One’s financial asset is another’s financial liability It is a fundamental principle of accounting that for every financial asset there is an equal and offsetting financial liability. The checking deposit (also called a demand deposit or a sight deposit) is a household’s financial asset, offset by the bank’s liability (or IOU). A government or corporate bond is a household asset, but represents a liability of the issuer (either the government or the corporation). The household has some liabilities, too, including student loans, a home mortgage, or a car loan. These are held as assets by the creditor, which could be a bank or any of a number of types of financial institutions such as pension funds, hedge funds, or insurance companies. A household’s net financial wealth is equal to the sum of all its financial assets (equal to its financial wealth) less the sum of its financial liabilities (all of the money-denominated IOUs it issued). Read more at location 252
What is necessary to understand at this point is that the net financial assets held by the private sector are exactly equal to the net financial liabilities issued by the government in our two-sector example. If the government always runs a balanced budget, with its spending always equal to its tax revenue, the private sector’s net financial wealth will be zero. If the government runs continuous budget surpluses (spending is less than tax receipts), the private sector’s net financial wealth must be negative. In other words, the private sector will be indebted to the public sector. Read more at location 286
No matter how hard we might try, we cannot all run surpluses simultaneously. It is a lot like those children in Lake Wobegon (an imaginary town featured in Garrison Keillor’s Prairie Home Companion weekly radio show in the United States) who are supposedly all above average. For every kid above average there must be one below average. And for every deficit there must be a surplus. Read more at location 342
For all of these reasons, we must reverse causation between spending and income when we turn to the aggregate; while at the individual level, income causes spending, at the aggregate level, spending causes income. Read more at location 405
Individual households can certainly decide to spend less in order to save more. But if all households were to try to spend less, this would reduce aggregate consumption and national income. Firms would reduce output, thus would lay off workers, cut the wage bill, and thereby lower household income. This is J. M. Keynes’s well-known “paradox of thrift” – trying to save more by cutting aggregate consumption will not increase saving. Read more at location 498
However, anyone who proposes to cut government deficits must be prepared to project impacts on the other balances (private and foreign) because by identity the budget deficit cannot be reduced unless the private sector surplus or the foreign surplus (flip side to the domestic current account deficit) is reduced. Read more at location 508
In the aftermath of the Great Recession of 2008, many government budgets moved sharply to large deficits. (See the Figure below.) While observers attributed this to various fiscal stimulus packages (including bailouts of the auto industry and Wall Street in the United States, and bank bailouts in Ireland), the largest portion of the increase in the deficit in most countries came from automatic stabilizers and not from discretionary spending. Read more at location 512
Government can always decide to spend more (although it is politically constrained), and it can always decide to raise tax rates (again, given political constraints), but it cannot decide what its tax revenue will be because we apply a tax rate to variables like income and wealth that are outside government control. And that means the budgetary outcome – whether surplus, balanced, or deficit – is not really discretionary.
A good overall rebuttal to Debt. To say you just spend more is simplistic. A great deal of it has to do with a shortfall in revenue.
One of the most important concepts in macroeconomics is the notion of the fallacy of composition: what might be true for individuals is probably not true for society as a whole. Read more at location 571
A first order defense for Ethical Egoism, and the theory of the Invisible Hand, and Randist selfishness. All families of argument of the propositions that assert that behaving selfishly, in ones own self interest outside of any concern of collective interests will cause us to produce good for everyone is rebutted here. We had many way of going about it. But as usual, logic and Philosophy provide a tool we had missed. You can provide examples of how acting in ones own self interest can in many times be very harmful to society, rape, murder, theft, fraud. But it is a good start to simply say it is an error in reasoning to assert that what is good of a component necessarily extrudes to the set containing all in that set. The fallacy of composition. You might also point out a classic Reductio ad absurdum. If it is the case that a world where individuals only act in their own self interests leads to collectively good outcomes, then anyone in the world could simply do whatever they wanted, and we would all have the best world possible. Anarchy or a world where you were just set loose to do anything would lead to maximum efficiency. Wars, famines, all crimes and all examples of ills brought on from a person’s own desires for wealth and power would have to be considered good, which leads to a contradiction. The final death of this weak argument comes from their own rope. Millions of people acting in their own desire, call for a government – which according to the typical Randist, is a necessary contradiction to freedom. Therefor the Randist is now faced with a board set up to destroy them – people behaving in their own selfish interest create a government to give them things they want, which is supposed to destroy their freedom. They must reject one of the conclusions. Finally you can bring up the arms race, the stadium, tragedy of the commons, evolution, and bidding wars, and the entire book “The Darwin Economy.” The argument cannot survive.
All those workers who lose their jobs will have lower incomes, and will have to reduce their own saving. You can use the notion of the multiplier to show that this process comes to a stop when the lower saving by all those who lost their jobs equals the higher saving of all those who cut their hamburger consumption. At the aggregate level, there is no accumulation of savings (financial wealth). Read more at location 584