By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil
What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable.
– Karl Marx and Friedrich Engels ‘The Communist Manifesto’
Calls for balanced budgets in the present environment have long appeared somewhat confused, of that we have had little doubt for some time now as balanced budgets seem to exacerbate the problems they target rather than solve them and may lead to higher debt-to-GDP levels due to the reduction in real economic growth that they lead to.
However, the left has generally agreed that the much of the motivation behind the balanced budget rhetoric was and is ideological. And with conservatives at organisations like the Peterson Institute and the Cato Institute, together with their counterparts at the Adam Smith Institute in Britain, daily attacking the deficit over the airwaves there seems to be much evidence of this assertion. Indeed, Paul Krugman recently caught some Tories with their ideological pants around their ankles in a discussion over at the BBC (watch from about 3.00 on).
This is all well and good. It would certainly seem that conservatives think that by battling the budget deficit they are eroding the foundations on which the Big Government monster sits, but is this really the case? What if I told you that all the balanced budget rhetoric was actually having the objective effect of placing us on the road to socialism?
Socialist Accounting and Accounting for Socialism
The following argument derives from Joan Robinson and John Eatwell’s excellent (though now hard to find) book ‘Introduction to Modern Economics’. It begins with the all too familiar formula for GDP stated in net terms in order to track changes in income. The formula runs as such:
Y = G + I + C
In English that reads:
Net National Income [GDP] = Government Expenditure + Net Investment + Private Consumption
Again, there is nothing hugely controversial about this statement. However, the beauty of it is that we can rewrite it in a number of different ways highlighting different aspects of how national income is produced or destroyed. Here’s the rewriting of the formula that concerns us:
(s +t) Y = I + G
In English that reads:
(Proportion of Private Saving to Total Income + Proportion of Income Paid in Taxes) x Net National Income [GDP] = Net Investment + Government Expenditure
What we’ve done here is essentially broken down the ‘Consumption’ element of the original formula to highlight what effect a rise in taxes or saving will have on national income. Such a breakdown can tell us a number of important things. Here I will let Robinson and Eatwell make the point themselves:
With investment constant, an increase in government expenditure increases income, and increases both total saving and the yield of taxes. The addition to the National Debt caused by a round of government expenditure is less than the expenditure, because of the extra tax revenue that it generates. This was an important part of the case for public investment to combat unemployment in the slump [i.e. the Great Depression]. (p. 211)
Now, that’s all well and good. This seems an obvious point today given the situation in many European countries where austerity has been implemented and yet the national debt continues to climb ever higher. But then Robinson and Eatwell go on to make a far more interesting point, one that I would argue cuts right to the bone of the ideological pretentions of conservatives budget hawks the world over.
Now, suppose that tax rates have been increased; t is higher. Then, if everything else, including I and G, are the same, Y must be lower. This comes about because higher taxes restrain consumption. In so far as a higher t means a lower s – the payment of higher taxes reduces saving – the reduction in Y is that much less.
This argument leads to a striking conclusion. Imagine a government that adopted a policy of ensuring enough outlay to maintain near full-employment while keeping its annual budget balanced. In a given situation, this government would have to make more expenditure than if it maintained the same level of employment with a deficit, for there has to be enough expenditure to make up for the restraint on consumption by higher taxes. The government therefore has to think of more things to spend money on. Unless it all goes on armaments and the moon, this must mean a greater involvement of the public sector in social policy. (p. 211)
Thus the idea that a government should engage in pro-growth policies while attempting to balance the budget through higher taxes is, as Robinson and Eatwell put it: “far more radical than the so-called Keynesian principle of allowing a deficit when effective demand needs a boost”. In a very real sense balancing the budget while targeting growth is a sure road to socialism, as it ensures that the government take over more of the role the private sector currently occupies in the economy. Again, if we accept the rather loose terms of the argument as laid out above, this is not really open to debate; it is a conclusion not reached by high theorising but instead by examining simple accounting.
Budget Hawk Socialism
But of course the reader will rightly point out that this is not the stance of your average Peterson Institute clone or Tory hack. To further their ideological project they want to decrease government spending rather than increasing taxation. This is true, of course, but in practice it simply does not work. Just look at the situation in Britain at the moment or in much of Europe where taxes have been hiked enormously in a bid to balance the budget. In theory it may be nice for our Peterson Institute clone to go on television and say that government spending should be cut and taxes left unchanged, but in practice this is politically impossible.
