I’m highly sympathetic to Post-Keynesian economic perspectives. Post Keynesians generally prefer to work from an operational perspective so there is a strong influence on how the economy works at an operational level which includes a fairly thorough understanding of stock flow consistent accounting. As I like to say, accounting is the language of economics so it’s pretty important to get the accounting right if you’re going to understand how the monetary system and the economy operate.
Anyhow, David Graeber had a popular video and op-ed in The Guardian the other day in which he appears to be using a line of thinking that is often commingled with Post-Keynesian Economics – Modern Monetary Theory (MMT). Unfortunately, David made several errors in his video because he was using these MMT based misunderstandings (MMT responded to this, but made the same errors they always do).
MMTers have been harshly criticized (primarily by Post-Keynesians here, here and here for instance) for these errors and it continues to generate a good deal of confusion. The Graeber video generated a discussion on Twitter and in the Pragcap Forum so let’s see if we can’t clarify some things.
In the video Graeber makes a series of bold statements about “accounting identities” and “simple math” when he refers to the government’s deficit. He concludes saying:
“If the government balances its books it makes it almost impossible for you to balance your books”
This statement is wrong and misleading. And David’s error stems from something we see in MMT on a consistent basis where they depict the economy through a 2 or 3 sector lens. The cause of this error is the result of MMT’s alternative definition of “net saving”. Now, in economics 101 net saving is consistent with the way the OECD defines it:
Leave A Comment