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‘Explaining American Trade Deficits: The Unidirectionality Error’ – Kenneth Austin, US Department of Treasury (Retired)
January 9, 2020 @ 12:00 pm – 1:30 pm
Ken Austin is a recently retired Treasury Department economist. On his own time, he has written several articles about one of the most consequent and controversial subjects in economics: Global Trade Imbalances. The most recent article, American trade deficits and the unidirectionality error (free download, found here), explains why a simple but egregious cascade of logical errors by mainstream economists has obscured the underlying causes of these imbalances and the damage that they have done to the global economy and especially the American economy.
Ken will lay out a heretical (to some mainstream economists), but logical explanation why: Many economists fundamentally misunderstand the reasons for American trade deficits. The assertion that ex ante fiscal deficits and low savings cause U.S. trade deficits is logically flawed. A very short, deductive proof shows that national savings-investment balances are determined simultaneously across countries. In fact, American trade deficits and low savings are caused by capital flows originating in trade-surplus countries. This article labels assertions of one-sided causality “the Unidirectionality Error.” This error rules out by assumption the question, “Does the United States borrow because it needs to borrow or because other countries need to lend?” The flip side of efforts to increase trade surpluses is an effort to export or expel unwanted capital. This contradicts standard economic assumptions that capital is always scarce and economies benefit from more and cheaper capital. Capital outflows may be advantageous for one economy, but harmful to the receiving economy. When the drivers of capital flows are misunderstood, the resulting policy prescriptions can be globally deflationary.
Note: Registration is open through Thursday, 01-09-20, at 9am, but walk-ins are welcome dependent upon space availability.
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The National Economists Club
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