"Business annual reports provide two basic accounting statements—a balance sheet, which is also termed a statement of condition, and an income statement. A firm's balance sheet lists the dollar value of its assets and liabilities as of a specific date. A firm's income statement lists its revenues and expenses (the difference being profit) for a year. Similar statements are prepared on a national level in the United States. Analogous to a firm's income statement, a nation's production of goods and services for a year (as well as its spending and saving decisions) are summarized in its gross national product (GNP) accounts. Analogous to a firm's balance sheet, the U.S. balance sheet lists the dollar value of assets and liabilities for U.S. residents. The flows that are identified in the GNP accounts and elsewhere are linked to changes in the levels of assets and liabilities reported in this balance sheet".Since the GFC there has been plenty talk about national level balance sheets.
The 1991 expository paper "The U.S. Balance Sheet: what is it and what does it tell us?", by Keith M. Carlson, from the Federal Reserve Bank of St. Louis provides a good primer. By itself, that would recommend it: econo-amateurs (and maybe a few professionals) could learn much from it.
While the paper's subject is national level balance sheets, the paragraph above goes beyond that specific subject: (1) it introduces levels/stocks and flows, (2) it identifies levels with balance sheets and flows with statements of income and losses, (3) highlights a rather evident analogy between individual firm's balance sheets and national level balance sheets, and (4) a perhaps less obvious analogy between individual firm's statements of income and losses and GNP accounts.
Better informed readers may find that trivial. I, however, wonder how many have (4) and its implications in mind. For example, what does (4) suggest about technocratic economists' simple-minded quest to increase GDP (or GNP) as paramount goal for economic policy?
Further, the parallelism "maximising national GDP" and "maximising a firm's bottom line" fits well with the tendency to associate society with a business and business ability with the ability to rule society. In that context, misguided as it may be, the claim that a businessman, like Donald Trump, could make a good President, precisely because he is a businessman has had a long history.
Regardless, the paper probably should be recommended reading for students of economics, which is not to say they should not be mindful of what they read.
Take for instance an inset arguing that national level balance sheets should include "intangible", "human" wealth (from "a person's stock of knowledge" to "mobility of the population"; from "freedom" and "equity" to "privacy" and a "system of property rights"), on the basis that
"For all tangible forms of wealth, it is simply not possible to estimate value without considering the effect of intangible factors".While it's likely po-keys and "human capitalists" would find much to like in that critique -- as it is based on the unmeasurable, touchy-feely things they love so -- I wonder if the irony would be missed on them: that inset compares two such proposals. Kendrick estimates a figure of $8,572 for total wealth per capita for 1969 (1990 dollars); while Jorgenson-Fraumeni estimate for the same concept, for the same year, using the same 1990 dollars, $92,540!
Or, better, imagine a firm's management negotiating a $400 loan and presenting their banker the following balance sheet:
Assets: | Liabilities:
Cash: $100 | Current: $500
Human wealth: $1,000 |
| Equity: $600
They do have plenty "human assets" and "human equity", to cover the loan, don't they? As the banker, however, would you approve that loan?