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There is also an interesting relationship between government surplus/balance sheet and corporate profits. If you are non-cynical about it, and consider a theor

There is also an interesting relationship between government surplus/balance sheet and corporate profits. If you are non-cynical about it, and consider a theoretical model (closed system), then from basic economics if one actor is running a surplus than another actor must be running a deficit, otherwise the accounts don't balance. And while true, "it's only a model" (in the immortal words of John Cleese, looking at the model of Camelot in "MP and the Holy Grail"), if you chart the two against each other it holds up relatively well in reality. This is relevant because the Fed is also committed to shrinking its balance sheet, which, if that model holds, will also shrink corporate profits. Higher cost of capital, higher taxes, and less money in the pot. We've had a good run the last 40 years, the next 7 might not be so rosey.

hgomersall 4y ago
It's not really a model, it's accounting. The reason it holds up well is because it's an identity. If you represent all the flows they must sum to zero by definition. Those that ignore that (most people) miss some fundamental truths, which you allude to. No idea why you should be voted down other than to think those truths break much cherished dogma.
- mellavora 4y ago
  well, downvotes for challenging dogma with mathematical identities is a long-standing tradition. I'll take them with pride on this issue. But thanks for the support, and for pointing out that I'm only stating identities, and that sometimes trends reverse.
pessimizer 4y ago
> We've had a good run the last 40 years, the next 7 might not be so rosey. The "good run" also relied on that identity. The national income accounting identity tells us that if we run massive trade deficits for 40 years, we get a massive trade debt that has to be borrowed in foreign currencies. It can be either borrowed by the government, or individuals/businesses. The government can't cut national debt without reducing (or better, reversing) the trade deficit, so what it's actually doing is shifting that borrowing to the private sector. So ultimately reduction of government spending amounts to selling the private sector to pay off government debt, which imo is not good. We shift from owing other countries paper that we have an infinite supply of, to owing them actual parts of the economy. We need to be shifting spending from all of the direct subsidy to the wealthy of course, but we shouldn't be reducing anything. Turns out that giving money to rich people isn't a good investment because they steer most of it to financial scams and rent-seeking ploys. The government needs to spend in a way that targets lowering the trade deficit, and that means investing in things with a return. Part of that should be trying to shift the debts of normal individuals to government, where they can be more strategically invested in a way that will reduce imports or increase exports. The debts of normal individuals are mostly wrapped up in housing, healthcare, and education. So we should be subsidizing those rather than the stock market.
- bradleyjg 4y ago
  The debts of normal individuals are mostly wrapped up in housing, healthcare, and education. So we should be subsidizing those rather than the stock market. The subsidization, or more specifically the removal of individually driven feedback mechanisms, is what caused the prices of these things to skyrocket in the first place. The modern university isn’t basically the same as the 1970s university except post Baumol's cost disease. The budget looks dramatically different.
  - pessimizer 4y ago
    > The subsidization, or more specifically the removal of individually driven feedback mechanisms, is what caused the prices of these things to skyrocket in the first place. No, it's that the subsidy was done through middlemen and rent-seekers instead of direct provision of free healthcare, education, and housing. Giving people earmarked funds is just direct subsidy to the people who control pricing.
    - bradleyjg 4y ago
      K-12 education is done via direct provisioning and has also seen costs explode, in no small part due to growth in non-core staff.
  - mellavora 4y ago
    > The modern university isn’t basically the same as the 1970s university except post Baumol's cost disease. The budget looks dramatically different. Agreed. Look at ratios of professors to non-academic staff. "The number of non-academic administrative and professional employees at U.S. colleges and universities has more than doubled in the last 25 years, vastly outpacing the growth in the number of students or faculty, according to an analysis of federal figures." https://hechingerreport.org/ranks-of-nonacademic-staffs-at-colleges-continues-to-outpace-enrollment-faculty/ https://hechingerreport.org/ranks-of-nonacademic-staffs-at-c... "Over the last two decades, the number of managerial and professional staff that Yale employs has risen three times faster than the undergraduate student body" https://yaledailynews.com/blog/2021/11/10/reluctance-on-the-part-of-its-leadership-to-lead-yales-administration-increases-by-nearly-50-percent/ https://yaledailynews.com/blog/2021/11/10/reluctance-on-the-...
FredPret 4y ago
The zero-sum model bears no relation at all to reality. Consider the total planetary economy. We get many inputs from outside. We get free sunlight powering some solar panels and the whole ecosystem. We tap that ecosystem for many valuable resources. We get vast troves of pre-existing minerals that can dig up at will. We also have innovators that come up with inventions and systems and are compensated for their contributions, but never to the full extent that they benefit society. (Nobody can capture all of the value they add.) Growth seems almost inevitable.
- hgomersall 4y ago
  Whether or not real wealth can increase or decrease is besides the point in this discussion. Financial assets must sum to zero across the system.
- koyanisqatsi 4y ago
  What innovations are going to maintain infinite economic growth on a finite planet that is going to be 2C degrees warmer in the coming decades?
  - 6510 4y ago
    You sort of answer your own question, off world resources. Infinity is out there not down here.
    - 6510 4y ago
      I should add, we are hysterically bad at predicting innovation (or predictions in general). We seem to repeatedly do things that the far most experts in that field would have angrily rejected for sounding preposterous. Perhaps not often enough but we do see those things regularly on the HN front page.
- mellavora 4y ago
  You might be right, and I was clear that it was only a model. This gives a starting point. You can then measure the value added by the externalities you mention. Or, as the author of the source article did, you can also measure the value added by low interest rates and low tax rates, then make some guesses as to what happens when those reverse.
cs702 4y ago
The expanding and shrinking of the Fed's balance sheet over period of time is neither a surplus nor a deficit, because there's no spending involved. The Fed expands is balance sheet by purchasing interest-bearing government/agency obligations (bonds) with non-interest-bearing government obligations (money), and shrinks it by selling the interest-bearing obligations in exchange for non-interest-bearing ones. The balance of government obligations (issued bonds + issued money) remains the same. There's no spending involved.
BurningFrog 4y ago
Money is not wealth. We can all get wealthier (or poorer) in a in a system with a fixed amount of money.

