Date of Original Version



Conference Proceeding

Abstract or Description

Few subjects have received as much comment in recent years as the socalled twin deficits in the Federal budget and in net exports of goods and services. Many economists and most politicians point out the dire consequences of the budget deficit for the future of the economy and of the trade deficit for the future of domestic manufacturing. The deficits are blamed for high interest rates, weakness in manufacturing output and sluggish growth of employment at home.

Yet, despite the frequent discussion of these deficits for four years, the central problem has escaped attention. Few have tried to look through the paper transactions to the reality that lies below. Had this been done, the deficits would appear as symptoms—not causes—of the problems of the U.S. economy. And, while there are no easy solutions, some of the proposed solutions—protection, currency devaluation, easier monetary policy, general tax increases—would be seen to be mistaken or less attractive than some available alternatives


Testimony before U.S. Senate Committee on Housing, Banking and Urban Affairs, February 18, 1987