Another Economic Dimension


New Economic Perspectives has the article Another Dimension.

If the private sector imports more than it exports, ignoring investment flows, it will run a financial deficit while the foreign sector runs a surplus and the economy will then slow down as money in the private sector becomes scarce.  Unless the trade deficit is reduced, the only way to keep the economy running is for the government to run large deficits, as is it is doing now.  While few people understand the sectoral view of the economy, many are aware of problems that this one-dimensional view does not explain.

(To understand the topic of sector balances, read my previous post When Will the White House and OMB Ever Learn About Sector Financial Balances?)

The article Another Dimention is an important contribution. The MMT explanations I have seen so far are good explanations for the subset of economic issues they address. The other issues have been brushed off with the statement that MMT does not address these issues. This article is a call to address those issues.

I have another issue with MMT that I have never seen addressed, although I have asked many times. The picture of the three pots ignores the factor of mark-to-market. Wealth in a single sector may act as if it is growing autonomously with no flows from other pots because we tend to value just about everything with a mark-to-market method. You can argue that this increase is just imaginary, but it is not real money, but for that matter fiat money isn’t any more real. No matter whether or not mark-to-market growth (and decline) is real money, economic actors act in many ways as if it were real. If we want to explain what really happens in an economy, we have to talk about how real people really behave.

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