hgomersall 4y ago

It's not really a model, it's accounting. The reason it holds up well is because it's an identity. If you represent all the flows they must sum to zero by definition. Those that ignore that (most people) miss some fundamental truths, which you allude to. No idea why you should be voted down other than to think those truths break much cherished dogma.

mellavora 4y ago
well, downvotes for challenging dogma with mathematical identities is a long-standing tradition. I'll take them with pride on this issue. But thanks for the support, and for pointing out that I'm only stating identities, and that sometimes trends reverse.

pessimizer 4y ago

> We've had a good run the last 40 years, the next 7 might not be so rosey. The "good run" also relied on that identity. The national income accounting identity tells us that if we run massive trade deficits for 40 years, we get a massive trade debt that has to be borrowed in foreign currencies. It can be either borrowed by the government, or individuals/businesses. The government can't cut national debt without reducing (or better, reversing) the trade deficit, so what it's actually doing is shifting that borrowing to the private sector. So ultimately reduction of government spending amounts to selling the private sector to pay off government debt, which imo is not good. We shift from owing other countries paper that we have an infinite supply of, to owing them actual parts of the economy. We need to be shifting spending from all of the direct subsidy to the wealthy of course, but we shouldn't be reducing anything. Turns out that giving money to rich people isn't a good investment because they steer most of it to financial scams and rent-seeking ploys. The government needs to spend in a way that targets lowering the trade deficit, and that means investing in things with a return. Part of that should be trying to shift the debts of normal individuals to government, where they can be more strategically invested in a way that will reduce imports or increase exports. The debts of normal individuals are mostly wrapped up in housing, healthcare, and education. So we should be subsidizing those rather than the stock market.

