The trade deficit (when more goods and services are imported than exported), the budget deficit (when government spends more than its tax revenues), and the balance between domestic saving and investment are related to each other. In fact, their sum must equal zero. A change in any of them affects all of them, says Bob McTeer, a distinguished fellow with the National Center for Policy Analysis.
What are the policy implications of these interdependent imbalances?
Unfortunately, the recent tax “rebates” designed to stimulate the economy dealt a setback to budget discipline. Most people probably understand that. What they probably don’t understand is that the increased budget deficit will also tend to worsen the U.S. international balance of payments and weaken the dollar. Policymakers need to study these interconnected deficits, says McTeer.
Source: Bob McTeer, Our Triple Deficits, National Center for Policy Analysis, Brief Analysis No. 613, March 18, 2008.
For text: http://www.ncpa.org/pub/ba/ba613/
For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20
FMF Policy Bulletin/ 25 March 2008
