The Truth About The Deficit 1


Bernie Sanders posted this statement on Facebook.

I’ll display it below, but it seems to take a while to appear.

Bernie Sanders' post

Bernie, give us Stephanie Kelton’s views on the deficit. There is no sense promoting a false idea. If the American people aren’t ready to hear the truth about it, then just stop mentioning it. You don’t want to be in a position when the American people are finally ready to listen to have to retract all the things you ever said about it.

The truth about the deficit is most easily seen by the following realization: you can divide up the net flow of US dollars every year into three pots – 1. The domestic private sector, 2. the government, and 3. foreign accounts. That accounts for the net flow of all U.S. money. If the government does not run a deficit at least as large as our foreign trade deficit, then the difference between the foreign trade deficit and the federal budget deficit must come out of the U.S. private sector. That means that if the federal government had a balanced budget in any given year, the domestic private sector would be drained of wealth that year by the size of the trade deficit.

Are you people sure that this is what you want?

The following equation defines the situation:

(domestic private sector surplus) = (government deficit) – (U.S. foreign trade deficit)

or

(domestic private sector net in flow of money) = (government net out flow of money) – (net U.S. money flowing to foreign recipients)

The word  net in the above is an essential part of the equation.  Money may flow among different sections of each pot, but between the pots, it is the net money flow that I am talking about.

If you do not think I have written the right equation to show the flow of net money among the three pots, you tell me what the right equation would be among those three pots.  If you don’t think these three pots cover every bit of net U.S. money flow, then you tell me what other pot there may be. If you think you have found another pot, I will explain to you where that new pot actually fits into one of my three pots.

If the concept of all this blows your mind, please pick up the pieces, and don’t spread the mess around here.


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One thought on “The Truth About The Deficit

  • SteveG Post author

    By the way, I have recently come to realize that the near universal valuation strategy of mark-to-market causes people to think they have a different amount of money from what they actually do have. This thinking motivates some economic activity. So, while it isn’t really money, we still need to take it into account when we are trying to figure out how the economy works. I don’t think it enters the picture much when we talk about the truth about the deficit, but it may be important in deciding how much deficit the economy needs or doesn’t need at any given moment.