I’ve noticed that intellectuals like to talk about “imbalances,” especially pundits interested in international issues. I don’t see how it’s a useful concept, although I’m willing to be enlightened.
I do understand the concept of market failure, or bad public policy. But I don’t see how a term like ‘imbalances’ adds anything to the statement that “policy X reduces aggregate welfare.”
When I lived in Queensland back in 1991, the Australians I met were very worried about their chronic current account deficits
surpluses. And they’ve run huge CA deficits every year since.
On the other hand Japan has run current account surpluses year after year, decade after decade.
In a deeper sense there is no such thing as exchange imbalances, all international transactions merely involve the swapping one type of product (goods and services) for a difference type of product (assets.) Why should we care?
Once counterargument is that CA imbalances are often the symptom of a deeper problem, say excessive indebtedness. For instance, the Greek CA deficit reflected excessive government borrowing, and the Spanish CA deficit reflected excessive real estate speculation. Fine, but then why talk about “imbalances?” Why not talk of excessive government borrowing, or a dysfunctional banking system?
Oddly Japan is almost universally viewed as a country with a bleak future, despite its CA surpluses. Its population is aging fast, and beginning to decline. Its nominal GDP is trending downward as its public debt keeps increasing. On the other hand Australia is a relatively fast growing country, with a high level of immigration and a trivial public debt.
So what do the persistent CA deficits tell us about Australia, and what do the persistent CA surpluses tell us about Japan?
All countries have “imbalances.” All countries have problems. I simply don’t understand what the former tells us about the latter.
Income, inflation, interest rates, imbalances. I hate i-words. Replace them with consumption, NGDP growth, asset prices, and bad public policies. Those are what really matter.