The United States has become a debtor nation because gross domestic savings have failed to be large enough to fund gross domestic investment. The resulting international indebtedness of the nation poses no immediate dangers for the U.S. economy or U.S. national sovereignty. The indebtedness does, however, reflect a mediocre economic performance of the United States that must be improved if the nation is to maintain its stature as a national leader. Demographic trends will help one major problem, low household savings rates, but more must be done.
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References
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1. By a macroeconomic identity, net capital inflow must equal gross domestic saving minus gross domestic investment. See Rudiger Dornbush, Open Economy Macroeconomics (New York: Basic Books, 1980), chap. 1.
2.
2. Michael Ulan and William G. Dewald, “The U.S. Net International Economic Position: Misstated and Misunderstood,” in Dollars, Deficit, and Trade, ed. J. A. Dorn and W. A. Niskanen (Boston: Kluwer Academic, 1989).
3.
3. For a fuller treatment of these issues, see Edward M. Graham and Paul R. Krugman, Foreign Direct Investment in the United States (Washington, DC: Institute for International Economics, 1989).
4.
James K. Jackson , Foreign Investment: The Exon-Florio National Security Test, Congressional Research Service Report for Congress 90-463E, 26 Sept. 1990.
5.
5. See Stephen Marris, Deficits and the Dollar: The World Economy at Risk (Washington, DC: Institute for International Economics, 1985; rev. ed., 1987).
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6. For reasons why this might be, see Paul R. Krugman, Exchange Rate Instability (Cambridge: MIT Press, 1988), lecture 2.
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7. Gross domestic product is one measure of national income. It differs from gross national product in that the latter is the aggregate income of nationals of a nation, irrespective of where they earn the income, whereas the former is the aggregate of domestic residents of a nation, irrespective of their nationality. In 1989, the difference between U.S. gross domestic product and U.S. gross national product was relatively slight: the former was $4.15 trillion and the latter was $4.17 trillion. For some nations, however, the difference between the two measures can be substantial.
8.
“One Tonic That Doesn't Work,”Washington Post, 12 Oct. 1990.
9.
9. On all these, see Paul R. Krugman, The Age of Diminished Expectations: U.S. Economic Policy in the 1990s (Cambridge: MIT Press, 1990).
10.
10. George F. Will, “Boasting about Being Number Five,”Washington Post, 25 Aug. 1990.
