JKH ON SAVING
1 March 2012 by Cullen Roche
15 Comments
The leader (?!?!) of the MMRists, JKH has been leaving brilliant comment after brilliant comment over at the MMR website. If you’re still confused as to why we think S=I+(S-I) is important I would recommend heading over there and reading his comment which I posted. John Carney of CNBC has also added some good thoughts at Net Net.
You realize Bill Mitchell has 4 sectors? HH, CORP, FOR, GOV.
Much easier to capture the dynamics `tween HH & CORP. + CORPs have a different stock/flow dynamic than HHs (e.g., stocks).
Plus the BSR in the USA is in the HH sector. Not so clear that it is in the CORP sector.
I think JKH’s desire to clarify “saving” is important, especially against the 4 sectors not 3.
Yah, I can’t understand the MMT position. It seems to go against everything that makes societies advance. E.g. someone invents antibiotics. He invests his brainpower in, and gets an asset out (e.g. patents, cash flow from antibiotic sales). The net financial balance is 0 (invested time = claim on invention asset), but how can you argue that nothing important was created? One person (Pasteur) spends a few 100 hours, and extends lifespans by billions of hours!
Horizontal money/credit is/should be the prime working capital for society.
Vertical money is a special asset that provides financial working capital (liquidity) for exchange of assets.
Unfortunately, vertical money will always be pressured to be used as a savings vehicle by “hoarders” who are content not to contribute to develop assets for the benefit of society. It will also be exploited by others as well (China).
jt26– The MMT position is not “that nothing important was created” when someone invented antibiotics. That is absurd.
JKH has made an important discussion to the MMT debate, in my opinion. However, his supporters have gotten carried away and made some pretty idiotic statements.
Here’s what I posted on this subject on John Carney’s blog:
So I agree that the distinction between horizontal and vertical savings is important and a real contribution to MMT…
‘Private sector liabilities go into default all the time.’
Yeah, they used to didn’t they, before the US before communist (General Motors, the housing market, the banks to name but a few) and anti-market. Bye bye effecieint allocation of capital!
‘Government sector liabilities do not.’
Oh but they do, but only in the EU, where bad lending is forced to take its losses and bad governments are forced to take their medicine with real austerity, because (as you know) there is no such thing as risk-free lending, or free government monies.
‘That is why many private sector liabilities are guaranteed by the government sector.’
Makes no sense. What is? Communism?
‘That is why the Federal Reserve was able to save the financial system by buying toxic private sector liabilities in 2008.’
Makes no sense. What is? Communism?
The sad world inhabited by MMT!
Thanks for comment Dan.
My observation from the back-and-forth arguments (inc. the “back to the future” debate between SK/SF/CP linked by CR) was:
(i) “net loss in the private sector” is bad
(ii) and if (i) is true, then my (absurd) statement would be true.
But, if MMT is not saying (i), then I retract my argument.
I agree that vertical money has special properties, and these can be used for good and evil (just like regulation of horizontal assets).
It’s pretty clear that Kelton’s terminology with the “net loss” reference was sloppy. But I don’t know why MMTers are throwing a big hissy fit over it. We’re just clarifying their position. It’s not like we’re proving them wrong or making them look bad. They’re not always clear in their communications, which is not surprising considering the complexity of the discussions. Big deal. I don’t know why they always overreact to everything. It’s ridiculous and they make tons of enemies behaving like this….
Thank you jt26. I recognize a humble and honest comment. I’m not sure I follow your logic, but that’s probably my shortcoming.
What do you think of my reformulation of JKH’s equation?
Rearranging the deckchairs whilst the Titanic sinks.
Illustration: In Greece from 2000 to 2010 the household sector has a financial excedent of 70 billions euros (on top of a very high residential investment and, of course, high consumption). But the private sector balance has a deficit.
Isn’t it about time JKH identify himself? You purport him (perhaps?) the leader of the only theory which apolitically identifies the workings of the system but he remains anonymous?
Savings = Horizontal saving + vertical savings + foreign savings
Savings = Horizontal saving (investment) + vertical savings (fiscal deficit) + foreign savings (trade surplus)
Can (aggregate) investment be negative? I imagine the value of investment varies considerably depending upon the accounting technique to value past investments (book value, market value). Can anyone help me with this?
@Gary
In Ireland the CB created Money so as to bail out malinvested Anglo Irish bank credit bonds & deposits (known as the Anglo Prommisory notes) – not to fund goverment – the Euro is a perversion.
The Anglo Bonds have left the building now – Europe wants us to reduce our domestic money supply created after this criminal act thus transferring the malinvestment pain onto citizen serfs.
Not really sure why you put @Gary in this comment?
Anyhow, all fiat currencies are open to abuse, but at least the ECB has forced austerity, forced reality.
And it has loads of marked-to-market gold on its books too.
Ireland was a bubble, now it has burst, you guys need to take your medicine and then recover. We’ve got the same shit to go through in the UK, but we’ll destroy the currency first: at least your savers haven’t been wiped out by currency collapse…thanks to the Euro.
I got some helpful feedback from JKH on the MMR site. Apparently, investment (flow) can be negative if depreciation and amortization exceed new investment in a time period. Also, investment, as measured in the national statistics, is not always good saving, since it may just represent unsold goods. JKH also mentioned that savings from foreign trade has some vertical characteristics, so perhaps the simplist formulation is just to say:
private sector saving = net investment + fiscal deficit + trade surplus