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Thursday, August 03, 2006

Trade Deficits

It has long been my opinion that the trade deficit numbers are a figment of the accounting system and statistic gathering methods, not reflecting reality.

Now Hausmann and Sturzenegger at the Harvard Kennedy School of Government have done a beautiful bit of research showing how this is true.

It turns out that if you do the accounting right, there have been no net U.S. trade deficits. The unaccounted exports are knowledge, liquidity and insurance, with knowledge being the biggest factor.

Read the whole paper, it is excellent and very readable for non-economists.

Thanks to EconLog for the link.

2 Comments:

Anonymous judith said...

David - can you post the FOMC forecast chart from this PIMCO link?
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/FF/2006/FF+July+2006.htm

I think this group might find it 'interesting' to see just how well the Fed is able to forecast with their staff of kazillions.

(now I shall go read your link - which I already know I agree with!)

9:37 AM  
Blogger Henry Meers said...

We have discussed "Dark Matter" before, and it is more the why of international investment than the how. You simply cannot have a "deficit", everything has to balance by definition. We couldn't make up Marks to buy Mercedes any more than we can Euros now.

4:23 PM  

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