Re: Stiglitz on Soros

["Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx>]

Paul

You wrote:

> Since both the creditor and the debtor are responsible for the imbalance
in
> the international  current account payments, then both have a
> responsibility for solving the problem -- but the creditor nation has the
> wherewithal to solve the problem  --and so it has the major responsibility
> for resolving the problem.

When you are managing an economy, you try to balance international current
payments.  You definitely don't want a huge currently deficit.  Neither is
it worthwhile generating a huge current account surplus, unless your people
and businesses  wish to build up savings overseas.  For example, Japanese
people and businesses may wish to build up savings overseas, so a sound
policy position may generate current account surplusses for that economy.
(That is not to say that this is the reason for the current account
surplusses of Japan.)

While one can manage ones own economy to generate a current account deficit
or surplus, I doubt if one can achieve a similar results for ones own
economy by managing the economy of every other country.  If the forces that
would have generated a current account deficit cannot be relieved through a
current account deficit, then they must be relieved in some other way, such
as hyper inflation.

For example, lets say two countries, A and B have expansionary policies in
place that cause excess demand.  In the case of country A, it has a good
credit rating and the rest of the world is prepared to lend to it.  It
experiences current account deficits.

Country B, on the other hand, does not have a good international credit
rating.  It cannot go into debt internationally to pay for goods to meet the
excess demand in its economy.  As a result, it has a shortage of goods
relative to the money trying to buy goods and so experiences hyper
inflation; but no current account deficit.

Are the "other countries" irresponsible for lending to country A?    Have
they contributed to its current account deficit?

Also, are the "other countries" acting responsibly when they don't lend to
country B?  They have saved country B from a current account deficit.

The current account deficit is a symptom of an economic problem.  That
problem is caused directly by macro-economic policies (government fiscal
deificts are not a neccsary nor sufficient cause of current account
deficits).  The problem can be solved directly by macro-economic policies.
The country that has the problem is responsible for that problem.  No amount
of action by other countries to treat the symptoms of that problem can
address the cause of that problem.


Leigh














s in place policies that would cause