One of my New year's resolutions is to work through some the random bits of things I have been meaning to blog on about, stored in my ever-useful copy of EverNote. So far I am making about as much progress on that as on my promise to eat less ice cream.
Oh, well. Baby steps. One piece of old business comes from Don Boudreaux's campaign last month to undermine the view that current account deficits imply indebtedness. If I might paraphrase, Don's argument -- which you can find here, here, and here -- is essentially that that trade deficits represent an act of deferred consumption -- and hence investment -- by someone in the world. This is crystal clear when the funds made available by countries with trade surpluses are used to purchase plants, properties, or significant equity claims outside of their own border -- an activity known as foreign direct investment.
Here's a picture you have probably seen before:
Here's a picture you may not have seen, from Sun Bin:
Since about 1980 the United States has, for all practical purposes, run permanent trade deficits. It has also been a magnet for direct investment. And though some of the income from that direct investment is repatriated to other countries, I think you would be hard pressed to argue that the situation shown above represents a loss to Americans.
You can certainly quibble with the size of the U.S. current account deficit today. Or that in present circumstances current account deficits are primarily financing consumption, not investment. Don would probably say shame on you for your parochial perspective (because those deficits surely represent saving for someone else in the world, even if globally they just swap their consumption today for our consumption tomorrow). Either way, a blanket aversion to trade or current account deficits just does not seem justified by the record.