So, sectoral analysis then

Sectoral analysis is based on the insight that when the government sector has a budget deficit, the non-government sectors (private domestic sector and foreign sector) together must have a surplus, and vice-versa. In other words, if the government sector is borrowing, the other sectors taken together must be lending. The balances represent an accounting identity resulting from rearranging the components of aggregate demand, showing how the flow of funds affects the financial balances of the three sectors.

OK. The private sector must end up with more financial assets when the government is borrowing.

Equally so, the private sector must end up with control over fewer real assets when the government is borrowing. For the government is borrowing to take control over real assets. The same sectoral accounting identity means that as government does so then the private sector must have control over fewer.

There’s got to be something wrong with that because it cannot be that simple. But using a wide definition of real assets – like, the attentions of the people being paid money by government – it seems to be true. So, why is it wrong?

14 thoughts on “So, sectoral analysis then”

  1. Off topic, TalkRadio has upped its game, LBC getting wet. While Iain Dale at 7pm has become a snivelling wet BLM-enabler, Talkradio has some newish good and promising stuff after J H-B and Mike Graham: Ian Collins at 1pm, then some Aussie sounding not-a-lefty cissy and at 7pm Kevin O’Sullivan. So from 7am onwards no lefty content.

  2. If the government is borrowing simply to spend money on benefits or to increase pay rates for public sector workers then it doesn’t take control of any real assets. It may, however, deprive the private sector of the ability to acquire real assets due to waste of resources involved in transfer payments.

  3. I know what you mean about Iain Dale. He pretends to be some sort of conservative. But if you wrung him out over a bucket, you’d get about a gallon & a half of pale pink froth.

  4. Usual “I am not a” disclaimer applies so this is just guessing.

    However, “For the government is borrowing to take control over real assets”. What if the government borrows to create new assets or at least improve existing ones. I’m thinking of infrastructure expenditure. That would not reduce real assets held by the non-gov sector.

  5. The private sector will not end up with more financial assets when the government is borrowing from the BoE.

  6. @AtC

    Rule 2: There are always opportunity costs. Govt is borrowing to gain control of structural engineers, earth-moving plant, concrete, rebar, etc. These resources are now unavailable to people, and if my experience of govt contracts is anything to go by, these resources are being used really inefficiently.

  7. Why combine private domestic and foreign into one category? They would seem to be very different things, and if all your funding was coming from abroad, or none of it was, that would be useful to know.

  8. Sectoral analysis does divide into three, private, foreign, government. It’s just shorthand being used there, that if government is borrowing then the other two must be, net…..

  9. “There’s got to be something wrong with that because it cannot be that simple.”

    Why?

    Don’t John77 and Matt cover it off using the widest possible definition of assets? Even if it’s just the state doing more (as a result) that the private sector might otherwise have done.

  10. @Jussi
    Not keen on Ian Collins. The Aussie (Kiwi?) Dan Wooton is good:

    Douglas Murray: “Dawn Butler has accused everybody of being institutionally racist”
    “It’s really easy to talk about institutional racism… you can get on Channel 4 News in no time… the thing that’s difficult to say is there’s terrible knife crime in London”.

    Dawn Butler is just pulling another ‘Jussie Smollet’-style phoney hate crime publicity stunt

    Rod Liddle – the old-school patriotic leftie C4 News call ‘far-right’
    The BBC has become too woke

    Glad I stopped paying for the British Brainwashing Cult year’s ago

  11. @Arthur
    Unless Gov is building infra-structure to compete/exclude private sector
    eg HS2 or a Gov/Council airport eg Cardif

    Private can and does do big infra-structure: channel tunnel, HS1, New London Sewer (Thames Tideway Scheme), Heathrow

    @john77, TMB, Matt
    +1

  12. Well, one thought I have is that since government can create money out of thin air and ‘borrow’ from itself – it doesn’t mean the private sector has to be lending. I mean, how often do governments borrow from people they have to pay back?

    And as for ‘gaining control of real assets’ – guess that depends on how you define that but most government spending is not on producing assets of any type but control of how others produce assets. And, of course, on lavish salaries and benefits.

  13. Agammamon – yes, that was my thought as well: sectoral analysis no longer applies when government debt is taken up not by the private sector or foreign investors but by the public sector itself in the guise of the central bank.

  14. TMB

    Of course you are right, but that element is perhaps an aberration in the context of Tim’s question? In that, outside of an MMT styled administration, Tim expects that (QE) element to be reversed in due course, whereas his specific question survives any such reversal.

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