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Extra info for Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems
More broadly, there are a lot of underground economic activities that are not recorded anywhere. Thus in practice some statistical discrepancies will emerge in accounting from difficulty of measurement or unavailability of data. Another goal of national accounting is to see how economic sectors relate to each other. For example, when the government spends on goods and services (G), this leads to an inflow of income to the private sector. On the other hand, taxes (T) are a drain on the private sector.
It is even more difficult to project if and for how long a budget deficit might continue. Projections are darned hard to get right – if they were easy, we would make lots of money placing bets on outcomes. Another way of stating this is to say that a good understanding of MMT and sectoral balances does not give one a monopoly on explanations of causation. We must not be overly confident. As the late and great Wynne Godley used to put it, he did not make forecasts; rather, he made contingent projections.
First, the three balances must balance to zero. This implies it is impossible to change one of the balances without having a change in at least one other. Second, at the aggregate level, spending (mostly) determines income. A sector can spend more than its income, but that means another spends less. While we can take government spending as more-or-less discretionary, government tax revenue (government’s equivalent to its income) depends largely on economic performance. As the chart above showed, tax receipt growth is highly variable, moving pro-cyclically (growing rapidly in boom and collapsing in slump).