Now, if the reader concedes this point they might raise another: namely, that the goal of austerity is to both raise taxes AND lower government spending. Once again, it is true that this is the stated goal of austerity programs. But here’s the kicker: we know that it doesn’t work. We’ve seen it tried in Greece, Ireland and even Britain and we know that the real effect is a violent contraction of national income – i.e. seriously slowed, if not negative economic growth.
In Europe this has led to calls for more focus on growth – especially out of figures such as France’s Socialist president Francois Hollande, but also out of the IMF and others. This is where the above argument kicks in. Many economists and shrewd observers ponder over the fact that these figures call for a greater focus on growth while at the same time insisting on attempts to balance the government budget. Many dismiss this supposed doublespeak as nonsense, assuming that these policymakers would simply drop the balanced budget rhetoric as they extend spending programs targeting growth. But what if this is not the case? What if the real outcome of this rhetoric is not a contradiction at all, but a move toward a massive state takeover of the economy?
This is not a particularly unrealistic scenario. Imagine if M. Hollande and his ilk raised spending and raised taxation at the same time so as to promote growth while offsetting the deficit to some degree – perhaps even the Tories in Britain and the Republicans in the US might engage in this, as they must realise by now that austerity is a sure-fire way to get booted out of office. The real effect of such a policy – which, again it should be pointed out: their rhetoric commits them to – would be no less than a creeping takeover by the state of the economy; in short: a creeping socialism, as the state takes over the means of production and consumption.
So, we can only conclude that Budget Hawk Socialism may well be a very real potential outcome of the current balanced budget rhetoric; a rhetoric which is, quite literally, all pervasive in politics. The only ‘way out’ of the cul-de-sac of austerity if this rhetoric is adhered to is to raise government spending while increasing taxation and this is, effectively, moving resources from the private sector to the public sector.
Having no particular ideological investment in socialism I can only watch this with mild amusement. The conservatives, in thinking that calling for a balanced budget will provide the vehicle through which they can dismantle the state, have opened up the path for that which they fear most: a destruction of the private sector by the public sector through government spending and taxation.
Today then, to be against socialism and remotely realistic about how to generate economic growth, one must be a Keynesian and call for an unbalanced budget. To fall on the other side and call for total austerity will merely get you booted out of office and pave the way for Big Government socialists to destroy the private sector through increasing government spending and taxation.
Will the conservatives realise this before it is too late? Fat chance. The conservative class have become extremely myopic in the past thirty or forty years. They have invested themselves in dogmatic and unpragmatic free-market ideologies that have always been fantasies and in doing so have completely blinded themselves to the bigger picture. Their own idiocy will destroy them – and in their foolishness they will pave the way for their own expropriation.
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Gee Phillip how courageous of you, to sound the petit bourgeouise pinko alarm bell like that. i was afraid they were gonna get caught napping. but arent you afraid you wont be thought of as a reliable friend by the big gubmint “monster”…..if this ever gets out….?
What Philip doesn’t realize (or pretends not to realize?) is that the destruction of the majority of the private sector is actually a goal of much of the elite. However, they also plan to replace the government with something approximating a feudal system.
So it’s all going swimmingly for them so far (apart from that pesky banking collapse). They want the 99% to be dependent on an UNELECTED private government, and they intend to be that government. Philip can call it socialism, but it’s not; it’s neofeudalism.
I’ve explained before why this isn’t actually going to work for them — namely, that they’re unwilling to give the 99% enough food, clothing and work, so they will be replaced by revolutionary fascists or socialists or something — but that’s another matter.
The point is that their talk of “free markets” and “austerity” has always been a scam to replace the elected government with a private government by a small number of CEOs. Once they’ve done that they’re happy to have the government run the economy as a command economy (that’s how they run their companies as CEOs, after all).
One word Phil: Estonia.
Well, experience has demonstrated to everyone who has eyes to see that this part of Marx and Engels’s prophesying is as dead and wrong as anything can be in the misery of the social “sciences”. While it’s still worth citing the above, it is only worth citing as an example of a great mistake.
Why that is has already been explained clearly in Wright Mills’s book, The Marxists –as fair and sympathetic a review of Marx and his followers as you are going to find. But Mills, a self-described marxist (while I do not share that with him), was able to see where, how and why Marx got some things very, very wrong.
