Regular readers of Café Hayek know that we – Russ Roberts and I – do not join in the typical display of teeth-gnashing over the size of the current-account deficit. This recent study by the Cato Institute’s Dan Griswold documents further reason for calm. Here’s the punch line:
[B]y all three measures of economic performance – GDP, manufacturing output, and the unemployment rate – the U.S. economy performs better in years when the current account deficit is rising as a share of GDP than in years when it is shrinking. And it performs especially well in years when the current account deficit is rising most rapidly.