Again: I Does Not Equal S
Remember when I wrote this brilliant insight a while back? Well, over the last few weeks there has been an upswing in this whole debate.
S doesn’t equal I, at least not for the last few hundred years in the United States. I don’t know why you’d bother thinking through a world where S=I. It happens so rarely and so infrequently, it’s like taking welding goggles with you everywhere as preparation for an eclipse.
Here is Scott Sumner responding to JKH over his statement “you are assuming a closed economy with a balanced budget”:
JKH, Both Wren-Lewis and I are assuming a closed, balanced budget economy. That’s not the issue being disputed.
So your complaint has no merit. I’m quite certain even Wren-Lewis would agree with me.
Last I checked, our budget hadn’t been balanced for a decade, and is going to be 8% of GDP or so. Then we have this shocking Balance of Payments issue that’s another few 5% of GDP or so. In other words, the argument has merit due to real world observations of what actually happens in our economy.
This is a funny statement from JKH addressed to Scott Sumner :
There’s something wrong (and there has been from day one) if his opinion matters that much to you. Although, seems like you’re not the only one in that regard.
If you’re right on stuff, you should be able to ignore him and still prevail in the longish run.
If you’re not right on stuff, it won’t matter either way.
We are creating a new, more accurate economics, with a better way of thinking through issues. And the old guard doesn’t see it yet. We will prevail.
Update: This other quote from JKH shows exactly why this all matters:
The corresponding “saving” numbers are those generated per accounting period. For example, suppose the government runs a $ 1 trillion deficit and the economy adds $ 2 trillion in real assets, both in a given year. Then incremental NFA is $ 1 trillion, incremental investment is $ 2 trillion, incremental private sector saving is $ 3 trillion, and incremental national accounts saving is $ 2 trillion.
When you take G-T out of the equation, you’re making the ability hoard “impossible” inside the toy world. Then when you see something which appears to be hoarding in the real world, you’ll be absolutely confounded. It will appear mysterious and in need of a complex explanation, when all you need is to do the accounting correctly.
You get bonus points for recognizing hoarding is related to inflation rates.