🚀 go-pugleaf

On Wed, 5 Jul 1995, Martin Tom Brown wrote:

>
> Yes, I accept that individual entry bilateral deficits are meaningless,
> but isn't it possible to set up an anti-symmetric matrix of the
> bilateral deficits to model global trade flow between countries.
> The eigenvalues & eigenvectors of this matrix might mean something??
> It seems intuitively to me as a scientist that if any row or column
> of this matrix does not sum approximately to zero over the longer
> term then the country it represents has a problem. A trade surplus
> being somewhat less of a problem than a deficit, but still a problem.
>

While a bilateral trade deficit is meaningless, an overall trade
deficit may or may not be bad. It all depends. When you run a
trade deficit, you are borrowing money from foreign countries.
If this money is used for additional capital investments where
the rate of return on the investment is higher than the rate of
interest on the loan, then you are clearly better off. Thus trade
deficits are actually good for a country, even if you run them
forever, if the deficit finances productive investment. The
additional income this investment generates can pay the interest
on the loan and then some.

Does this describe the US trade deficit? Reasonable people will
differ here, but I happen to think that it does not. The trade
deficit in the US seems to be financing current consumption
rather than productive investment. We see this in the form of
enormous federal budget deficits and extremely low private
savings rates. Thus we need to increase savings at the individual
and the government level. The US is capital rich, and should be
exporting capital, not importing it.

linus yamane