Friday 10 March 2017

Surpluses in All Three Sectors - Possible or Not? I'm Not Getting It.

Image credit.


Defining, for a given period, a sector's surplus as 

income greater than expenditure, 

and specifically for the respective sectors of the economy

  • S(avings) > I(nvestment), for the private domestic sector, 

  • G(overnment expediture) < T(axes), for the domestic government sector, and 

  • E(xport) > I(mport), for the domestic external sector,

Bill Mitchell proposes:

Using the sectoral balance framework, we can say that a current account surplus (X – M > 0) allows the government to run a budget surplus (G – T < 0) and still allow the private domestic sector to net save (S - I) > 0.

So, what he is saying is that all three sectors may — under certain circumstances — show a surplus.

But how is this supposed to comport with Wray's adamant below conclusion, based on the identity according to which:

(S – I) = (G – T) + (X – M)

It is apparent that if one sector is going to run a budget surplus, at least one other sector must run a budget deficit. 

(Wray, Modern Money Theory, 1915, p. 14, emphasis in the original.)

I'm at a loss. I just can't figure out where I am going wrong in thinking that the two statements are incompatible?

3 comments:

  1. Did you contact Bill Mitchell about this?

    ReplyDelete
  2. For Bill Mitchell's reply go to the comment section at

    http://bilbo.economicoutlook.net/blog/?p=35444

    ReplyDelete