Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. Countries running persistent trade surpluses, such as China, Germany and Japan, have built their economies around an excess supply of tradeable goods and services, leaving them dependent on deficit countries to absorb it. That dependence gives deficit countries bargaining power and exposes surplus countries to pressure to expand domestic demand.

Martin Wolf Financial Times
Date Posted:
Is Database:
Database

Chinese aggregate debt relative to GDP is now on par with the US level. As a surplus country, China is subject to pressure (external and internal) to expand domestic demand, reducing deflationary pressure.

Do trade deficit countries hold bargaining power over surplus countries?

Core argument: Surplus countries face external and internal pressure to expand domestic demand and so reduce deflationary pressure on trading partners, as happened to the US in the 1920s, Japan in the 1980s, and China after the 2007–09 financial crisis.

Surplus countries are not in as controlling a position as one might suppose. One source of weakness is that they will be subject to pressure (external and internal) to expand domestic demand (as was the US in the 1920s) and so reduce deflationary pressure on their partners. Exactly that happened to Japan in the 1980s and to China after the financial crisis of 2007-09. The implication is that deficit countries, while ostensibly in a weaker position, have power, too. Yes, credit to them can be cut off. But countries with structural surpluses of savings over investment and so external surpluses (such as China, Germany and Japan) have built their economies around excess supply of tradeable goods and services. Suddenly losing these may inflict a slump. Moralists in surplus countries complain about the profligacy of deficit countries. But they need them.

Takeaways by Macro Roundup® AI

  1. Surplus countries face external and internal pressure to expand domestic demand and so reduce deflationary pressure on trading partners, as happened to the US in the 1920s, Japan in the 1980s, and China after the 2007–09 financial crisis.
  2. Deficit countries hold power despite their ostensibly weaker position, since countries with structural savings surpluses such as China, Germany, and Japan have built their economies around excess supply of tradeable goods and services.
  3. Suddenly losing deficit-country demand for tradeable goods and services could inflict a slump on surplus economies, whose moralists complain about deficit-country profligacy while needing those countries.

Related Articles:

  • The U.S. Trade Deficit: Myths and Realities — Taxing capital inflows would weaken the dollar but could raise domestic interest rates and depress investment, harming long-term growth, while an interest rate cut absent recession would be inflationary and erode any real depreciation needed to durably improve the trade balance. Fiscal restraint could weaken the dollar and reduce the trade deficit.
  • Imbalances Are Back On The Global Agenda — China's current account surplus remains about the same size relative to the world economy as it was in 2008, while net US liabilities reached 24% of global output in 2024 versus 6% in 2008, with government borrowing now the domestic counterpart of US external deficits. Such imbalances drive protectionist sentiment and have preceded financial crises.
  • Debt, Deficits & Global Imbalances — Taxes or restrictions on short-term capital inflows were argued to be a more direct and potentially superior tool than tariffs for shrinking the trade deficit, since tariffs risk retaliation and supply-chain distortions. Proponents said such measures could reduce reliance on household and government borrowing to sustain employment, if paired with efforts to strengthen domestic demand and tradables capacity.
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