Introduction to the Sectoral Financial Balances Model

A recent post introduced the income-expenditure model, a staple of introductory courses in macroeconomics. In this post, a closely related model of the sectoral financial balances is considered at a similarly introductory level. The ‘sectoral financial balances model’, or ‘SFB model’ for short, has been discussed in the blogosphere by a number of Modern Monetary Theorists, including Bill Mitchell, Robert Parenteau, Eric Tymoigne, Daniel Conceicao and Scott Fullwiler, prompted by a post of Paul Krugman’s which contained a useful diagram. Analysis of the sectoral financial balances proved insightful in understanding both the lead up to the global financial crisis and its aftermath. This claim will be substantiated once the basic model has been outlined.

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Unearned Income and its Distribution

In any society, there will be real output (real income) and real wealth that is not produced solely by humans. Some real income is due to the contribution of nature – land, natural resources, beneficial weather patterns, animals and so on. Some real income is produced by machines, robots and other means of production that were created by prior applications of labor in combination with nature. In any given accounting period, this real income is ‘unearned’ in the sense that it is not due to human effort exerted within the period. Much of it currently flows to industrial capitalists and rentiers on the basis of property ownership rather than productive contribution. Over time, the real productive contribution of means of production can be expected to rise, due to technical progress. In this post, a framework is tentatively suggested for thinking about the distribution of unearned income, both at a point in time and as it grows over time.

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Approaches to the Reduction of Aggregate Labor Time

Technology has reached the point where nobody should be compelled to spend most of their waking hours working in dangerous, menial or otherwise unpleasant jobs (‘bad jobs’, for short). It is increasingly possible to mechanize most menial and repetitive tasks. But of the bad jobs that continue for a time, there remains the question of how best to share the burden they impose. Even with better jobs, there is the potential to reduce standard working hours and create more free time for those who want it. Here, too, there is the question of how to manage such an overall reduction in working hours. Since some people will desire to maintain or increase their current working hours, ideally there should be latitude for them to do so, just as there should be latitude for others, so inclined, to shorten their labor-time commitment. In this post, three alternative approaches to the problem are briefly considered. They can be labeled ‘universal job sharing’, ‘optional job sharing’ and ‘job or income guarantee’.

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2014 New Year’s Resolution

Yes, you read that correctly. Resolution, singular. The truth is it’s very difficult to get much work done when the rest of you are on holiday. It’s lazy of me, admittedly, but your leisurely high spirits permeate the atmosphere, afflicting even the most industrious of economics bloggers. So, be warned, if it wasn’t already obvious, that the economic content of this post will be near zero. Step off now if frivolity is not your thing.

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Heteconomist Holiday Message 2013

Casting a wary eye over old posts, it became clear that this time last year a tradition in the form of an annual holiday message was launched. For bloggers especially taken with the Christmas/New Year spirit, a launch of this kind might make sense. Otherwise, it is surely unwise. It requires coming up with a message that is more or less the same as last year yet different enough to justify its existence.

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Is Demand for Investment Goods a Derived Demand in Marx?

It is well known that for Keynes the demand for investment goods, as for labor services, is a derived demand. The demand for investment goods ultimately depends on the extent to which they are needed to produce items of consumption. Certainly, one investment good may be required in the production of a second investment good which, in turn, is needed to produce the first investment good. Iron gets sold to steelmakers who sell some steel to iron makers in a circle that never makes direct contact with the production of consumption goods. But this occurs because such maintenance of iron and steel works enables, indirectly, the supply of investment goods for the production of items of consumption.

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Effect on the Mind of the Words “Spending” and “Investing”

In a recent talk based on a paper by Louisa Connor and Bill Mitchell, Mitchell considers the way in which the mainstream framing of the economy serves the neoliberal ideological agenda and how the framing could be altered to suit progressive viewpoints. Among the examples he gives are the terms “government spending” and “budget deficit”.

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Currency Viability In a Pure Income Tax Regime With a Basic Income

The notion of tax-driven money is easiest to understand in relation to an exogenous tax such as a property tax or simple head tax. Demand for a state money is most effectively driven by exogenous taxes, not endogenous ones such as income taxes. Even so, in a hypothetical system with a tax imposed solely on income, the tax would still drive demand for a state money. It is worth considering why this is the case, because it also indicates why some level (but not any level) of a basic income would also be consistent with currency viability.

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Graphical Representation of the Income-Expenditure Model

This is a follow-up to a recent post on the income-expenditure (IE) model and is at a similar introductory level. Some knowledge from the previous post is assumed, so for those unfamiliar with the model, it would be best to read that post before this one. The purpose is to explain how the model can be represented graphically in a two-panel diagram. The top panel shows equilibrium and disequilibrium adjustments in terms of income and planned expenditure. The bottom panel shows them in terms of planned leakages and injections.

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