Deficit Owls | MMT: Sectoral Balances - Why The Government Must Run Deficits @deficitowls5296 | Uploaded August 2016 | Updated October 2024, 13 hours ago.
Professor L. Randall Wray explains the idea of sectoral balance.
Imagine if the economy were just you and me. If I were to spend less than my income (a surplus), then therefore you'd be receiving from me less than you're giving to me (a deficit). What I net receive from you (my surplus) minus what you net give to me (your deficit) must sum to zero.
This same argument holds true if you scale it up to the whole economy: the sum of all the surplusses and deficits must be zero. For convenience, MMT divides the economy into 3 sectors: the government sector, the domestic private sector, and the foreign sector. And the private sector almost always wants to run surplusses (because people want to save money for retirement and such). That means that one or both of the government or the foreign sector must run a deficit to supply that income to the private sector.
A foreign sector deficit is called a trade surplus (or a current account surplus). This means that more money is coming from the outside world then we are sending out to it, generally meaning we export more than we import. A foreign sector surplus is a trade deficit, and it means more money is leaving the country than is coming in from the rest of the world. This happens when we import more than we export.
In the US, we run trade deficits: we buy more than we sell to the rest of the world. This means we are constantly losing dollars to the foreign sector. AND the private sector has a strong desire to run a surplus and save, meaning the economy is constantly losing dollars to bank accounts. This means the government MUST run a deficit. If it doesn't, then the private sector will be drawing down bank accounts and going into debt from banks.
See the whole video here: youtube.com/watch?v=-KRi9nF8BiA
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Professor L. Randall Wray explains the idea of sectoral balance.
Imagine if the economy were just you and me. If I were to spend less than my income (a surplus), then therefore you'd be receiving from me less than you're giving to me (a deficit). What I net receive from you (my surplus) minus what you net give to me (your deficit) must sum to zero.
This same argument holds true if you scale it up to the whole economy: the sum of all the surplusses and deficits must be zero. For convenience, MMT divides the economy into 3 sectors: the government sector, the domestic private sector, and the foreign sector. And the private sector almost always wants to run surplusses (because people want to save money for retirement and such). That means that one or both of the government or the foreign sector must run a deficit to supply that income to the private sector.
A foreign sector deficit is called a trade surplus (or a current account surplus). This means that more money is coming from the outside world then we are sending out to it, generally meaning we export more than we import. A foreign sector surplus is a trade deficit, and it means more money is leaving the country than is coming in from the rest of the world. This happens when we import more than we export.
In the US, we run trade deficits: we buy more than we sell to the rest of the world. This means we are constantly losing dollars to the foreign sector. AND the private sector has a strong desire to run a surplus and save, meaning the economy is constantly losing dollars to bank accounts. This means the government MUST run a deficit. If it doesn't, then the private sector will be drawing down bank accounts and going into debt from banks.
See the whole video here: youtube.com/watch?v=-KRi9nF8BiA
Like Deficit Owls on Facebook: facebook.com/DeficitOwls
