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A Surplus of Controversy

CAMBRIDGE – When the US Treasury recently added its voice to the chorus of critics of Germany’s chronic current-account surplus, it underscored the deep disagreement over what, if anything, should be done about it. The critics want Germany to increase its contribution to global demand by importing more and exporting less. The Germans view the maintenance of strong balance sheets as essential to their country’s stabilizing role in Europe.

Both sides’ arguments will certainly receive a full airing at the spring meetings of the International Monetary Fund and the World Bank. Unfortunately, the debate has too often been informed more by ideology than facts.

The difference between what a country exports and imports can reflect myriad factors, including business cycles, demographics, investment opportunities, and economic diversification. It can also reflect the government’s penchant for running fiscal surpluses; after all, the current-account surplus, by definition, is the excess of public and private savings over investment.

During the first half of the 2000’s, US policymakers chose not to worry about sustained current-account deficits, which peaked at above 6% of GDP. They argued at first that the deficits merely reflected the world’s attraction to superior US investment opportunities, an odd position given that the US was not growing especially quickly compared to emerging markets.