JKH once again says something hugely interesting, this time about the primacy of accounting over economics:
“It acknowledges and uses the powerful logic that accounting is not just a rear view measurement device – it is also a constraint on all forward looking projections of economic outcomes – meaning that it is an important condition in the substance and shape of good economic analysis.”
With this in mind, we need to remember that today was the future from the point of view of yesterday. Today is a realization of one of the possibilities from yesterday, and not everything was possible to happen today due to accounting constraints.
This is one of the reasons why we pound the table the accounting. The accounting is a constraint on the possible, and excludes some outcomes from ever happening. Not only that, but what happens today *MUST* have been possible in the accounting yesterday – and we *MUST* be able to track this back and see how it happened/evolved in the accounting.
We were talking about endogenous vs. exogenous money recently and some people think money is “long term exogenous”. But we know today is the “long run” from the point of view of 2008, or 1995, or some other date in the past you might choose to make it “long run”. If you think the long run is “5 years in the future”, then what happened 5 years in the past would be manifested today.
So you would find money is long run exogenous by empirically looking at the accounting of today, and relating it to some measured accounting number in the past, and then we would have “long run” exogenous money.
We would be able to see this exogenous money today. We would be able to see how the fed hit their past exogenous money target through measurements we take today based on the actions the fed took in the past and how the accounting evolved. Yet we do not see this in anything we can measure.
Cullen had good thoughts on this too.
Our economic outcome we experience today was one of the possible outcomes we had yesterday. Our outcome today was constrained by what was possible in accounting terms yesterday.