Reply To A Comment On Saving Net Of Investment

My previous post Saving Net Of Investment was written to disprove claims made by Neochartalists such as

Without a government deficit, there would be no private saving.

I don’t publish comments and respond privately and I had two comments from someone whom I couldn’t track back. So here’s a reply.

Hi Ramanan,

Great work here.  Thanks.

Two questions.

1.  Can you explain what this means precisely?  Does it just mean the household sector was borrowing more when the surplus was run?  Where did their savings come from exactly?

2.  It’s perfectly possible for the private sector to save if the budget is balanced and the foreign sector runs a trade surplus, right?

Thanks!

Just to add one more question.  How can the private sector save without a government budget deficit?  Is this accurate?

1.  Household’s must be paid in the form of an asset, the firm’s liability?

2.  The country must run a current account surplus (balanced budget deficit)?

My whole point is that saving and “net saving” are drastically different. A sector or the whole private sector can have positive saving and a net borrowing (flow) simultaneously.

Can you explain what this means precisely?  Does it just mean the household sector was borrowing more when the surplus was run?  Where did their savings come from exactly?

Yes the household sector was in deficit in 1999 onward as can be seen from line 48 of the F.8 data I attach in my blog.

It’s perfectly possible for the private sector to save if the budget is balanced and the foreign sector runs a trade surplus, right?

Yes of course. It is also possible for the private sector to having positive saving if the budget is balanced and the foreign sector runs a surplus or deficit. Of course, we are talking of the possibility (not sustainability) but data shows this was true in reality as well.

How can the private sector save without a government budget deficit?  Is this accurate?

1.  Household’s must be paid in the form of an asset, the firm’s liability?
2.  The country must run a current account surplus (balanced budget deficit)?

Yes the private sector can save without a budget deficit – which is what the data I linked shows 🙂

It’s not even necessary to run a trade/current account surplus for this. And that’s what the F.8 data for 1998-2000 shows.

This is because saving takes the form of both accumulation of real assets and financial assets.

The whole point is that saving is just defined as disposable income minus consumption expenditure. Expenditure for house purchase is not subtracted, for example.

I have an example here at the end of the blog post Income And Expenditure Flows And Financing Flows in the section titled “Example”

Regards,

Ramanan

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