Makes perfect sense to me that payrolls would be a function of sales.

9 Responses

  1. We can’t see the data from the early 90’s, but Clinton kept the growth of debt in check during the 90’s. Then you have G-Dub come in and spend like no other. So yes, I agree the deficit spending is the main reason for the difference between sales and incomes. Plus, some private debt too since an increase in public debt increases private debt.

    But, the question should be, is there a clear relationship that current deficit spending increases follow-on incomes? I don’t think the graph can really say this. And perhaps instead it says that increases in government spending can increase the gap between sales and incomes.

    Although the graph can’t answer this, perhaps the increase in deficit spending causes wider changes in the business cycle than would normally be done if the economy was savings based versus deficit based. Instead of consuming today with tomorrow’s dollars, savings today could feed investment and spending later which increases more savings and yet more production in future years.

    1. The Interest (do people call you that, like The Situation on MTV’s “Jersey Shore”?),

      Assuming the trade deficit doesn’t change, increasing govt debt necessarily increases private savings and vice versa. Incidentally, the above chart may show the trend lines but isn’t a proxy for aggregate income and demand because it doesn’t account for the effects of govt sector taxing and spending. As for Clinton, let me quote something Randy Wray wrote:

      While everyone thought the Clinton budget surplus was a great achievement, they never realized that by identity it meant that the private sector had to spend more than its income, so that rather than accumulating financial wealth it was running up debt.

      The book Randy is discussing (Treval Powers’s Leakage) is pretty interesting. Powers points out that the leakage between aggregate Income and aggregate demand has to be filled by govt spending. An enormous portion of the avoidable sorrow in the world today is because government leaders here and abroad don’t understand this. They react to this leakage by cutting aggregate demand (by tax hikes or spending cuts) precisely when they should be boosting it (by spending hikes and tax cuts).

      Try as they might, the gap between income and demand doesn’t go away, it just finds its equilibrium at a lower level of economic output. If physicians today were as oblivious to reality, they’d still be bleeding patients to balance the humours.

    1. Seems to be suggested data showing that spending is at the high end. Investment is low and capitalists’ consumption high.

      1. I use the Gallup spending polls to try and get a handle of spending and spending by income level.

        This is just an overall spending level – you can see we’re at 60% of what was spent in 2008!

        but the numbers have been increasing for high income (ok moderately high >90K) or at least the same.

        I’ve made the case over and over that if we are going to see an end to the recession, upper income levels need to spend a ton more. Of course, this is given that we maintain the status quo with our distribution system and don’t adopt something like the payroll tax holiday or otherwise increase wages for the lower and middle classes.

  2. Just watching the state governors conference on cspan. It seems every state governor is a deficit terrorist, very scary stuff. Alan Simpson keeps saying the pig is dead, no more pork.

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