Abstract: In the mid to late 1980s, the U.S. economy simultaneously producedNfor the first time in the postwar periodNhuge federal budget deficits as well as large current account deficits, together known as the Otwin deficitsO (Blecker 1992; Rock1991). This generated much debate and hand-wringing, most of which focused on supposed Ocrowding-outO effects (Wray 1989). Many claimed that the budgetdeficit was soaking up private saving, leaving too little for domestic investment, and that the OtwinO current account deficit was soaking up foreign saving. The result would be higher interest rates and thus lower economic growth, as domestic spendingNespecially on business investment and real estate construction was depressed. Further, the government debt and foreign debt would burden future generations of Americans, who would have to make interest payments and eventually retire the debt. The promulgated solution was to promote domestic saving by cutting federal government spending and private consumption (Rock 1991; Council of Economic Advisers 2006). Many pointed to JapanOs high personal saving rates as a model of the proper way to run an economy.
Publication Year: 2006
Publication Date: 2006-04-01
Language: en
Type: preprint
Access and Citation
Cited By Count: 7
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot