Eight Reasons We Are Given not to Worry about the US Deficit


Frankel J. Eight Reasons We Are Given not to Worry about the US Deficit. Commission on Growth and Development. 2009.


The large US current account deficit over the last decade – and the
corresponding surpluses in China and elsewhere – have 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. It’s a big world.
6. Valuation effects pay for it.
7. Intermediation rents pay for it.
8. Bretton Woods II.

Publisher's Version

Previous Title: Nine Reasons We are Given Not to Worry about the US Deficit
Last updated on 08/12/2014