Sectoral balances approach to national accounting - are government deficits good?

The basic idea of sectoral balances is that the flow of funds between and among the various sectors of the economy net to 0. If, therefore, one runs a surplus, one or more of the others must run deficits.

One example is the balance of trade of the world as a whole: if some nations run trade surpluses, others must run deficits. The balance must net to zero, because the world can’t run a deficit (or a surplus) with itself . The numbers don’t actually show that, but that’s thought to be a problem with the numbers.

Anyway, one way to use sectoral balances is to analyze the economy of a nation in terms of 3 sectors: the private sector, the public sector, and the foreign sector. Since those sectors encompass the economy as a whole, from the viewpoint of one nation, the net of the sectors must be zero.

In the case of the US, the foreign sector runs a surplus - we have a trade deficit. The private sector also runs a surplus - there is a net positive savings rate. The government, on the other hand, runs a deficit.

The deficit of the public sector, according to this analysis, must equal the combined surpluses of the the foreign sector, and of the private sector.

Alternatively, if the government were to run a surplus, either (or both) of the other sectors would have to run deficits.

Let’s assume, for a moment, that foreign governments can, if they choose, run surpluses with Americans at will. Let’s also assume some foreign governments have chosen to do this (China, for instance), and that the US, as a matter of policy, has chosen not to prevent it. In other words, it’s foreigners that determine whether there’s a trade surplus/deficit, not the US government. (This is true, and I’m happy to discuss why.)

Let’s also assume that we WANT the private sector to run a surplus, because attempting to force them into a deficit, against their will, leads ultimately to economic collapse.

Wouldn’t that mean our real choice is between: 1. Ending free trade, 2. Government deficits, and 3. Economic collapse?

In other words,isn’t a public sector deficit both necessary and desirable?