Our educational systems are a disgrace and, as evidence of that opinion, I offer this present article which, had it had any kind of critical review, should not have appeared as it does.
I would say that the fall of the plutocrats is inevitable, due to their own incompetence, but who replaces them is far from inevitable.
(The bourgeoisie are another matter; I still have no idea why Marx obsessed about them so much.)
These equations have not worked. Unbalanced budgets is how Europe and the United States got to where we are now. Keynes envisioned the Federal gov’t over-spending in bad times and building in reserves in good times.
Of course we have the recent example of Estonia which flies in the has cut spending, raised retirement ages seen economic output increase and so far has not had an uprising of the working class.
In an advanced economy the path to growth is sound fiscal and monetary policy and a gov’t focused on the preconditions of sound growth, a good system of property rights and respect for rule of law.
The equation — which is a truism — has predicted the growth path of every major economy in recent years. Estonia is a small export-oriented economy. Holding it up as an example is an obvious absurdity. Your balanced budget philosophy will bury you beneath a large government — just watch. Myopic neoliberalism will go down kicking and there’s a good chance it will generate precisely the opposite. Now watch the conservatives raise taxes as deficits open and more property move to the government sector.
Philip, the private debt overhang assures that there will no multiplier effect. That deficit spending turns over one or two times before it is used to pay a bank debt and withdrawn from circulation, interest still due. So the spending fuels plutonomy, and the financialization of the economy. Not runaway inflation but stagflation, as usury costs accumulate.
All these national account equations neglect the Minsky effect. Debt levels are determined by the high bidder. So MMT thinks it can spend enough into the economy to support the repayment of private debts and hence forestall collapse. Instead, such stimulus supports higher asset bids, more borrowing, more leverage, greater private debt. Nothing against job guarantees and public investment; I’d support functional finance if it worked.
The only solution is the reengineering of money itself to be service-backed and service-denominated. Like Forever stamps, bridge tolls and subway tokens, only digitized and divisible. See http://www.sbdm.org . Our problem inheres in debt-driven money, and neither stimulus nor austerity nor tight money nor loose money nor commodity money will begin to solve it.
No evidence to support this. Debt repayment is counted in national accounts under saving. In the above it is counted as the proportion of income saved which, if not countered by government spending or investment it drives down growth.
Debt repayment is counted in national accounts under saving. Philip Pilkington
If “loans create deposits” then “loan repayment destroys deposits”.
Of course.
>No evidence to support this. < @PP
Not too difficult. Here’s a short 2009 paper
http://econweb.umd.edu/~vegh/papers/multipliers.pdf
illustrating that the fiscal multiplier has collapsed since 1980. It warned that Christina Romer was using multipliers up to 1.6 to calculate the effect of the $787B stimulus in 2009. Reasonable as a pre-1980 multiplier, but a more realistic post-1980 multiplier would be 0.4. Both estimates over SIX years.
"The difference between Romer’s and Barro’s view of the world amounts to a staggering 3.7 million jobs by the end of 2010." It wasn't that the stimulus was low, it's that the multiplier is pitiful, just as debt deflation would anticipate.
Probably misses cross-state effects as Dean Baker pointed out a while ago.
Also, above argument still works no matter what the multiplier. In fact, if deleveraging is very high deficits are probably even more desirable.
Our objective should be to eviscerate the usury Parasite, not further indenture ourselves to him.
The only solution is the reengineering of money itself to be service-backed and service-denominated. EconCCX
Equity backed money is another solution. The distinction between money and equity (ownership) is an artificial one that does not serve the interest of the general population.
Keynes envisioned the Federal gov’t over-spending in bad times and building in reserves in good times. CoC
That’s gold standard thinking and what bad times? The “bad times” are not caused by crop failures or other disasters but by failures in the money system.
We have bad times and even world wars because our money system is bad.
If possession is 9/10ths of the law… is a piece of writ the other 1/10th? Which then in turn the 1/10th is eviscerated into how many parts of expectations dream, only to be commingled with others dreams?
Skippy… derivativising dreams… what could go wrong?
right; nobody cares anymore what Keynes, Smith, Mises, blahblahblah thought.
Anyway .. i posted to peanut-butter’s reply, but it seems DHS, or mods here don’t like my (multiple) use(s) of the ‘T’ word (since it won’t seem to go through) ;-)
Love
skippy,
(this was meant to be posted prior)
You have no “ownership” – Allodial Title is not recognized as legal in this;
— U n l a w f u l,
— T r e a s o n o u s,
— T r a i t o r o u s,
— T r e a c h e r o u s
Cartel-Operated S t a t i s t belief system.
Try another religion — perhaps one more dogmatic ;-)
Love
p.s. (apologies i have to write it like that — seems some sort of flag is set to catch those ‘T’ words which blocks the posting of comment).
Estonia is a small nation which can fix itself by trade flows and by losing population (and capital flows send back to home). That’s not a solution to anything.
You may as well say Iceland is the example to follow. While it may be well true it should be followed in some ways, both are particular cases not comparable to big nations in Europe or the USA.
These equations are perfectly silly because they do not take into account the fundamental fact that everything degenerates and that labor is the perpetual struggle to keep the value, that is the usefulness of something, intact.
The economic numbers are empty of meaning because our lives are not based on quantity but on quality. I mean the philosophical category of quality not the commercial one.
Let me set up an extreme example of the importance of quality and the inanity of quantity.
Let’s suppose that all American pregancies end up in abortion. Abortion contributes to the GDP and therefore the more abortions performed the richer the GDP. However at the end of the process there would be no Americans left.
Quite an economic gain.
Jose,
Your offer a poor example to support a basically useful point. So, let’s drop the example the better to salavage the point –which is more important, isn’t it?
While it’s true that each abortion adds something to the overall GDP, your example fails in that, if all pregnancies were to end in abortion, the relative GDP would drop, and significantly so, in comparison with what should have been generated in spending/consumption had those pregnancies been brought to term and the families increased in number. And that is the measure which “counts” for comparative purposes.
We need the better understanding but not at such a price as your example exacts. It’s “one step forward, and one-and-a-half steps back.”
Naturally the GDP would fall , there would be no Americans.
“what should have been generated in spending/consumption”
I just don’t understand consumption based economics, in the case of Japan they can only survive as an industrial nation because they are able to export to get the money they need to import the raw materials that they need for industrial production and because of domestic consumption they have to import more raw materials which in turn lowers there external wealth with other nations. Now im not saying consumption is bad in all its forms such as renewable items like food and clothes made of cotton or that plastic made from starch but if it can be exported than it should be exported because buying cars will not help us to import steel but exporting cars will and that’s where we have to become creative.
And as a side note don’t cut down the whole forest if you don’t need the firewood and don’t burn the firewood just to create demand as you may someday wind up with an empty desert like Japan is mineral wise.
And heres a few things to consider for a more intelligent economy for starters in places like India leave the subsidence farmers where they are but provide support if they need it, I mean its not like they are rioting to have toaster ovens and flat screen tvs and for the developed world, cities like Atlantic city, Miami and Las Vegas make there living on some thing other than production and for the labor market they provide more jobs with less money (In other words more bang for your buck) and you can see for your self by comparing any resort company with an auto maker by there profits vs employees.
they make ther money on tourism.OK, how is that going to substitute for manufacturing anywahere else? if its was La Vegas everywhere no one would ever have to go to Las Vegas
Philip, could you walk us through how (s+t)Y got subbed in for Y-C? Thanks.
I second that. Please explain!
When the state essentially becomes the enforcement and propaganda arm of the private sector (albeit a very narrow range of wealthy interests) how does it follow that you would call that socialism? Socialism for the plutocrats of course, good old fashioned fascism for the rest of us.
Silly equations aren’t going to get us out of what is essentially a philosophical mess, that much I’m sure of. The primary question to be answered is, are the providers of monetary capital, using exponential growth equations and derivations thereof meant primarily to bamboozle the “unsophisticated”, entitled to steal the labor and resources of the actual productive classes that their financial tomfoolery is meant to nominally “enable?”
If you believe the answer to that question is yes, then pat yourself on the back and congratulate yourself/them (presumably you’re also a member of that class in this case) for a job well done. The end game is now in sight.
If you believe the answer is no, then you also realize the gravity of the current situation, and know that pondering the recapitalization/austerity question is a fool’s game. The end will be the same either way. The entire system was constructed to generate just such false dilemmas in the first place. How do you sustain that which was designed to be unsustainable from day one?
