A little macro food for thought:
National Accounting relationship between aggregate spending and income:
Y = C + I + G + (X – M), where Y is GDP (income), C is consumption spending, I is investment spending, G is government spending, X is exports and M is imports (so X – M = net exports).
GDP (Y) is also subject to another set of identities, as follows:
Y = C + S + T, where S is total saving and T is total taxation (other variables as previously defined).
If you rearrange the factors, you can separate out these accounting identities into a sectoral balances relationship between these three sectors: private sector (S – I), government budget sector (G – T), and external sector AKA net exports (X – M):
(S – I) = (G – T) + (X – M), or alternately:
OK, I can easily see this. You simply moved I to the left and T to the right.
And you cancelled out C.
quetzalcoatl wrote:Net Private Spending = Net Govt Spending + Net Exports
This I don't understand.
When you cancelled out C, you cancelled out most family income because C is spent and not saved.
Therefore, everything below is in question until you explain how S-I = Net Private spending.
Or more likely to me (the non expert), your claim that Y= C+S+T is likely false or at least not relevant. Relevant to changes in family income and which IMHO family income = C+S. Or at least, C+part of S.
quetzalcoatl wrote:If you examine this sectoral relationship in detail, you can see a few interesting tidbits:
* If you increase net exports, you can increase net private spending without changing net govt spending (this is the post war Asian miracle, in macro terms).
* If net imports remain steady and net government spending remains constant, then net private spending will remain constant. That sounds okay at first glance, but it has a big problem: it doesn't allow for family income to remain constant as population grows. Net private spending must increase in proportion to population growth, or else families will suffer reduced incomes.
* Either net govt spending or exports must increase as population increases, or else per capita incomes will fall.
* If net exports are steady, net government spending must increase over time to match population growth. Notice that net government spending is defined as G - T (gross govt spending minus taxes).
* Net government spending can only grow if the deficit grows. That is to say government spending must exceed taxes on a consistent basis, which is exactly the same as saying there must be a deficit.
* This is reflected in the historical record, where the relatively small number of budget surpluses are followed by sharp recessions as private net income falls.
NOTE: accounting identities are not causal factors, they simply reflect the underlying structural relationships in monetary economies.
I actually like all those conclusions.
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Not sure what to elaborate.
Investment (I) increases the capital stock, hereby increasing next period output (Y) and with it C,T,G,I,S. Part of G can also be seen as investment (e.g. infrastructure, education).
IMHO, if I was large enough to start with then, corp. part of Private Income will increase, but the family part of Private Income will usually increase much less.
Therefore, your claim that output (Y) and with it C,T,G,I,S will all increase together fails because the income of the corps. must be transferred to the workers and their families for C to be maintained. [BTW -- this may have been so before 1978, but after 1980 wages have been flat, while investment has continued to increase productivity and therefore corp. incomes.]
Either that, or you are saying that the economy will be fine if corporate incomes keep going up, while family incomes keep going down.
IMHO, this will not work out well in the long term.
IMHO, that is what has happened and now we see a million people in the streets protesting.
IMHO, their economically poor situation is a big part of why you see a million in the street protesting.
Galbraith died in 2006, he's excused.