Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, December 23, 2006

Why Oh Why Can't We Have a Better Press Corps? (Wall Street Journal Edition)

Brad Setser watches the train wreck that is David Malpass as it tries to mislead the readers of the Wall Street Journal editorial page about the trade deficit:

RGE - Malpass on the US trade deficit...: Tis the season to be compassionate. And I guess that also applies to those who are allowed to grace the Wall Street Journal’s oped page.... One standard critique... brings together people who already agree to reinforce their pre-existing convictions... the Wall Street Journal oped page.... But I was still surprised by the Malpass WSJ oped -- an oped that strongly suggests that the US trade deficit reflects surging business investment in the US, financed by aging, slow growing Europe and Japan. Malpass writes:

the trade deficit and related capital inflow reflect U.S. growth, not weakness -- they link the younger, faster-growing U.S. with aging, slower-growing economies abroad.... The trade deficit is the mechanism allowing consumption and investment in the grow faster than in Europe and Japan. The issue for the U.S. is whether it's worth the interest costs. It's the same question facing a small business: Should it borrow money to expand the payroll, train employees, buy land and machines, conduct R&D, build inventory? Profit and credit-worthiness help make the decision...

Malpass is careful not to attribute the rise in the US current account deficit entirely to a surge in business investment. He talks of the increase in "consumption and investment" not of the increase in investment alone. But the analogy between a small business looking for external financing and the US isn't an accident either. Malpass very explicitly argues that the US external deficit doesn't reflect US profligacy....

[T]he US deficit doesn't stem from strong business investment -- and... hasn't been financed by Europe and Japan. Right now, businesses are saving more than they invest.... The US savings shortfall comes from the fact that the US government still spends more than it takes in.... Above all, though, the gap stems from households that don’t save....

And then there is the little matter of who is financing the US. Tis true that a decent chunk of the inflows financing the US must be coming from old, slow growing Japan. But... the rise in the US deficit since 2002 doesn’t primarily reflect a rise in Japan’s current account surplus. Nor does it reflect a rise in Europe's surplus.... The IMF’s data shows (see Table 1.2, p. 12 of Chapter 1 of the WEO) a huge surge in the current account surplus of the emerging world.... And whatever else you want to say about the world’s emerging economies, they aren’t growing slowly....

I don't think there is much doubt -- at least among informed observors -- that fast growing emerging economies are a key source of financing for the US. Nor is there much doubt that a large share of that financing comes... from central banks and oil investment funds....

One of the stereotypes about blogs is that they live in the realm of opinion, a realm divorced from the facts. I am pretty sure that isn’t a vice limited to the blogosphere.

Reporters for the news side of the Wall Street Journal firmly believe that readers make a sharp distinction between WSJ news and editorial pages, and that their good and reality-based work doesn't add credibility to the misinformation on the editorial page. I think that they are deceiving themselves.


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