Wednesday, April 25, 2012

New Flow Visualizer and Minor Observations on Macroeconomics

In case you missed it, yesterday I introduced a preview of the Macroeconomic Circular Flow Visualizer via a post on EconViz (read the linked post to see more on possible future features and such).

Since I don't always get around to writing the longer ThoughtOfferings posts that linger on my "to do" list, I've been thinking of posting a (still infrequent) mix of bite-sized observations on macroeconomic dynamics. (Hey, the blog is called thought offerings!) Some of them may be inspired by the EconViz visualizers. They are unlikely to be novel, and apologies if I state the obvious too often. But, if there's an occasional observation I can't remember having seen discussed explicitly elsewhere and that I find interesting, then perhaps others will find it interesting too. And if you think I draw incorrect conclusions at any time, please speak up!

Here's one for today on the full autonomy of macroeconomic flow injections. The circular flow visualizer shows in green the three injections -- government spending, investment, and exports.
  • A Post Keynesian revelation is that the injection of business investment has no dependency on the past leakage flow to saving (i.e., on the current quantity of savings). The mainstream believes you need savings to fund investment and also that central bank policy levers play a big role here.
  • A MMT revelation is that the injection of government spending has no dependency on the past leakage flow to taxes (or on the whims of bond markets).
  • Exports are "funded" thanks to foreign countries' circular flows of income, so combining the previous two revelations, the injection of export spending has no dependency on the past leakage to imports. (At least with floating currencies, governments sovereign in their own currencies, etc...) A question I don't know the answer to -- does the mainstream macroeconomics profession in countries with persistent trade surpluses worry about foreigners running out of funds to buy their exports??? (Since they'd believe those foreign economies' other two injections have constraints).

No comments:

Post a Comment