thanks for stating your position so clearly. Not many people would argue that Bush was hero and Clinton was a villain in regards to the deficit. Just curious how do you determine when private sector demand for public debt has been reached, when auctions fail because bond vigilantes demand higher yield?

I have two issues with your point. What about cash? Cash under the proverbial mattress with zero velocity is qualitatively different than stocks, bonds etc. it is an asset to the person holding it without it being a serious liability to anybody else. As far as the rest of the economy is concerned, it is 'dead money" but to its holder, it most certainly is alive I suppose if you wanted to quibble and say that wear and tear destroys the physical value of greenbacks, but how ,much does it even cost Treasury to print fresh dollars? (5 cents, 1 cent per dollar bill, and electronic printing of money probably costs even less )

I'll give you a model of a fictitious software developer, John Smith. John works at a software company pulling in 100K a year. After taxes in year 1 he takes home 70K to his family, He spends 40K on consumption, And saves the remaining 30K. Of his hefty savings rate of 42% 16% percent of that, $5000 goes to service debts, the remaining 25,000 goes into zero interest zero free checking account insured by the FDIC. so for all intents and purposes its completely safe as cash under the mattress. Assume an inflation rate of 3% and 750 dollars of 'real money is lost year one. year two the process repeats itself. john now has 50,000 dollars in his checking account, In real purchasing power, 48,514. Not bad his liquid savings have grown despite inflation's liability. John is running a surplus with the rest of the world. here's the thing. How is it a liability to any other person for John to have some liquidity? its dead money to us but NOT TO HIM! Maybe he believes a depression, is around the corner in year three, In that case it would be smart not to buy stocks or GOVERNMENT BONDS until real interest rates rose enough to exceed the deflationary return he would have sitting on cash. he might need the money if he lost his job.
the point of my long winded rant is this,your equation, net private sector surpluses must equal government deficits doesn't take into account zero v cash. In theory, if prices are flexible, indeed it WOULD be possible for all sectors to run surpluses with each other if the cash surplus of one entity were not counted as the deficit of another
Regards,
Ed

Richard said...

AP Lerner,

After answering Ed's question please explain why money must be supplied by and managed by the state. I see no reason why it should.

Bob Roddis said...

If the deficit had not shrunk from 2004 to 2005, savings would have continued to increase and turned positive. It’s impossible for the private sector to build financial equity if ......the government is not spending enough.

Please explain and prove these allegations in detail, point by point, starting at the micro/human being level.

David said...

AP Lerner,

My question was as straight forward as it could be. How could I make it any more clear? Is it a simple yes or no. 2+2 is precisely quantifiable as 4. Is private surplus precisely quantifiable?

David

Another Anonymous said...

They were directed to AP, but here are some answers, which he might or might not agree with.

@David: "private surplus, i.e. the measure of the total utility realized through market transactions, is precisely quantifiable?" what is confusing is the part after i.e. I don't know what you mean. What AP is talking about is net private financial surplus, and yes, this must be equal to the government deficit. Edward and Bob Roddis have roughly the same question.

Think about a very simple situation, no banks, no bonds, etc. Just a government taxing and spending dollar bills and a private sector. Then the total number of dollar bills held by the private sector is the total the government has ever issued and not taken back, and the year to year change, the private surplus is equal to the government deficit = spending - taxation. Throwing in more complications doesn't change this.

@Richard: There's no a priori reason all types of money be managed by the state, but the universal modern experience is that it is, or tends to be. If a government has the power of taxation, a demand for what it accepts as taxes is created, and it becomes used universally.

An answer to Ed's question about cash is that cash is a credit to the holder and liability of the government. A dollar is nothing but a transferable tax credit of one dollar, and a bond is nothing but a transferable deferred tax credit.

If John puts his cash into a bank, it is now bank money - bank deposits are a liability of the bank and a credit to John.

Bob Roddis said...

This Chartalist nonsense helps us focus on why we should enforce the constitutional ban on funny money, "no state shall.....make anything but gold and silver coin a tender in payment of debts". The Coinage Act of 1792 demonstrates how the Founding Fathers understood the unambiguous phrase granting Congress the very limited and specific power "To coin money, regulate the value thereof".

Perhaps they would have executed Bernanke under Section 19 for debauching the currency.

AP Lerner said...

Yes, another Anonymous. I agree with your comments…

@ Edward:

“Not many people would argue that Bush was hero and Clinton was a villain in regards to the deficit.”

