Accounting identities are not behavioural rules
Chris Dillow says that there may be: ...a structural dearth of investment opportunities; even in the boom of 2007, firms had a large surplus. If this is the case, then a permanent large corporate surplus means permanent large government borrowing...government borrowing is - to a large extent - out of the government’s hands. But this is an odd argument. It starts from the premise that: government borrowing + corporate borrowing + household borrowing - net foreign lending = 0 Which is true, because by definition these things must add up. From this, Chris infers that the government has no control over its borrowing, because after corporates, households and foreign investors have made their choices, the government will be stuck with whatever's left over. This is untrue, however. It implies that all other actors have free choice and the government has none. In fact, the levels of borrowing are a negotiation between all the four parties in the above equation. Imagine a simpler e...