A note and a chart today from Warren Mosler .

Funny how little attention, if any, is focused on how corporate profits are a function of federal deficit spending?

Ideological conflicts?

Nothing new about the idea that deficit spending and profits are related: [from Wikipedia]

"Kalecki's most famous contribution is his profit equation.     P_N=C_P+I+D_g+E_e-S_w

In this model total profits (net taxes this time) are the sum of capitalist consumption, investment, public deficit, net external surplus (exports minus imports) minus workers savings."

The above chart shows US Corporate Profits YOY change, quarterly (source: BEA).

In any case, without an increase in net exports or some kind of material increase in credit expansion the decline in the federal deficit is highly problematic.

Gary Rogan writes: 

But what if reducing deficit spending encourages "capitalist" investment? Kalecki's equation also assumes that all the "workers'" wages are spent. If all the money printing stopped and interest rates rose what would be the effect on savings by "the workers"? These types of equations are static identities with some simplifying assumptions and ignore various feedback loops. Seems pretty similar to the Keynesian assumption that government spending like crazy has exactly the same positive effect as companies and individuals making their own spending and investment decisions. It is well known that when consumers are aware of deficit spending they reduce their own spending in anticipation that they will eventually be taxed (and I assume inflated out of their money) to eventually pay for that deficit spending.


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