This is a nonsense statement. If you are jumping to the conclusion that I think Bush was a hero because the deficits were appropriate, then you must have attended the same nonsense school of thought as Prof. Anderson when he jumped to the nonsense conclusion that Krugman feels higher taxes are a net plus or the nonsense conclusion that SS is a Ponzi scheme. It’s embarrassing.

And as for you example, it’s pretty clear you don’t understand how the banking system operates. Another anonymous pointed this out in his response, only he was as not as blunt as I am. A deposit in the banking system is by no means ‘dead money to us’ as you claim. Just think about where John got his money to create the deposit, and what the bank does with its deposits. There’s no theory involved in what I am speaking of, it’s pure operational fact.

@ Bob Riddis:

“Please explain and prove these allegations in detail, point by point, starting at the micro/human being level”

See the chart. It’s all there. If that’s too hard to understand, then try this:

GDP = C + I + G + (X – M)

Rearrange some variables, you get:
C + S + T = GDP = C + I + G + (X – M)

If you don’t understand how I got to this point, pull out your Econ 101 text book. Rearrange again:

(I – S) + (G – T) + (X – M) = 0

And this is the financial balances approach. Or, put more simply, public deficits + private surplus = 0

“This Chartalist nonsense helps us focus on why we should enforce the constitutional ban on funny money”

It’s clear you have little interest in economics, and are more interested in blaming the state and living in a state of paranoia. You have nothing to contribute to this topic since you won’t recognize the reality we live in.

Bob Roddis said...

AP Lerner:

I don't think that answers the question at all.

Assume a nightwatchman state that does not engage in deficit spending. The population is smart, hardworking and thrifty. They use gold and silver for money and save 20% of their income. They are entrepreneurial.

Without resorting to claiming accounting identities as algebraic formulas, prove this dubious claim:

It’s impossible for the private sector to build financial equity if ......the government is not spending enough.

Also, explain this claim without resorting to accounting identities:

And at least Krugman sort of recognizes we need to maintain a deficit to provide the financial surpluses to the private sector to allow the private sector to delever.

Finally,

You have nothing to contribute to this topic since you won’t recognize the reality we live in.

Solzhenitsyn wouldn't "recognize" the reality he lived in either.

Edward said...

"This is a nonsense statement. If you are jumping to the conclusion that I think Bush was a hero because the deficits were appropriate, then you must have attended the same nonsense school of thought as Prof. Anderson when he jumped to the nonsense conclusion that Krugman feels higher taxes are a net plus or the nonsense conclusion that SS is a Ponzi scheme. It’s embarrassing."

Oh, boy!
You were the one, AP Lerner, who completely agreed "it was appropriate for Bush to increase the deficit during the early 2000’s" you also said "The Bush tax cuts saved the economy from falling into a much deeper, more prolonged slump, in my opinion." What does this imply other than you like what pres Bush II did and didn't like what Pres Clinton did? So don't you get snitty with me.
Second, i think you and anonomyous completely missed my point. If I wasn't clear enough I apologize i am well aware of how the banking system operates, deposits are lent out and a small fraction are kept as reserves. I WAS SPEAKING OF ACTUAL TANGIBLE BANKNOTES KEPT IN THE VAULT as part of the reserve ratio., as it were. At least some of that dead money represents someone's demand deposits not the part that is lent out. Assume the bank's profit spread is large enough to cover the costs of guarding those tangible physical reserves. So the bank has a surplus and John has a surplus. And it doesn't matter where john or anyone else gets his money, what matters is what happens after the money is earned. i'll simplify things some more both anonomyous and AP. if either of you had $50,000, either in greenbacks, gold, silver or palladium coins buried in your backyard. how is that a deficit on me or anyone else? Its dead money to me, it has zero velocity it isn't circulating, no matter if it once was, once it stops moving and you bury it it might as well be dead to the rest of us but not to you ? Richard made the point that money does not HAVE to be managed by the state. This is true. I suppose one could pay the irs the prevailing dollar value of one's tax liabilities in gold or silver, so there goes your theory. that money HAS TO BE (not that it is, on that there is no dispute) managed by the state.
Finally i think you are confusing deficits with liabilities. When Clinton was President, we had a surplus in X number of years, this does not mean that all the government's liabilities were reduced. But that ALSO does not negate the fact that revenues exceeded expenditures. My statement holds, if you count tangible physical liquid cash hoards, THAT STOP MOVING IN THE ECONOMY it is possible in year x for EVERYONE's revenues's to exceed their outflows.
Best wishes in finding a new theory my chartalist friend,
Edward

AP Lerner said...

