i think China is a counterexample here. it runs a large overt fiscal deficit, and a larger covert fiscal deficit in the form of underpriced finance to strategic industries by state-affiliated bans and investment funds, losses on which eventually will filter back to central govt balance sheets. 1/

i think the connection between the deficits is much looser than simple “national savings” arithmetic suggests. you can run a large fiscal deficit for investment and export subsidies and generate a larger trade surplus, increasing “national savings” on net. 2/

you can run a low deficit or surplus, and find the public borrows from abroad and a cleverly eager financial system instead of consuming from income derived from deficit spending. 3/

of course borrowing from the domestic financial sector seems a wash to “national savings” arithmetic, but eventually the bad lending finds the public balance sheet. 4/

you can write accounting identities about “national savings”. but the fiscal deficit level alone is not a remotely reliable or useful causal mechanism. 5/

running a larger or smaller deficit can do all kinds of things. these may be part of some useful prescription. but on their own, they are not useful. again, i don’t think the counterfactual of “fiscal restraint” in the US would look anything like Germany. 6/

you would also need the Hartz reforms, and you would also need some trade counterparty to take the role of first Southern Europe then the US to provide the income the state is not. 7/

“smaller fiscal deficit => trade surplus => prosperity without national dissaving” is not a recipe that works without attention to a lot of details, and without international partners to take the other side of the trade surplus. /fin