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?
Did you contact Bill Mitchell about this?
ReplyDeleteYep.
ReplyDeleteFor Bill Mitchell's reply go to the comment section at
ReplyDeletehttp://bilbo.economicoutlook.net/blog/?p=35444