@ Bob Riddis:

"The population is smart, hardworking and thrifty. They use gold and silver for money "

We gave up on a commodity based monetary system 40 years ago. Your entire example is irrelevant to the world we live in and you are more interested in having a political discussion.

@ Edward

Sorry, you got it all wrong. May I suggest perusing the Federal Reserves web for a primer on how the banking system works for an operational perspective. You're errors:

"deposits are lent out and a small fraction are kept as reserves."

You assume the banking system is reserved constrained. It is not. The banking system is capital constrained, not reserve constrained. Reserve requirements do not dictate how much a bank lends out, since they can always meet reserve requirements in the fed funds market. This is basic operational fact, not theory.

"if either of you had $50,000, either in greenbacks, gold, silver or palladium coins buried in your backyard. how is that a deficit on me or anyone else?"

I'll simplify things for you. If the government decides to raise taxes on you, and you need to take that $50k out of the ground, and use it for taxes, what happens to your surpluses? (hint, they go down). And what happens to the public deficit (hint, it goes down). What if you get a tax cut? You have more money to bury in the ground, and guess what, the deficit goes up as well. Is that simple enough for you? See the relationship? See the chart above.

"I suppose one could pay the irs the prevailing dollar value of one's tax liabilities in gold or silver"

Go ahead, try paying your taxes in silver. See where it gets you.

"Finally i think you are confusing deficits with liabilities"

No, I'm clearly not. Again, see the chart or the math in prior posts.

"Best wishes in finding a new theory my chartalist friend:

Best wishes living in 1810

The comments on this blog really reflect poorly on its author. I mean, he clearly has no interest in correcting his supporters (students??) on how the monetary system operates, which means he has little interest in intelligent discussion, or does not understand himself. And if he does not understand, then Frostburg should rethink it's economics curriculum.

Another Anonymous said...

Edward, what you are saying is hard to understand. The deader the money is, the clearer it is that everyone's revenues must balance to zero. Just think of the no banks, no credit, just paper dollar bills moving around. Those paper dollar bills had to be printed and spent at one time, that's when they contributed to that year's government deficit. In a game of Monopoly, no matter how the money moves around, the total is always the same, and how much leaves the Bank at any period is the same as the total of the players' net savings. It is possible for the revenue of everyone in a private economy to exceed their outflows, if the government deficit equals that total. In theory, if prices are flexible, indeed it WOULD be possible for all sectors to run surpluses with each other if the cash surplus of one entity were not counted as the deficit of another I don't see what price flexibility has to do with anything . "if the cash surplus of one entity were not counted as the deficit of another" Huh, well, if you count incorrectly and uses new rules of addition and subtraction, well you won't get the same results as everyone else. In the real world, when the government gives me a dollar, it counts as a dollar of income to me, and a dollar of spending of the government, contributing to that year's deficit. All these identities boil down to is : If I give one dollar to you, then I am down one dollar -1 on my books, you are up one dollar , +1 on your books, and the total -1 + +1 = 0. I hope you agree with this.

Bob. If nobody has a gold or silver mine in their back yard, then, no, the private sector cannot build up gold or silver savings. Where would their precious metals come from? If there never is deficit spending, then the government will permanently remove gold or silver from the economy every time it runs a surplus. Every time someone saves 20% of his gold income, it is lost from the economy apparently. If someone- Mr. Goldfinger - has a gold mine, sure, he can build up gold savings. But this is exactly equivalent to a fiat currency economy where the government gives Goldfinger that amount of fiat money. Since Goldfinger is the sole source of new money in the country, he is pretty much the uncrowned king, the rest of the population in this highly deflationary scenario would be scrabbling for his favors, and the government would be his puppet. We could look on him as the government, and the rest of the country as the private sector, and then Goldfinger's deficit is equal to everybody else's savings. But then these smart and entrepreneurial people might invent things like money tied to more natural and abundant resources and credit money, or even fiat money, and overthrow Goldfinger and his puppet.

Brian J. Gladish said...

I guess the truth is that without government deficits we cannot have private surpluses; and with government, as in the Weimar Republic, we can have private surpluses beyond our wildest dreams.

Bob Roddis said...

We gave up on a commodity based monetary system 40 years ago. Your entire example is irrelevant to the world we live in and you are more interested in having a political discussion.

Who do you mean by "we"? I didn't give up on anything 40 years ago. I was recording Hayek on Meet the Press.

