Government deficit food for thought


Basic accounting – the Kalecki equation – shows that government deficits and corporate profits are on opposite sides of a ledger that sums to zero. Historically, there’s been a powerful statistical relationship between changes in the government deficit and subsequent changes in profits margins: major increases in deficits have led to rising profit margins over the next few years, and major decreases in deficits have led to falling profit margins. We have just seen one of the biggest decreases in the government deficit in history. It is very likely to be matched by a subsequent drop in profits.

From Entering the Super Bubble's Final Act by Jeremy Grantham.

I lack the experience to critique this perspective, but it is intuitive and I've found myself thinking about it repeatedly since I read the article a couple weeks ago.