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A Blonde Current-Account Deficit?

Posted By Don Boudreaux On December 1, 2004 @ 1:19 pm In Balance of Payments,Trade | Comments Disabled

Suppose that government starts collecting trade data on blonde-haired people.


The government could then calculate the “blonde current-account” and the “blonde capital-account” – that is, reporting the value of blondes’ purchases of goods and services from brunettes, redheads, grey-heads, and other non-blondes; the value of blondes’ sales to non-blondes; the amount of money blondes invest in financial instruments issued by non-blondes; and the amount of investment by non-blondes in financial instruments issued by blondes.


If it’s true that blondes have more fun, perhaps the typical blonde spends an unusually high portion of his income and, hence, saves an unusually low portion.  (The same would likely be true, incidentally, if the average age of blondes is on the young side.  Typically, young workers spend a higher portion of their incomes than do older workers.)


During the current period, blondes might well buy more from non-blondes than they sell to non-blondes. If so, blondes would suffer a current-account deficit.  The excess of blondes’ purchases from non-blondes over their sales to non-blondes would be reckoned in the blondes’ capital account.  That is, financing of blondes’ excess of current expenditures (on goods and services) over their current income (from sales to non-blondes) must come from non-blondes – say, by extending credit-card debt to blondes, or by paying blondes’ college tuition – because, by assumption, blondes in the aggregate spend more currently than they earn currently.  (I assume here that blondes have too little savings from past periods on which they can draw.  Dropping this assumption would do nothing to alter the point of this post.)


Now suppose that you’re a blonde, but one of the relatively few blondes who is not currently spending more than you’re earning.  Should you be fearful, fretful, apprehensive, or troubled when the evening-news anchorman reports that the blonde current-account deficit rose last month?


Absolutely not.


“But blondes aren’t saving enough!!” you’re told.


If you’re wise, you respond in the following way:


“As long and as far as I and other blondes are free to do commerce with non-blondes, I don’t have to rely upon only the savings of other blondes to finance new factories, more R&D, and other activities that improve an economy’s performance.  Perhaps blondes as a group aren’t saving ‘enough.’  Too bad for each of them.  I can control only my own saving, and it’s up to me to ensure that I’m saving enough as I judge my own current and future needs.  But if the new factory in town is financed only by brunettes, I benefit from that investment just as much as I would if it were financed exclusively by other blondes.  The hair-color of those who save and invest in the economy of which I am a part is irrelevant to me and to the prospects of the economy.  A ‘blonde current-account’ and a ‘blonde capital-account’ are worthless things to calculate.”


Are a U.S. current-account and a U.S. capital-account more worthwhile?  Does the nationality of savers and investors and producers and consumers matter as long as people are free to trade and invest across political borders?

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