And I don’t recall the constitution being amended yet.
.
Your job here is to show how your wacky "system" of aggregate "globs", stealth wealth transfers and unconstitutional money dilution would allow for any type of economic calculation and how it is superior to the Austrian system. You guys refuse to do this and keep coming up with excuses to not the debate THE AUSTRIAN SYSTEM with which you clearly have no familiarity. We expressly reject your pseudo-Keynesianism on Steroids. I see no evidence that you understand the importance of subjective value and/or economic calculation which fiat money will fatally distort. It was
Herr Lerner’s own cement-headedness
regarding the socialist calculation debate that got Mises to articulate the even more profound importance of prices in the market:

It is difficult to escape the conclusion that what led Mises to his more profound articulation of the role that prices play in the entrepreneurial process was his dismay at the Lange-Lerner misunderstandings concerning the "parametric function of prices." His earlier statements concerning market prices had not been made primarily in order to explain the operation of the market system; they had been made in order to illustrate the kind of economic calculation that market prices make possible. These statements were directed primarily at those who fail to recognize how market prices, precisely or crudely, do enforce the constraints implied by scarcity. The experience during the calculation debate not only sensitized Mises to the existence of more sophisticated proponents of socialism, it also sensitized him to the more subtle insights embodied in his own, Austrian, appreciation of the way in which markets work.

Of course I'm going to engage in a "political" discussion with people who want to cram down my and the oblivious public's throat an unethical, unconstitutional, demonstrably unworkable system of theft, fraud and double-talk. That’s why we have the 2nd Amendment so that our potential masters think twice about overstepping their constitutional limits.

David said...

Talk about dodging the question. I ask it for the 3rd time, since AP Lerner and Anonymous will not address it.

Do support the belief that private surplus is precisely quantifiable?

David

Another Anonymous said...

@David: It depends on what you mean. If you mean private financial surplus, yes, it is very easy to quantify. It happens to be equal to the government deficit, so you can easily look it up for any year you want. Otherwise, define what you mean.

Bob: It would be nice if you said what the Austrian system is, in your own words. I would be happy to learn, but nobody has said.

Maybe AP Lerner and I are talking about "an unethical, unconstitutional, demonstrably unworkable system of theft, fraud and double-talk" - but that is our and everyone else's monetary system.

Partly I am interested because at least the Austrians have a theory of money. I think it's probably wrong, but mainstream economics doesn't really have one, which makes it a theory which is "not even wrong" in Wolfgang Pauli's phrase, and therefore of very little use.

David said...

@ Another Anonymus,

Well thanks at least for trying to help. How it is quantified? Saying it is equal to government debt is a correlation. I'm trying to figure out exactly how private financial surplus is calculated. I cannot find this: "private surplus", "private financial surplus" on a web search with a specific calculation.

I can't believe this is so hard.

David

AP Lerner said...

@ David – sorry, not trying to avoid. Didn’t see the post. My apologies. The answer is yes.

The financial balances are calculated by the Bureau of Economic Analysis and it all rolls up into the National Income and Product Accounts. There are obviously a lot of smaller accounts that roll up into the aggregates I always refer to, but it is all there. The external balance (current account information) is part of the balances, so don’t forget to look at that as well. This graph I always reference:

http://2.bp.blogspot.com/_eB31NsfANe8/S0OGV5nxU-I/AAAAAAAABCE/JOB47M0fWMM/s1600-h/100105+sector+fincl+balances.jpg

or this math I always reference:

(I – S) + (G – T) + (X – M) = 0

Is the account balances aggregated. To the penny, these balances aggregate to zero. Hope that helps.

Bob Roddis said...

To all you Chartalists out there, I'd say we have a problem of communication. We don't use aggregates and we don't use accounting identities as algegra formulas. We use everyday, common sense terms and expect things explained in such a manner. One of the many problems with Keynesian and Chartalist thought is attributing mechanical attributes (the "economy" as a machine) to just plains folks with unique values buying and selling stuff in their state of ignorance.

Start with "The Essential Von Mises" by Rothbard:

http://mises.org/resources/3081

David said...

AP Lerner,

I guess I'm not making myself clear. I'm not trying to blame you or trap you. I'm trying to understand you. I "get" Bob's arguments. I've studied the Austrian School and I understand him. I don't understand your argument. So I'm trying to break it into manageable pieces that I can grasp. I don't see any point in trying to refute something I don't comprehend.

I want to know how the calculations are made. Somebody has to know this. It's not rocket science and we're all grown ups here. I'm in my mid 30's. I have a high paying IT job. I have credentials that say I'm moderately intelligent. I believe that I can follow along on just about any topic until we get to quantam information.

