Publication: Eight Reasons We Are Given Not to Worry About the U.S. Deficits
Date
2009
ISSN
Published
2009
Author(s)
Frankel, Jeffrey
Abstract
The large U.S. current account deficit
over the last decade-and the corresponding surpluses in
China and elsewhere-has been interpreted in two very
different ways. Many mainstream economists view the
phenomena as primarily the outcome of a low rate of national
saving in the United States, beginning with a large budget
deficit (the other half of the 'twin deficits').
In this first view, the current account deficit is
unsustainable, and will eventually result in a sharp
depreciation of the dollar. But this unsustainability view
has been challenged by a variety of other economists, with
equally impeccable credentials. This paper enumerates eight
arguments that they have given as to why we need not worry
about the current account deficit. The paper is skeptical of
all eight, and sides with the unsustainability view. But
they deserve a hearing. The eight are: 1) the siblings are
not twins; 2) alleged investment boom; 3) low U.S. private
savings; 4) global savings glut; 5) its a big world; 6)
valuation effects pay for it; 7) intermediation rents pay
for it; and 8) second Bretton woods.
Citation
“Frankel, Jeffrey. 2009. Eight Reasons We Are Given Not to Worry About the U.S. Deficits. Commission on Growth and Development Working Paper;No. 58. © World Bank, Washington, DC. http://hdl.handle.net/10986/28002 License: CC BY 3.0 IGO.”