The Blog

Do Deficits Matter?

It depends on where you sit--and on which type of deficit you're talking about.

11:00 PM, Feb 14, 2005 • By IRWIN M. STELZER
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

The trade deficit is another matter. Alan Greenspan stopped in London last week to speak at Chancellor of the Exchequer Gordon Brown's latest entrepreneurship bash, and to assure one and all that the market is gradually taking care of that problem. The dollar has fallen, giving American manufacturers an edge over their European competitors and making some imports more expensive. Short-term interest rates in the United States are now above those in euroland and Japan. Added to the more rapid growth being experienced in America, this rate differential will make investment in America even more attractive than it has been. I am less certain than the Fed chairman that we have seen the end of the dollar decline, but it would be foolish to bet against a man who has got things right through years of international and domestic turmoil.

In short, all may not be for the best in a best of all possible worlds, but almost everything seems to be--unless you are a euroland exporter, caught between a falling dollar, China's refusal to allow the renminbi to rise, and the appalling regulatory and tax environment in much of Europe.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.