YOU DON’T! You start by walking away from it to the degree that you can (and everybody can, whether they know it or not). You simply withdraw your consent and support for what is now clearly recognized as a totally illegitimate system, and working within the current system while you still must, you start constructing viable local alternatives. For the 99% of us it’s the only real choice we now have, even though most of us haven’t yet awoke from the capitalist dream spun by our corporate masters. Why wait for the dawn of truly repressive austerity, which is now right around the corner? It’s only gonna be one helluva hangover for those who do.
Well said.
Deficit spending is good but government borrowing to “finance” it is “corporate welfare” according to Bill Mitchell and is done “for stupid ideological reasons and to facilitate central bank operations”.
Let’s just drop borrowing by monetary sovereigns and so much confusion (and fascism) will disappear. Monetary sovereigns should simply spend money into existence and tax SOME of it out of existence again.
O, Good Lord.
If
Y = G + I + C
Net National Income [GDP] equals Government Expenditure plus Net Investment plus Private Consumption
And
C = s + i
Private Consumption equals Proportion of Private Saving to Total Income plus Proportion of Income Paid in Taxes
Then the the second formula would have to be:
Y – (s + i) = I + G
Net National Income [GDP] minus Proportion of Private Saving to Total Income plus Proportion of Income Paid in Taxes equals Net Investment plus Government Expenditure
Alternately, if the second formula is correct, then the first formula would have to be:
Y = (G + I)/C
>Net National Income [GDP] equals Government Expenditure plus Net Investment divided by Private Consumption
This is basic algebra. Or, at least it is as practiced in every field outside of economics. If it contains this sort of thing, the fact that Robinson and Eatwell’s book is hard to find may not be a bad thing.
No. s and t are proportions, not absolute terms. I.e. s = the proportion of income saved. Still, I think Robinson and Eatwell’s presentation is a bit confused. I shouldn’t have used it. Y = G + I + C – C(s + t) would be clearer. Anyway, the point is still clear. Don’t dwell on the presentation.
But C =/= s + i, or even s + t (as the initial notation would read).
That would mean that ALL private consumption is either taxes or savings. I don’t know about you, but I spend quite a bit of my income on other things.
C = Y(1 – s – t) must be the equation, although I don’t know any economics so I arrived at this using only basic algebra.
Thinking about it, 1 – s – t is the proportion of one’s income that is available to be spent, thus multiplying by Y gives the total available spending money in an economy, ie C.
I have to say though, it does seem a bit fishy to use C to define Y, and then (as I assume has been done) Y to define C, and *then* to combine the two to derive an interesting formula. Possibly this is why the intermediate step is missed out?
No, that’s wrong. If 30% of income goes to saving and 20% goes to tax, then (s + t) = (0.3 + 0.2). Then consumption is C – C(s + t).
Just ignore the algebra. It’s a distraction — as it so often is. The point is simple: if taxes are increased, in order to increase growth government spending has to be raised higher.
@Philip
“…if taxes are increased, in order to increase growth government spending has to be raised higher.”
This is true (sort of) but it leads us to a trap…
Continuous deficit spending that is captured by the few (inevitable under our current tax scheme) feeds the monster that is massive wealth accumulation.
This kind of wealth imbalance creates a power imbalance that overwhelms the stability of the economy.
How we tax is important.
We (the masses) should be taxing the bejabbers out of high-earners and limiting wealth accumulation.
Re-cycle the spending and become closer to a steady-state economy. Growth is limited and distributional effects are too imbalanced.
So in this context I disagree with your statement on practical grounds.
There is no natural path for wealth to return to the masses. It’s a one=way street. Trickle-down ideas violate the laws of arithmetic.
“This kind of wealth imbalance creates a power imbalance that overwhelms the stability of the economy.”
and it overwhelms the political system, it overwhelms the culture. That kind of imbalance, has ALWAYS led to the destruction of the culture it afflicted. Name for me one despotic tyrany of the rich that is still standing.There are many, many hsitorical examples and they all ended in violent catastrophe.
Paul,
You will find that PP has no use for “steady-state” economics, not least because he simply does not believe there are any serious constraints to limitless “growth”. If Keynes says “growth” is forever, that’s as good as the Word of God so far as PP is concerned.
@Philip
That was to be expected ;~) From Y = G + I + C to (s +t) Y = I + G is quite a leap.
I would have introduced some intermediary steps. From the usage perspective Y = C + S + T which can be rewritten to Y = (c + s + t) * Y and c + s + t = 1 Then the equation from Robinson makes more sense.
