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So yes, the budget deficit has soared — but it's just offsetting a surge in the private sector surplus.
In the present situation, and for the foreseeable future, Labour should seek to reduce both the public sector deficit and the corporate sector surplus.
Here's the picture of what has happened to saving and investment in America in recent years: The blue line is government saving, roughly speaking (leaving some public investment aside) the public sector surplus or deficit; the red line is the private sector surplus, the difference between private saving and private investment.
For one thing, we know that most of that surge in the private sector surplus reflects the collapse of the housing bubble, and that most of the surge in the public deficit reflected automatic stabilizers.
For as long as the corporate sector surplus remains at its current levels, the rest of the world fails to return to strong growth and the household sector refuses to go on a new spending spree, cuts in public spending will just weaken the economy and not have the effect on the public sector deficit that policymakers want.
The primary public sector surplus has shrunk since 2012 and is unlikely to reach its goal for this year (Chart 5).
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Both public sector surpluses and current account deficits (CADs) draw demand out of the private sector; the only way it can grow is through deficits, via increased indebtedness and reduced savings (the sectorial accounting approach).
This follows another huge private-sector surplus, of 7.2%, the year before.
But Gavyn Davies of Goldman Sachs questions this, saying that the £2 billion public-sector surplus now planned for the last year of this Parliament may be "overkill".
In June, the state sector budget surplus was 5.8 billion euros, up from 1 billion euros a year earlier.
It sees only a modest drop in Japan's private-sector saving surplus, from 11% of GDP in 2004 to 9% in 2012.
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