tag:blogger.com,1999:blog-5598941897669653307.post3760354552695382101..comments2021-12-29T02:51:35.068-08:00Comments on Mean Squared Errors: What is it with economists and accounting identities?Unknownnoreply@blogger.comBlogger5125tag:blogger.com,1999:blog-5598941897669653307.post-41283243616055635352016-09-18T08:37:22.238-07:002016-09-18T08:37:22.238-07:00See how the economists never spotted the current a...See how the economists never spotted the current accounting absurdity with money creation by the banks: The Honest Government's Guide to the Accounting of the Revenue from Money Creation http://leconomistamascherato.blogspot.it/2016/07/banknotes-and-currency-are-liability-of.html<br />Célinehttps://www.blogger.com/profile/13815693535197405585noreply@blogger.comtag:blogger.com,1999:blog-5598941897669653307.post-82656380961811752042015-08-15T04:55:37.251-07:002015-08-15T04:55:37.251-07:00Stupid or duplicitous? Both!
Comment on Kristjan o...Stupid or duplicitous? Both!<br />Comment on Kristjan on ‘What is it with economists and accounting identities?’<br /><br />You say: “I don't have to understand what profit is to say that Keynes is correct. Just like government deficit equals private sector surplus in a closed economy. I don’t have to understand what profit is to state that this is correct.”<br /><br />It is not necessary to stress it two times that you don't have to understand what profit is. After all, you are an economist and the others, too, don't understand it.<br /><br />In any case, Keynes didn't. “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson und Bezemer, 2010, pp. 12-13, 16), see also (2011)<br /><br />It is pretty obvious that you do not understand the essence of the market economy if you do not understand profit. And, to paraphrase Wren-Lewis's unintended self-portrait, who cannot tell the difference between income and profit is stupid or duplicitous or both.*<br /><br />Egmont Kakarot-Handtke<br /><br />References<br />Kakarot-Handtke, E. (2011). Keynes’s Missing Axioms. SSRN Working Paper Series, 1841408: 1–33. URL http://ssrn.com/abstract=1841408.<br />Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34.<br />URL http://mpra.ub.uni-muenchen.de/20557/<br /><br />* See ‘Mental messies and loose losers’<br />http://axecorg.blogspot.de/2015/07/mental-messies-and-loose-losers.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5598941897669653307.post-23423566863603926182015-08-15T03:43:59.904-07:002015-08-15T03:43:59.904-07:00Profit is already included in Keynes's account...Profit is already included in Keynes's accounting identity. Value of output includes It. I guess you can start breaking the value of output down even further by differentiating in between wages, rents and capital gains. That doesn't change the fact that profit is included in value of output. So your statement: "The root cause of all accounting errors/mistakes is a complete lack of understanding of what profit is.", is false. I don't have to understand what profit is to say that Keynes is correct. Just like government deficit equals private sector surplus in a closed economy. I donõt have to understand what profit is to state that this is correct. <br /><br />The author of this post was talking correctly about accounting identities. Although he says: Accounting identities do not constrain behavior; they constrain accounting.<br /><br />All countries cannot be net exporters, this is an accounting identity, so It seems behavior is constrained somewhat. Kristjanhttps://www.blogger.com/profile/09592440548093816331noreply@blogger.comtag:blogger.com,1999:blog-5598941897669653307.post-83981098436827907682015-08-14T07:14:06.364-07:002015-08-14T07:14:06.364-07:00Either stupid or duplicitous
Comment on ‘What is i...Either stupid or duplicitous<br />Comment on ‘What is it with economists and accounting identities?’<br /><br />You say: “It's very strange. There seems to be something about accounting identities that causes otherwise reasonable economists -- pardon my bluntness -- to become either stupid or duplicitous.” (See intro)<br /><br />It is not strange at all if one drops the unwarranted premise that there is in the beginning something like a ‘reasonable economist.’ It is as simple as that: being habitual confused confusers economists did not miss the opportunity to mess up accounting, too. This holds for balance of payments accounting, but in fact goes deeper.<br /><br />It started with Keynes. He gave the following elementary formal description of the economy: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (Keynes, 1973, p. 63)<br /><br />This is the most basic accounting identity and, no surprise, economists got it badly wrong -- from Keynes to Hicks to Krugman to Wren-Lewis*. Actually, the fault in Keynes's two-liner is in the premise income = value of output. This equality holds only in the limiting case of zero profit in both the consumption and investment good industry.<br /><br />Profit does not appear in Keynes's elementary formalism because he never came to grips with this pivotal economic phenomenon. Neither did the Post Keynesians until this day (2011). Unaware of the underlying conceptual and logical defects, economists finally messed up National Accounting (2012).<br /><br />The root cause of all accounting errors/mistakes is a complete lack of understanding of what profit is. For an economist this is disqualifying.<br /><br />To make it short, here is the formally correct accounting identity for the closed economy (2014, eq. (47))<br />https://commons.wikimedia.org/wiki/File:AXEC09.png<br /><br />Derivation and explanation is to be found in the referenced paper.<br /><br />Because the fundamental accounting identity for the closed economy has always been false, the identity for the open economy has also been false.<br /><br />The problem with accounting identities has, indeed, something to do with equilibrium thinking, yet ultimately, the all-pervasive analytical blunder can be traced back to the provable false profit theory.**<br /><br />Egmont Kakarot-Handtke<br /><br />References<br />Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN<br />Working Paper Series, 1966438: 1–20. URL http://ssrn.com/abstract=1966438.<br />Kakarot-Handtke, E. (2012). The Common Error of Common Sense: An Essential<br />Rectification of the Accounting Approach. SSRN Working Paper Series, 2124415:<br />1–23. URL http://ssrn.com/abstract=2124415.<br />Kakarot-Handtke, E. (2014). Economics for Economists. SSRN Working Paper<br />Series, 2517242: 1–29. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=<br />2517242.<br />Keynes, J. M. (1973). The General Theory of Employment Interest and Money.<br />The Collected Writings of John Maynard Keynes Vol. VII. London, Basingstoke:<br />Macmillan.<br /><br />* See the 2012 MM-post ‘Savings Equals Investment?’<br />http://mainlymacro.blogspot.de/2012/01/savings-equals-investment.html?<br />showComment=1417346474425#c3472685695751252555<br />** See ‘More than two centuries of waffling in the dark’<br />http://axecorg.blogspot.com/2015/06/more-than-two-centuries-of-waffling-in.<br />htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5598941897669653307.post-80476879405154058762015-08-14T02:34:59.621-07:002015-08-14T02:34:59.621-07:00This is really good and a drum I and other writers...This is really good and a drum I and other writers/economists I follow have been beating for a while. one note about gross financial flows: its true that at the time of the transaction they have the same financial value and thus "net to zero" but over the accounting period the value of the financial and non-financial assets exchanged can diverge. People often simplify to CA=∆NIIP but because the BOP statistics don't do valuation adjustments anywhere but the NIIP CA +VA=∆NIIP<br /><br />This is tangential to your point but important to keep in mindNathan Tankushttps://www.blogger.com/profile/16298104991209885385noreply@blogger.com