If 30% of income goes to saving and 20% goes to tax, Rory’s forumula is correct.
C = Y(1 – s – t)
C = Y(1 – 0.2 – 0.3)
C = Y(0.5)
C = 50% of income
If our society was as good at ethics as it is at math, we would not be having these problems, I would bet.
That’s a very optimistic view of the mathematical ability of our society…
Is this what you’re saying the formula is Philip?
C = C – C(s + t)
Daniel, yes. That yields the same result. It really doesn’t matter once you get the fundamental point though. This is why I don’t like equations in economics. They become an end of themselves and eclipse the real point being made.
Further manipulating that equation:
C = C – C(s + t)
C – C = C(s + t)
0 = C(s + t)
Therefore, either C = 0 or s = -t. And neither of these are logical.
Either the equation is bad, or I made a mistake somewhere myself.
No, you made a basic arithmetic mistake. This why PPhil says to concentrate on the meaning, the equations are a distraction.
Isn’t consumption just C, no matter what? It isn’t C – C(s+t)unless s+t = 0.
Also, however the formula was derived, (s+t)Y = I + G would only be true in an economy in which the proportion of national income either saved or paid in taxes is equal to the sum of private sector investment and government spending. But I don’t see why that would be true in general.
I think a better approach to the point here is to start with one version of Godley’s equation
(S – I) = (G – T) + (X – M)
So, suppose between Year One and Year Two, the trade balance X – M stays the same, but the government sector goes from a deficit (a positive value for G – T) to a balanced budget (G – T = 0). Then S – I must decrease: to balance the budget the private sector must either save more, or devote a larger proportion of its saving to investment.
We have seen during the misguided austerity era, when the private sector has a strong desire to increase saving in order to pay down debt, and when household incomes are actually falling, that the only way for households to save more is to consume less or pay less in taxes. Tax revenues have in fact been falling, since tax rates are generally pegged to income. But consumption is falling as well, which makes firms very unwilling to invest. Firms are just adding to net saving (S-I) as well, without investing as much as we would like them too.
If we either increase taxes or decrease government spending to balance the budget, we put even more pressure on private sector income, and given the still very high private sector saving desires will reduce consumption even further. With household consumption falling, the willingness of firms to invest and hire will continue to lag.
“…a strong desire to increase saving in order to pay down debt…”
I would characterize this as a necessity, not strong desire.
Phillip, you really do a disservice to your argument when you try to use algebra to make your point, then say later oh forget the algebra.
And your quote from Marx is ridiculous. How long do we have to wait for the inevitable to occur? You will never persuade anyone of anything by claiming that Marx will soon be right about something he’s been wrong about for about 150 years. What do you think you have accomplished by citing Marx?
In general I support your ideas and conclusions. But you use arguments and methods that will persuade no one who doesn’t already agree with you.
The algebra doesn’t matter that much.
Marx quote was ironic — point was that conservatives are killing themselves.
Don’t really care if you’re convinced or not.
Ironic? No, the Marx quote was inflammatory.
The algebra doesn’t matter? Yes it does. Maybe the problem is you don’t really understand it.
If you don’t care whether people are convinced by your argument or not you should be in another line of work.
@Harold… modeling human behavior mathematically will always fail, the longer the time line the greater the margin of error. Just look at derivatives for an epic black eye on that line of thinking.
Skippy… hell that’s precluding the dynamic system we call planet earth and…. our surrounding solar system . There is not enough computation power on the earth for such an endeavor! Black holes for power sources anyone….
Could you please further explain this section:
C = s + i
Private Consumption equals Proportion of Private Saving to Total Income plus Proportion of Income Paid in Taxes
Perhaps I am misunderstanding the language, but these are my specific issues:
A) C represents what is spent on consumer goods. Conversely, what is saved by consummers or companies is not spent (saving should mean adding to the assets listed on the entity’s balance sheet)So, from a
Sectorial (aggregate) view of consumers, how does what is saved (s)equal to spending…to my understanding growth in deposits does not equal net spending due to the spending multiplier effect.
B) how can proportion of income paid in taxes (s) equal consumer spending? A sales tax would directly correlate with consumer spending , but taxes would reduce the actual amount spent on consumer goods.
Thank you for explaining.
uncommonly good common sense
I say give the conservatives all the rope they can handle.