I just want to know how the calculations are made. How do they come up with the numbers? Can you at least point me to the BLS documents that break down the raw data, equations and their inputs?

David

AP Lerner said...

Hi David - as I said above, all the data can be found at the Bureau of Ecoomic Analysis website, not the BLS. Or here:

http://www.bea.gov/

from here, go to the product accout tables. You can even have all the data (it' an overwhelming amount of data) downloaded as a txt file.

All the data there can be used to re-create:

(I – S) + (G – T) + (X – M) = 0

note this formula is just a re-arranged version of:

Y = C + I + G + X

and can be used to re-create this chart:

http://2.bp.blogspot.com/_eB31NsfANe8/S0OGV5nxU-I/AAAAAAAABCE/JOB47M0fWMM/s1600-h/100105+sector+fincl+balances.jpg

But the important part of this analysis is not the reality of the math (actually, that is the important part for Prof. Anderson and others on this blog, since they refuse to believe it even exists), the important part is understanding the relationship between the public and the private sub sectors. Yes, I am being over simplistic when I say public deficits = private surpluses, but the math holds. It's not theory, nor is it ideology. It's all in the math. It's all in the massive amount of data on the BEA website.

So when folks go on and on about the horrors of deficit spending and the emminent bankruptcy of the US, they are ignoring the math and the reality of the situation, and clearly do not understand the monetary system of the US

David said...

At this point, I have to conclude that you have never done these calculations themselves. I will root around on BEA and see what I can find. I find it amazing that you are so confident of a calculation that you cannot do yourself. You keep pointing me to a tautology. I know the Keynesian equation (which is a theory, not math.) You don't need to keep shoving it in my face like you invented economics and are above explaining it all.

Just admit that you've never acutally done any of the calculations. I was hoping you had so you could give me some guidance, but all I get are insults and vague references. I'll go on my way now.

I don't understand what you hope to accomplish besides acting out some post-pubescent fantasies of superior debating skills. I opened up an opportunity for you to explain your position more concretely. You said it's all math. I asked for the math. You give me a theoretical tautology and point me to a website with a million pages of information. You obviously don't want to help me learn.

David

Another Anonymous said...

David, I don't understand exactly what calculations you are looking for.
Saying it is equal to government debt is a correlation. No, it is a definition.

I'm trying to figure out exactly how private financial surplus is calculated
Private financial surplus is calculated the same way that national debt is, because they are exactly the same thing.

Think of a game of Monopoly. The Bank's "National Debt" is all the Monopoly Money & Title Deeds & Chance/Community Chest cards it has handed out to the Players. The Players' private financial surplus is all the Monopoly Money & Title Deeds & Chance/Community Chest cards (the last two are somewhat like government bonds) that they have gotten from the Bank. Two ways of saying the same thing. Or two words which have exactly the same definition.

So if you find a calculation of the National Debt, there's a calculation of private financial surplus. http://fms.treas.gov/bulletin/b2010_2ofs.doc is a breakdown by who owns the government debt. It shows where the private financial surplus held in US dollars lies.

AP Lerner said...

@ David - I'm sorry you found the BEA data overwhelming, but the data I often refer to is found in that site, in the National Income and Product Accounts (NIPA). I get the data sent to me on a regular basis formatted the way I want it, so I have little time or desire to walk you through where to find it. It's all there.

I did, however, come across a graph of the financial balances in dollar format. I often refer to it as a % of GDP because the absolute levels are pretty meaningless for analytical purposes. But, since you are so bent on proving the math, this chart should help you.

http://static.seekingalpha.com/uploads/2010/7/15/saupload_pimcos_double_entry_bookkeeping.png

Also, here is an article by Paul McCulley discussing the financial balances approach. I would never expect anyone to take my word on this stuff, but Mr. McCulley is a 'real' investors, who makes 'real' money, and generates 'real' wealth for 'real' people. It is this article I grabbed the graph from above from. Mr. McCulley is far more eloquent than I when discussing this topic

http://seekingalpha.com/article/214585-paul-mcculley-does-modern-monetary-theory?source=feed

And just as an FYI, here is the financial balances 101.

http://stopmebeforeivoteagain.org/2010/07/intro_to_economism.html

I probably should have posted these articles for you and Prof. Anderson a long time ago. I assumed the level of economic discussion on this blog was beyond Econ 101, or, in the case of Bob Roddis, accepted basic math and accounting. This was my mistake.