Alex Jacobson 3.0

June 24, 2005

Foriegn Financial UnProductivity responsible for US Trade Deficit?

Filed under: Social Markets — admin @ 5:06 pm

A few posts back, I linked to an article that discussed the entirely dismal productivity of the retail sector in Japan and other foriegn countries and how that was an indicator that they were actually much poorer than we were here. Now MarginalRevolution points to this article by Glen Hubbard about foreign financial unproductivity and how it may be the reason why so many foreigners choose to place their wealth here. The only way they can get their wealth into US dollars is for them to maintain a trade surplus with us. This would explain why the dollar keeps such a high value despite substantial US tradedeficitis.

As an aside: it is likely that the same forces that prevent financial sectors from getting more productive (e.g. by foreclosing on bad loans) are also the forces that prevent companies like Walmart from entering. Small business.

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