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Nein. Falsch.

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Here’s a letter to The Economist:

In “Why Germany’s current-account surplus is bad for the world economy [2]” (July 8), you write that “[t]o offset such surpluses and sustain enough aggregate demand to keep people in work, the rest of the world must borrow and spend with equal abandon.”  You err.  Non-Germans no more “must” increase their borrowing if Germans save more than you “must” increase your borrowing if your neighbor saves more.  Just as the amount that you borrow is under your control, so, too, the amounts that individuals and institutions globally borrow are under their control.  And remember, Germany’s current-account surplus rises regardless of how Germans increase their foreign investments; such investments need not be in the form of credit extended to non-Germans.  For example, BMW’s equity investment in its South Carolina factory raised Germany’s current-account surplus but did not increase Americans’ (or any other non-Germans’) indebtedness.

You err also in assuming that Germany’s current-account surplus reduces aggregate demand outside of Germany.  Yet BMW’s South Carolina factory is a source of demand for American workers and other inputs just as if that factory had been built and operated by Ford.  Even when Germans lend money to non-Germans, the money that is lent is spent in the borrowing countries no less than if Germans had instead used those funds to purchase exports from those countries.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030