Humpty Dumpty and Global Financial Imbalances
Economists' arguments that today's global trade imbalances reflect either a savings shortage or a savings glut are absurdly misguided. The real problem is inadequate demand in developing countries that have benefited from globalization of production.
WASHINGTON, DC: There is an old saying that goes, “If you have only a hammer, everything looks like a nail.” Nowhere is this clearer than in discussions of the United States’ trade deficit and global financial imbalances, given economists’ tendency to reduce most economic problems to questions of savings. Unfortunately, this focus on savings distorts understanding and distracts from the real challenge of creating mass consumption markets in developing countries.
WASHINGTON, DC: There is an old saying that goes, “If you have only a hammer, everything looks like a nail.” Nowhere is this clearer than in discussions of the United States’ trade deficit and global financial imbalances, given economists’ tendency to reduce most economic problems to questions of savings. Unfortunately, this focus on savings distorts understanding and distracts from the real challenge of creating mass consumption markets in developing countries.