Once again, simple Keynesian thought-experiments that hinge on saving-investment balances prove to be the best way to think through what is going on at the moment. Macroeconomics is less about supply and demand, more about saving-investment decisions.
Anyway, in thinking about this series for Exante, the following short macro accounting framework was useful.
One thought on “Saving-investment balances and the Great Reflation”
‘Macroeconomics is less about supply and demand, more about saving-investment decisions.’
I’d say there is no ‘less’ or ‘more’ here, S (desired) > I (desired) is trivially synonymous with agg. supply > agg. demand (for ‘goods’ – nonfin. assets – & services):
* S = I + (X-M) – equivalent to ‘change in net worth equals change in real assets plus change in net financial assets’ – is true for any open economy (including any sector or any individual legal subject) and
* (X-M) for the aggregate economy is zero by definition, so that S = I
S (desired) > I (desired) means X (desired) > M (desired): desired sales (supply) > desired purchases (demand). By definition.
In some more detail: