Evaluating Causes, Cures and Global Imbalances
THE AGENDA The title of this chapter may seem to be misplaced, for any discussion about the US external deﬁcit necessarily must have an international dimension. It is not possible for the United States to have a current account deﬁcit unless some other countries, and all other countries in combination, have a current account surplus. Rather, what we mean by the distinction between domestic and international is whether the increase in the US current account deﬁcit primarily reﬂects economic policies and other economic developments within the United States (the domestic explanation) or whether the deﬁcit is primarily responding to economic policies and economic developments that originate outside of the United States (the international or Nth currency perspective). For example, from a domestic viewpoint the trade imbalance might be seen to be a consequence of trade-related factors such as variations in the quality or composition of US and foreign-made products (and there have been large changes in the latter), to changes in trade policy, or to unfair foreign competition (lack of intellectual property rights protection, currency manipulation), factors widely discussed in business circles, labour unions and in Congress. Most economists, however, have tended to oﬀer explanations based on macroeconomic variables which, from a US domestic perspective, revolve around excess absorption (spending running in excess of output), fuelled by the ﬁscal deﬁcit, or a savings– investment imbalance due to the collapse of national savings. Finally, the attractions of the domestic productivity boom and the housing...
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