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By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCIs CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from New Economic Perspectives

The Congressional Progressive Caucus (CPC) recently issued its Better Off Budget document as an alternative to the White House/OMB document, and the coming House budget document, a Republican/conservative alternative. The Better Off Budget has received enthusiastic evaluations from writers affiliated with the DC progressive community. Richard Eskows recent treatment is typical and provides other reviews that are laudatory. These progressives clearly see the CPC budget as anything but an austerity budget. But is it, or is it not?

Recently I posted an analysis of the White House OMB budget showing that it was a budget that brought the nation close to a macroeconomic austerity at best stagnation, and at worst recession or depression situation over the next decade. My analysis used the Sector Financial Balances (SFB) model and some estimates based on related data to reach that conclusion. I also pointed out that projected private sector aggregate savings were so small due to the OMB budget, that, if the Government succeeded in implementing it, was very likely to cause severe microeconomic austerity for working and middle class people with a longer term result that would accentuate economic inequality in America due to the power of large corporations and the FIRE sector to monopolize the savings left to the private sector by the Governments very low deficit budgets over the period 2015 2024. Later well see how the CPC budget looks from the point of view of the SFBs that would result if its budgets were carried through as projected. But first lets review the SFB approach and its application to the idea of austerity.

The Sector Financial Balances (SFB) model is an accounting identity, and these are always true by definition alone. The SFB model says:

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0.

The terms refer to balances of flows of financial assets among the three sectors of the economy in any specified period of time. So, for example, when the annual domestic private sector balance is positive, more financial assets are flowing to that sector, taken as a whole, than it is sending to the other two sectors. Similarly, when the annual foreign sector balance is positive, more financial assets are being sent to that sector than it is sending to the other two sectors. When the private sector balance is negative, the private sector is sending more to the other two sectors than it is getting from them, and so on.

Now lets think about austerity. From the perspective of the SFB model, government macroeconomic austerity is medium to long-term fiscal policy characterized by a focus on reducing budget deficits, or increasing budget surpluses, and mostly on the former in todays environment where many nations have trade deficits. In addition, it involves destroying private sector net financial assets by cutting government spending and/or raising taxes in such a way that Government additions of net financial assets to the non-government portions of the economy (government deficits) fall to a level low enough (even becoming government surpluses) that they are less than the size of the trade balance, whether in deficit or in surplus.

What about microeconomic austerity? Microeconomic austerity embodies the same idea as macroeconomic austerity, except that it applies to sub-sectors of the foreign and private sectors, rather than to each sector taken as a whole. So, we can have macroeconomic austerity with or without microeconomic austerity, depending on the sub-sector of the foreign and private sector we are talking about. However, if there is macroeconomic austerity, then there must be at least some sub-sectors within the private or foreign sector experiencing microeconomic austerity. Examples of macro- and microeconomic austerity are discussed in my previous post linked to earlier.

Issues of distribution of financial flows cut deeply here. If a nations economy is structured so that some parts of the foreign sector and some parts of the private sector have sufficient economic and political power to direct financial flows from outside and inside the sector disproportionately into their coffers, then macroeconomic austerity may translate into microeconomic prosperity for those sub-sectors, and into disproportionate microeconomic austerity for the sub-sectors with lesser economic and political power.

Here are the projections based on the OMB 2015 budget recently published by the White House, the CPC Better Off Budget and on quarterly time series data kindly provided in Spreadsheet format by Professors Scott Fullwiler and Stephanie Kelton.

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Joe Firestone: Progressives Re-Arrange the Deck Chairs for Obamas Austerity Budget