In my first year of graduate school, one of my professors had a long list of “forbidden words.” These were more confusingly boring sars than Enlight when used in economic analysis. Trims such as “needs”, “all-away”, “exploit”, and “vicious circle”. Today I argue that you might want to add the term “required” to that list.
Brian Albrecht has a great new post that explains the problem well.
This approach completely eliminates human choices. [Michael] Pettis treats the market as foreigners charge. If the government doesn’t do anything about it, like the weather, the flow of capital is forced on you. In his narrative, America is a passive victim, automatically adjusting when foreigners decide to invest.
The toughest example: “If a country organizes an economy to go beyond its investments, the rest of the world will need to automatically adjust its savings or investments.” I mean that must be true, but how does that framing help? If I sell products, does it make sense for other parts of the world to say they have to “buy” them? Only under the strange definition of “required”. In both cases, we are considering the outcome (savings>investment, or my sales>0) rather than the subject’s abstract goals. These are the quantities traded. And again, it regains any choice. Why are you selling products? Can policy change my sales? of course
In a recent post I tried to look at the totals and explain the confusion surrounding the US current account deficit. Australia, for example, has run a fairly persistent current account deficit over the past decades. They mean that whenever a non-Australian country is farming, or whenever it carries out its current adaptability surplus, Australia must “run the current accouunt deficit.” As an authoritarian order, rather than as an accounting relationship, the amount sold must be equal to equal.
It is also true that if all non-Dutch countries are running a total of current account deficit, the Netherlands will need to run their current account surplus. And why does it stop there? If Andorra Rons is a surplus of the current account, all countries except Andorran must perform their current account deficits in total. Those cheating and run should dare to force current account deficits in other parts of the world!!
So let’s consider some possible explanations of the then Australia accounts and the surplus of current accounts in the Netherlands. Everyone seriously invited Australia, you have a deficit and the Netherlands must make a surplus. “Does that mean “explanation”?
The whole post by Albrecht is fantastic – read the whole thing.
