Why the Flow of Funds Don’t Explain the Flow of Funds: Sectoral Balances, Balance Sheets, and the Accumulation Fallacy

Steve Roth

MPRA Paper from University Library of Munich, Germany

Abstract: This paper highlights and unpacks a little-known reality about the Financial Accounts of the United States: the Flows matrix on page 1 of the Federal Reserve’s quarterly Z.1 report does not explain period-to-period changes in the Levels matrix on page 3. The same is true of the sectoral Flow and Levels tables underlying those matrixes. Nor do those tables provide balance-sheet-complete accounting of household or national wealth accumulation. Measures of net saving/investment/capital formation and accumulation, and national wealth accumulation, diverge by tens of trillions of dollars. The discrepancy is explained and resolved by assembling a balance-sheet-complete empirical derivation of comprehensive U.S. “Haig-Simons” income, based on the Integrated Macroeconomic Accounts. The comprehensive measure is 23% higher than national accounts’ “primary” income. Relationships to the Piketty/Saez/Zucman Distributional National Accounts (DINAs) are discussed, along with implications for economic theory and empirical modeling, both mainstream and heterodox/Post-Keynesian.

Keywords: wealth; flow of funds; capital; accumulation; integrated macroeconomic accounts; IMAs; income; gains; holding gains; capital gains; haig-simons (search for similar items in EconPapers)
JEL-codes: B4 B5 E21 E22 E25 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-acc, nep-hme, nep-mac and nep-pke
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https://mpra.ub.uni-muenchen.de/105281/1/MPRA_paper_105281.pdf original version (application/pdf)

Related works:
Working Paper: Why the Flow of Funds Don’t Explain the Flow of Funds: Sectoral Balances, Balance Sheets, and the Accumulation Fallacy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:105281

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