Stocks vs Flows

Key Takeaways

1. 1A stock is a quantity at a single point in time — bank balance on Jan 1st, total employed today, total debt as of now
2. 2A flow is a rate over a time period — monthly income, hires per month, the annual budget deficit
3. 3Flows change stocks — if income (flow) exceeds spending (flow), wealth (stock) grows; the relationship is bathtub math
4. 4You cannot compare a stock to a flow directly — it's a category error, like comparing miles to miles-per-hour
5. 5GDP is a flow (output per year); national wealth is a stock (accumulated capital, land, infrastructure) and is much larger
6. 6Most deficit scares mix stocks and flows — debt is a stock, deficit is a flow, and the right policy response depends on which one is the problem
7. 7The single best filter for economic news: for every number cited, ask whether it's a stock or a flow, and check that comparisons are like-for-like