The Fed’s Taper and Market Fealty

[Kimura]

But it's not that surpluses run by the public sector result in prive sector deficits; it's really that public sector surpluses are the same as private sector deficits.

The equation is an identity and should have ≡ instead of =. So, S+T+C+M ≡ C+I+G+X. Rerrange to (S - I ) ≡ (G - T) + (X - M) if you prefer.

If we simplify to a closed economy (S - I ) ≡ (G - T), then using this equation, a gov't surplus does not precede/cause a private deficit, neither does a private deficit precede/cause a gov't surplus. All we can say is that a gov't surplus is identical to a private deficit and vice versa. We cannot use this equation to establish a logical sequence or causal relationship between the sectors.

Yes! I was simply trying to point out that these equations are a matter of accounting.

I have no problem using national income accounting, but it has some limits. It only accounts for total spending in the economy. It's not an economic model, doesn't speak to welfare/efficiency, and doesn't account for behavior, tastes, preferences, and constraints of economic agents. I think it is useful to point out that public deficits are identical to private surpluses (in a closed economy) because I don't think most people realize this, but I don't think it's of much use beyond this.

Right, I totally agree. I've spent a significant amount of time trying to explain the basics of sectoral balances/macroaccounting on here. There's just so much misinformation regarding public debt, the nature of deficits, interest rates, the difference between convertible and non-convertible currency, etc.

And not speaking of you here because I don't think you're doing this, but I think some MMT people on the internet/blogs treat the national income identity as an economic model and end up smuggling some a priori policy ideas into a discussion. If you use it as a model, you end up seeing what you want to see.

Most of the MMT economists usually don't do this. We obviously can't construct an economic model around national income identities. It's a good deal of the armchair folks, running blogs that tend to get caught up in national income identities as if it's some eureka moment or something.

Are you saying that the money supply is only bank reserves? The money supply and monetary base are not necessarily the same thing.

I'm saying that any changes in the money supply results in changes in the monetary base and bank reserves. The money multiplier was taught to us in reverse as undergraduates.