Edward Conard

Top Ten New York Times Bestselling Author

Upside of Inequality Unintended Consequences
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • Macro Roundup
  • Highlights
  • Blog
  • OpEds
  • Reviews
  • About
    • About the Author
    • About the Books
    • Read Excerpts
    • Read the Reviews
    • Debates
    • Media and TV
  • Topics
    • All Media Appearances
    • Productivity
    • Monetary Policy
    • Banking
    • Politics
    • Upside endnotes
    • Stuff Ed’s Assistant Thought He Might Like
  • Contact
  • twitter
  • facebook
  • youtube
  • linkedin
  • Advanced SearchChoose Categories To Search Within
    • Close Advanced Search

Advanced Search

How Trade Deficits Reduce Economic Dynamism and Foster Increased Government Spending

Aside from having four years of work critiqued by someone who only read Tyler Cowen’s brief and narrowly focused review of my book… I do not say the “U.S. trade deficit is something that makes the government bigger.” I do say, trade deficits make the economy less dynamic.

Risk-averse savings do not constrain the growth of America’s knowledge-based innovation-driven economy. Risk-taking/underwriting and properly trained talent do. So far, trade deficits have flooded America with risk-averse savings. As evidenced by zero interest rates, America has little use for those additional savings (other than subprime consumption). If we fail to put those savings to work, growth, employment, and/or wages will be lower than if we had. The need to do so consumes our finite capacity and willingness to bear risk at a time when risk-taking constrains growth. Henderson assumes risk-averse savers eager to buy low-risk government-guaranteed debt will underwrite the risks that grow the U.S. economy if offshore savers buy U.S. government bonds. My book The Upside of Inequality: How Good Intentions Undermine the Middle Class argues that has not proven to be the case. It might be different if risk-averse savings constrained growth.

While I do not explicitly say that trade deficits make government bigger, idle risk-averse savings slow growth and reduce interest rates, which causes influential economists like Larry Summers to advocate for increased infrastructure investment despite little evidence of their efficacy. Lower interest rates also help lawmakers avoid tough spending tradeoffs.

Share this:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to print (Opens in new window)
  • Click to email a link to a friend (Opens in new window)

© Copyright 2023 Coherent Research Institute · All Rights Reserved