Subject: Re: Foreign exposure
About the Kalecky Levy thing, not sure I buy this:
"If the government funds the tax cut by reducing other expenditures by the same amount as the lost taxes to keep the deficit unchanged, then in aggregate, the corporate sector will lose that amount in revenue. Consequently, the boost in profits from the tax elimination would be negated by the reduction in revenue, effectively nullifying any net gain in profits."
There is something goofy in the way they balance the equation so neatly ignoring the time lag between cause and effect. Their theory has to be wrong.

The explanation is a bit fuzzy around the edges, as any simplified illustration must inevitably be. The equation has more than two parts. But the theory itself is sound, for the simple reason that it's a mathematical identity. It can't be wrong, by definition. It's true over time, and true in every sub interval. However it is true that a change in one component can certainly drive a subsequent change in other component(s) which arrive only after a lag, so it is a dynamic system.

It's the same sort of thing as realizing that the global weighted average cost of borrowing (interest rate) has to equal the global weighted average return from lending (interest rate). You might think that borrowers are paying more than lenders are getting, but that's not possible in aggregate.

The best part of that blog post is the second graph, with the components stacking to show what is determining net profits. Why did US net profits soar from 1970 to 2025 on trend, as a share of GDP?
The purple section (households, basically savings rate) shrank a lot, and the red section (government deficit) rose a lot. Those changes were huge, so profits had to go up. They probably won't go down as a share of GDP unless/until one of those shrinks a lot. I can't imagine any sequence of events that would cause the US government sector deficit to shrink meaningfully in the next couple of decades, so the only big "risk" to US profits (as share of GDP) is probably if US consumers were to get into the mood of saving more.

The first order effect of big tariffs is pretty clear from the equation, too. (red section government deficit smaller, black line profits lower) But the exact subsequent rebalancing of all the components is harder to predict. All we know is that the equation will remain true, macroeconomic Whac-a-mole: any push down here will be (must be) accompanied by some pop up over there.

Jim