bradleyjg 4y ago
The debts of normal individuals are mostly wrapped up in housing, healthcare, and education. So we should be subsidizing those rather than the stock market. The subsidization, or more specifically the removal of individually driven feedback mechanisms, is what caused the prices of these things to skyrocket in the first place. The modern university isn’t basically the same as the 1970s university except post Baumol's cost disease. The budget looks dramatically different.
- pessimizer 4y ago
  > The subsidization, or more specifically the removal of individually driven feedback mechanisms, is what caused the prices of these things to skyrocket in the first place. No, it's that the subsidy was done through middlemen and rent-seekers instead of direct provision of free healthcare, education, and housing. Giving people earmarked funds is just direct subsidy to the people who control pricing.
  - bradleyjg 4y ago
    K-12 education is done via direct provisioning and has also seen costs explode, in no small part due to growth in non-core staff.
- mellavora 4y ago
  > The modern university isn’t basically the same as the 1970s university except post Baumol's cost disease. The budget looks dramatically different. Agreed. Look at ratios of professors to non-academic staff. "The number of non-academic administrative and professional employees at U.S. colleges and universities has more than doubled in the last 25 years, vastly outpacing the growth in the number of students or faculty, according to an analysis of federal figures." https://hechingerreport.org/ranks-of-nonacademic-staffs-at-colleges-continues-to-outpace-enrollment-faculty/ https://hechingerreport.org/ranks-of-nonacademic-staffs-at-c... "Over the last two decades, the number of managerial and professional staff that Yale employs has risen three times faster than the undergraduate student body" https://yaledailynews.com/blog/2021/11/10/reluctance-on-the-part-of-its-leadership-to-lead-yales-administration-increases-by-nearly-50-percent/ https://yaledailynews.com/blog/2021/11/10/reluctance-on-the-...

FredPret 4y ago

The zero-sum model bears no relation at all to reality. Consider the total planetary economy. We get many inputs from outside. We get free sunlight powering some solar panels and the whole ecosystem. We tap that ecosystem for many valuable resources. We get vast troves of pre-existing minerals that can dig up at will. We also have innovators that come up with inventions and systems and are compensated for their contributions, but never to the full extent that they benefit society. (Nobody can capture all of the value they add.) Growth seems almost inevitable.

hgomersall 4y ago
Whether or not real wealth can increase or decrease is besides the point in this discussion. Financial assets must sum to zero across the system.
koyanisqatsi 4y ago
What innovations are going to maintain infinite economic growth on a finite planet that is going to be 2C degrees warmer in the coming decades?
- 6510 4y ago
  You sort of answer your own question, off world resources. Infinity is out there not down here.
  - 6510 4y ago
    I should add, we are hysterically bad at predicting innovation (or predictions in general). We seem to repeatedly do things that the far most experts in that field would have angrily rejected for sounding preposterous. Perhaps not often enough but we do see those things regularly on the HN front page.
mellavora 4y ago
You might be right, and I was clear that it was only a model. This gives a starting point. You can then measure the value added by the externalities you mention. Or, as the author of the source article did, you can also measure the value added by low interest rates and low tax rates, then make some guesses as to what happens when those reverse.

cs702 4y ago

The expanding and shrinking of the Fed's balance sheet over period of time is neither a surplus nor a deficit, because there's no spending involved. The Fed expands is balance sheet by purchasing interest-bearing government/agency obligations (bonds) with non-interest-bearing government obligations (money), and shrinks it by selling the interest-bearing obligations in exchange for non-interest-bearing ones. The balance of government obligations (issued bonds + issued money) remains the same. There's no spending involved.

BurningFrog 4y ago

Money is not wealth. We can all get wealthier (or poorer) in a in a system with a fixed amount of money.