Wednesday, April 27, 2005

Explaining the trade deficit

The Global Savings Glut
We are all taught that saving is good -- indeed, Americans are often chided for spending too much and saving too little. But what if the problem of today's global economy is that people elsewhere -- in Europe, Asia and Latin America -- are saving too much and spending too little? Former Princeton University economist Ben Bernanke argues that this is precisely the case. He calls it "the global savings glut."

It's not so much that we consume too much and save too little here in the US, it's that the rest of the world does the opposite. Combine that with the US being a better place to invest and you get the growing trade deficit.

To say a country has surplus saving is simply another way of saying that it lacks good investment opportunities at home or discourages its citizens from consuming. Asian countries favor export-led growth, deemphasizing local consumption. Latin America's volatile politics deter investment. Europe's heavy taxes and regulations do likewise. Whatever the problems, Americans can't fix them.

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