Michael P wrote a while ago:
"Wynne's work is based on basic accounting principles and so has the
potential of being understood, and maybe even convincing. He shows what's
behind the boom, and shows what would have to occur for it to continue, and
that such a scenario is unlikely, but even trying it will be dangerous. The
work also has important policy implications. Abolish the
surplus, for starters."
I have a question about the accounting principles, though. Godley uses the
accounting identity that the private financial balance, the trade balance
and the gov't balance (written as a deficit) have to sum to zero. I take
this to be a restatement of the basic macro identity S - I = (G + TR - TA) +
NX. No? This suggests that public sector surpluses add to private sector
liabilities. I can understand that a surplus destroys certain kinds of
wealth (ie govt debt), but I don't get how that becomes a balance sheet
liability for the private sector.
Christian