“The conservatives, in thinking that calling for a balanced budget will provide the vehicle through which they can dismantle the state, have opened up the path for that which they fear most: a destruction of the private sector by the public sector through government spending and taxation.”
Seriously?
PP for some reason you think that the states still have some power in this day and age as compared to corporations.
Your theories might not be laughable if at this point in time the state wasn’t basically a useful “paper” vehicle by which corporation retain just enough legitmacy in their killing and theft so people don’t go around blowing CEOs away at their Hampton resorts.
All of the financial fraud we’ve witnessed, the illegal wars and war crimes?
Technically they’re all legal and the propagandists are there to remind us of this fact 24/7/365.
Thus, we peons just have no recourse and must suck it up, right?
Gee, how clever.
Secondly, since we have watched the elite egregiously change the laws and rules of the game to suit their needs as they go along, what makes you think that once your conclusion is reached – which it will never be – the elite just won’t disband the remaining vestiges of government and declare the neofeudal system the law of the land as this is REALLY where we are headed?
PP, the government in the weakened state it is in – especically in the U.S. – is a costume that the elite have their puppets put on so as to move their machinations forward.
In an inverted totalitarian society – which is where we are at – the political structure is SUBORDINATE to the economic one.
That means that corporations are at the top of the food chain and will always remain so.
Your thinking that there will be resurgence of the state is risible given the privatization of everything – ESPECIALLY and including the military – the last remaining true power structure of the state.
Personally, I believe in the idea of a state power structure to provide for its citizens but, unfortunately, socialists in this day and age are caught in a trap – especially in the US – by which they have to argue AGAINST the current charade of fascist governance and FOR the creation of a – at present – theoretical governmental construct namely a state that truly wrests power back from the corporations by taking them over.
Again, your thesis is a complete and utter joke.
Just ask yourself, which government official – for example, in the U.S. – would stand in the way of what the corporations want?
The answer right now is no one, the answer tomorrow is no one and in an inverted totalitarian society the answer will always be no one.
Sure, it still might be the “state” – chortle – that is technically collecting taxes but only until they decide to privatize away that service as well.
“PP for some reason you think that the states still have some power in this day and age as compared to corporations.”
How does a corporation have coercive power if not through the Total State?
“In an inverted totalitarian society – which is where we are at – the political structure is SUBORDINATE to the economic one.”
‘Tis a distinction without a difference. The rotted structures are symbiotic.
How does a corporation have coercive power if not through the Total State? Johnny Clamboat
All kinds of groups have coercive power without a Total State including tribes and criminal gangs.
Anarchy is not stable since those who organize will have an insurmountable advantage over those who don’t.
“All kinds of groups have coercive power without a Total State including tribes and criminal gangs.”
How about corporations (since that was central to the original topic)?
Corporations usually have the police (operating under business friendly laws) and military do their bidding. But the Dutch East India Company had its own military at one time!
No government is not a choice nor is it even Biblical to wish for that.
We need ethical government, ethical business and especially ethical money (no, not a stupid and fascist gold standard). And the best way to ensure all three is a balance of power.
I’m going to reply to two separate comments within same sub-thread to F. Beard.
Anarchy is not stable since those who organize will have an insurmountable advantage over those who don’t. — F. Beard
I tend to disagree at this point in time of my learning. Consider the Vikings for one.
——–
No government is not a choice nor is it even Biblical to wish for that.
— I’m not so sure about that either
— You know as well as i that the real root cause in man’s heart
— The “State” (and all other forms of Gov, Dictatorships/Monarchs/etc) operate(s) on the principle of Aggression and Initiates Force to get their way, no matter what it is the State wants. This in itself is Unlawful, especially as to what i glean from the Bible.
— One cannot attempt to use Aggression to supress Agression, (..talk about something that can never work).
— What’s needed is a full out Non-Aggression Principled society, where only in rare cases of self-defense may one human being agress against another.
Just my thoughts…
Love
Hey P. That last paragraph reminded me of what happened to the German conservatives under that socialist Adolph Hitler.
“Will the conservatives realise this before it is too late? Fat chance. The conservative class have become extremely myopic in the past thirty or forty years. They have invested themselves in dogmatic and unpragmatic free-market ideologies that have always been fantasies and in doing so have completely blinded themselves to the bigger picture. Their own idiocy will destroy them – and in their foolishness they will pave the way for their own expropriation.”
