Type to search

Be careful what you ask for

GB Geo-Blog

Be careful what you ask for

Throughout the Bush presidency, economists, leaders of the G20 nations, excluding the U.S., and the IMF loudly complained about the twin deficits of the United States – the government budget deficit and the current account deficit. They claimed that the budget deficit caused the trade deficit. This claim was wrong – check out the data for Japan, Germany and the U.S. during the Clinton presidency. They also argued that neither deficit was sustainable. The U.S. had to act quickly.

The cacophony has died down somewhat since Obama replaced Bush. A near death experience such as the one the global economy has gone through will divert the attention of whiners. But with the U.S. current account deficit continuing to run in the hundreds of billions of dollars, and the budget deficit north of one trillion, it is only a matter of time till the complaints will once more be heard loud and clear.

The U.S. trade deficit can be reduced only if any of the following occur. The current recession has gone a long way towards reducing this deficit. A collapse back into recession, this time a more prolonged one, could do the trick for the United States. Is this what the G20 wants? Is this what the U.S. wants?

A continued and even sharper decline in the value of the U.S. dollar against all of the currencies of the other members of the G20 might help. China is not doing its part in allowing this to happen. And I suspect that none of the other G20 countries looks favorably on this option.

A protectionist backlash in the U.S., a distinct possibility if the unemployment rate breaks through 10% and the economic recovery is sluggish, with tougher buy America provisions, and larger subsidies for U.S. based companies also will help reduce the trade deficit. Where should we place this option on the list?

The fourth option consists of much higher growth rates in all of the G20 countries. That is, each of the G20 countries, other than the U.S., need to generate growth rates in excess of the U.S. and maintain these higher growth rates for a number of years. Two problems here. The central banks in many of these countries are terrified of the slightest specter of inflation. And these countries have no idea how to do this.

Finally, the U.S. could impose a massive carbon tax or gasoline tax to kill off the automobile once and for all. Probably not a bad policy option for many reasons. What odds do you want that the president of change will go down this path?

So pick your preferred option and wait for the chorus of whiners to return. It is always easier to complain than to actually do anything.

Categories:
Tags:

You Might Also Enjoy This in GB

Leave a Comment