Spudda can’t even get sectoral analysis right

Technically this is described as the sectoral balances. I do not have time to explain this in great detail this morning: try this link for an explanation I did a while ago.

The sectoral balances are not some theory: they are simply an accounting identity. They say that in the case of a single currency (and for all practical purposes that is what the UK has, in the form of sterling) if one part of the economy, which we will call the private sector wants to save, then another part of the economy, which we will call the government sector, has no choice but borrow, most especially when that government is the creator of the currency in question. This is simply an accounting identity: double-entry will happen. The ramifications are, however, significant.

At the link – from his own blog recall – he shows us this:

Which shows us that there are three sectors, not two. Private (made up itself of household and corporate), government and damn foreigners. Even, the private sector – on net – and government both borrowing at the same time. Them damn foreigners doing the lending.

Which is pretty good really, isn’t it? OK, sure, having weird ideas about things is one matter. But being contradicted by your own evidence is something else, isn’t it?

7 thoughts on “Spudda can’t even get sectoral analysis right”

  1. Huh?

    “if one part of the economy, which we will call the private sector wants to save, then another part of the economy, which we will call the government sector, has no choice but borrow, ”

    So if I decide to save money in a sock in my bottom drawer, then the government has to borrow money? How does that follow?

  2. Nick

    You had a deposit at the bank – which you swapped to coins and notes because you fancied it, but ultimately is the same thing. That deposit at the bank is something or someone else’s borrowing, be an overdraft, loan, house mortgage, corporate loan, whatever. The pluses and minuses always net off (for the currency).

  3. When he was a Prof, he used to claim he taught students. I wonder if any of those unfortunate people have asked for refunds

  4. I wonder if any of them have jobs even vaguely related to Richard’s area of professorial expertise.

  5. Nick,

    Saving is the excess of income over consumption. If you decide to save an extra $100, then the income of the community, and by its extension its saving, falls by the same $100. Saving, in the aggregate, remains unchanged.

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