# Tom  Keene Is Correct To Call For Analysis By Deciles; Lisa Abramowicz has Good Reason to Wonder About the Real Strength of Consumers’ Balance Sheets

Colleagues Tom Keene and Lisa Abramowicz (Bloomberg Surveillance) are non-plused.  Tom is correct in calling for a “partition by deciles” of the population’s Incomes in order to understand properly the ability of particular segments of the population to deal with inflation.  Lisa properly wonders why credit card debt is rising if the “consumer’s balance sheet”, according to some analysts, is “in good shape,” i.e. shows an historically-large cash balance.

In the following, “basic income” (I’) is precisely defined as income for expenditure in the circuit characterized by the first-order, algebraic, point-to-point correspondence of the current rate of application of factors of production to the rate of flow of goods and services currently exiting the productive process (being sold).  Thus, basic income is roughly income used to purchase “consumer goods” as distinguished from “surplus goods” (capital, point-to-series-correspondence, goods).(See CWL 15, Section 7, Division of the Productive Process, pp. 23-28)

The simplest manner of attaining a fairly adequate concept of basic income is to divide the economic community into an extremely large number of groups of practically equal income. … In any group i let there be at any given time ni members; let each member receive an aggregate (basic and surplus) income yi per interval, so that the whole group receives niyi; finally, let us say that the group directs the fraction wi of its total income to the basic demand function, so that basic income (I’) per interval is given by the equation

## I’ = Σwiniyi

… and so one obtains for the increment per interval of basic income the simpler equation

## δI’ = Σ (wiδni + niδwi)yi

where ni includes the adjustment due to migration.  We shall consider in turn variations in basic income in virtue of  δni  and variations in virtue of  δwi . … Hence, in migrations from low to less-low income groups, most of the increment of individual total income becomes an increment of basic income; but in migrations from high to still higher income groups, most of the increment of individual total income becomes an increment of surplus income.  Evidently, then, suitable migrations are a means of providing adjustments in the community’s rate of saving.  To increase the rate of saving, increase the income of the rich; while they may be too distant from the current operations of the economic process to judge, at least they can put their money into the bank or bonds or stocks, and perhaps others there will see how it can best be used.  To decrease the rate of saving, increase the income of the poor. … The foregoing is the fundamental mode of adjusting the rate of saving to the phases of the productive cycle. …(and) this fundamental mode of adjustment is complemented by a further mechanism of automatic correction.  (price changes) (CWL 15, 133-134)

The purpose of this section is to inquire into the manner in which the rate of saving W is adjusted to the phases of the pure cycle of the productive process.  Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective. [CWL 15, 133)

The traditional doctrine of thrift and enterprise looked to the supply of and demand for money to adjust interest rates and the adjusted rates to adjust the rate of saving to the requirements of the productive process.  But it can be argued that a) this view was not sufficiently nuanced in its estimate of the requirements of the productive process, b) that it missed the magnitude of the problem, and c) that it tended to lump together quite different requirements. … [CWL 15, 140, ftnt. 197]

Thus, measurements using Lonergan’s simple scheme of incomes in terms of “an extremely large number of groups of practically equal income” would answer Tom’s demand.  Similarly, measurements using Lonergan’s scheme would answer Lisa’s question about how really well positioned are the lower-income groups to deal with inflation.

Lonergan goes on in Section 26, entitled The Cycle of Basic Income, of CWL 15 to criticize the ineptitude of manipulating interest rates in order to correct what is fundamentally a maldistribution of incomes during the phases of the pure cycle of the productive process.

Also, see herein The Ineptitudes in Central Bank Operations, and please read in its entirety that enlightening Section 26.