D
Deleted member 231381
Unconfirmed Member
if the government is running a surplus (net flow of money from the private sector as a whole to the government), then reverse is true: the private sector is running a deficit (net flow of money from the private sector to the government). This is just an accounting identity - given a set amount of money, if you have two bodies and one is gaining money the other must be losing it.
If the government takes more money through tax out of the private sector than it puts back in through spending (this is by definition what a surplus is), then the private sector, as an aggregate body, is losing money - so its savings are going down. If the net private sector has 0 money (no savings), and the government continues to run a surplus, then the private sector as a whole *must* be going into debt - given that there was 0 money but the government is continuing to get net money (surplus) out of it, the private sector must now be in negative money (debt).
This isn't to say every single person runs up debt. Some people in the private sector will still have savings. Just, on net, the private sector will not.
The above is true just given what the definitions of all the words mean, but the last part of the article on the other hand makes empirical claims that are more disputable. I think the link is at least somewhat plausible - if the private sector as a net is running a deficit, then the average person must also be running up a deficit (this is true because maths). The average person also doesn't like doing this, so they'll try pulling back on their spending. This causes a recession (or so the argument goes). I do think the evidence is inconclusive on this one, and I think the use of the last graph in the article is basically wrong. 2008 was almost certainly not caused by the brief Labour surplus in 2001, but rather because of a liquidity crash stemming from the fact a tonne of banks didn't actually understand what they were trading. Nevertheless, it is probably true that extended periods of surplus are probably unhealthy.
https://www.youtube.com/watch?v=Au2N07eHa-Q