IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpit/0407012.html
   My bibliography  Save this paper

Refuting the Trade Deficit Rationale

Author

Listed:
  • W. Raymond Mills

    (Emertius Associate Professor of City & Regional Planning, The Ohio State University)

Abstract

This article provides a defense of a sentence lifted from the Final Report of the United States Trade Deficit Review Commission. 'The savings shortfall argument falsely presumes that causation goes from savings to the trade deficit'. The savings shortfall argument is support by nothing more than reasoning by analogy from the pre-trade closed economy. The equation Savings equal Investment plus the Trade Deficit cannot be reasonably interprepted as a closed system. Factors outside this equation control the level of both investment and the trade deficit. I support my position by reviewiing in detail the way the Capital Account is calculated, to show that the Current Account Balance controls the level of the Capital Account. I also review the role of the stock market in transferring wealth from the business sector to the personal sector, effectively making irrelevant the low level of savings as reported by the National Income and Product Accounts.

Suggested Citation

  • W. Raymond Mills, 2004. "Refuting the Trade Deficit Rationale," International Trade 0407012, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0407012
    Note: Type of Document - doc; pages: 12 . A polemic
    as

    Download full text from publisher

    File URL: http://econwpa.repec.org/eps/it/papers/0407/0407012.pdf
    Download Restriction: no

    File URL: http://econwpa.repec.org/eps/it/papers/0407/0407012.ps.gz
    Download Restriction: no

    File URL: http://econwpa.repec.org/eps/it/papers/0407/0407012.doc.gz
    Download Restriction: no

    More about this item

    Keywords

    Savings; Trade Deficit; Pre-trade economy; Closed System; Capital Account; Current Account; Financial Flows;

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpit:0407012. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: http://econwpa.repec.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.