Thursday, October 28, 2010

Cochrane vs. Geithner (amv)

A brilliant WSJ-article by John Cochrane:
Teaser: Since when is every trade surplus or deficit an "external imbalance" in need of correction? It makes sense for a country that has good investment prospects to import a lot of goods, run trade deficits, and borrow money. Years later, the country puts the resulting products on boats to pay the lenders back. The U.S. borrowed abroad to finance our railroads in the 19th century and ran surpluses when Europe was rebuilding after World War II. Were these "imbalances"?
HT Mankiw