A Hard Look at America's Unfavorable Balance of Payments

The theory, so widely held by economists in the postwar era, of the "dollar gap" or dollar shortage has been invalidated. The evidence is clear. The dollar is not always subject to scarcity but to excess supply as well. There is need for no better verification than the deficit in the United States balance of payments. The immediate reaction to this deficit was twofold: there were those fearful lest the deficit continue, and those afraid that the measures taken to counteract the deficit would be harmful to our international economic policy. The fury has abated. The deficit has declined, inflationary movements have been quelled, and the anti-deficit measures taken in the international economic sphere have not been wide spread. But it is too early to be complaisant. The deficit, though somewhat reduced, continues; moreover the problem of how to eliminate or reduce the deficit to a reasonable size re mains. What measures should be taken to ensure the least cost to our economic posture, both domestic and international? More aware of the close interrelationship between our economy and others, we must now seriously consider a balance of payments mechanism. We must be prepared with a flexible mechanism should the contingency of an imbalance in our bal ance of payments occur.—Ed.