Bet the blood trickled from your mouth after writing that. Juggling straw men and demons and slaying dragons. Violent stuff. Like the old testament or a video game. You’ve got to keep the game flowing old boy. Anything else is evil. Try eating some hash and reading this:
http://www.amazon.com/dp/0345341848/?tag=googhydr-20&hvadid=12461743328&hvpos=1t1&hvexid=&hvnetw=g&hvrand=619742313479314030&hvpone=&hvptwo=&hvqmt=b&ref=pd_sl_6fkx3jmu19_b
I’ve got no argument with your math, Philip, and I get the irony, but I’m not so sure that the left should be poking fun at the right by perpetuating their framing that socialism is a dirty word, an ideology to be wary of, a dead concept. At least some of us on this blog lean well to the left of the Democratic Party and have learned to distrust labels, such as (gasp) liberal. If Clinton and Obama are liberal, I want nothing whatsoever to do with liberalism.
What would result if Romney is elected and both the Senate and the House are filled with Republicans? Would Romney stop collecting all taxes? Would all the so-called “entitlements” (Medicare, Social Security, Universal Health Care and Walfare) be repealed in order to pay off the debt and deficit? If so, then what kind of government would you have?
A government of, by and for the banks and corporations with a huge military and a big home security institution?
Mass exodus.
Other countries are securing their borders against *us*, not to mention the US attempt to prevent people from leaving.
Sooner or later it would lead to revolution. The Romneys of this world don’t even know how to treat their own enforcers with decency.
In a kleptocracy, knowing something doesn’t work doesn’t mean what most people think it means. Balancing the budget in hard economic times is just an excuse for our elites and kleptocrats to squeeze out spending on the 99%. They will keep their tax cuts and their spending for their wars and perks even as they tell the 99% that the country can not afford spending on Social Security, Medicare, Medicaid, unemployment insurance, and all those unnecessary regulations and services the 99% unreasonably have come to expect. Put simply, balanced budgets work great for kleptocrats. They do not work for the 99%, but what else would you expect from kleptocracy?
Pilkington provides relief into first year 101 with identities(Y,C,I,G,M,X etc)that can be operationalised from the static steady state form to the dynamic form (and more assumptions) over a period of time (years). I sense there is a strait jacket effect when we equate socialism with big government. Try this on? The Defense Department is supported by taxes who in turn allocate/spend the greater part of their budget Billions$ in private sector in a myriad of endeavours. Apparently the budget is est. $800B but reports suggest that it is $1.4T allowing for off-budget expenditures. Try on the Wall St socialising of their losses onto the backs of the American public sector/taxpayer for estimates in the many $trillions.
There is a fair bit of good social science on collapse of empires and the like. I will never take the time to do it, but I bet there is a good essay in the game theoretic reasons that societies progress towards inequality & development of oligarchies, who proceed to develop rent seeking until there is little left to exploit. Then, they tend to attempt to protect their turf to the bitter end, when a coordinated voluntary disbursement of wealth & power might make the society better off…
we are past the point of no return. The argument as to whether Orwell or Huxley had the more accurate view is moot – We have the Brave New World, catalyzed by perpetual war. Both win… or not
Does any economics factor this in.
http://www.youtube.com/watch?v=O3Xfd3Xyz8g
And be sure to read the part about how it doesnt need to be programed.
The usage equation is wrong, because Investment (I ) does. It equal Saving… Due to the spending multiplier and the increase or decrease in debt. And government spending (G) is not limited to tax revenues (t), because governments can increase spending via debt issuance.
You’re assuming that conservatives want the economy to stay constant or grow outside of massive private external borrowings. That is a bad assumption. Reducing median incomes should also have the same effect as balancing the budget above, but they create through deregulated markets dodgy debts which keep the economy growing and the bulk of the population both happy for their increased standards of living and suitably chastised for their own borrowings.
As noted by others, the people who run things (and these are not all wealthy individuals necessarily) could not give a flying fluck whether or not accounting identities from another age add up. We’re deeply, deeply mired in the biggest elastic numbers exercise the world has ever seen, acutely so since 2007. Virtually every major player is lying about his/her/its true position and intent. It’s just possible that someone will come up with what we actually need, which is a way to take the global financial/trade/regulatory/environmental/security apparatus back from the criminals and finally started helping the long-neglected peoples who need helping.
Not from this guy, though. It really does matter that it is 2012, not 1950 or some such.