By Joe Firestone
Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).
This very simple statement by Marshall Auerback reflects the Sector Financial Balances (SFB) Model I discussed in “A Plague On All Your Budgets.” The Sector Financial Balances Model:
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0; Continue reading
By Paul Meli
There are many important laws that determine the behavior of various systems within the Universe but as far as economics is concerned, none is more important than the concept of a closed system.
By Scott Fullwiler
As Stephanie Kelton has recently published two excellent pieces explaining the sector balances in the context of government “belt tightening” (see here and here), a logical next step is to present this in the sector financial balances model of aggregate demand. This post will only briefly review that model before applying it to austerity policies; those desiring more complete background can find it here, and a printable version here. Posts by several others describing various aspects of the model are also linked to therein.