Dear WSJ: Account Imbalances Didn't 'Cause' Recession
Editor, The Wall Street Journal
To the Editor:
Alberto Alesina and Luigi Zingales say that "this recession is unusual is that it was caused in large part by a significant current-account imbalance due to the low savings rate of Americans (families and government)" ("Let's Stimulate Private Risk Taking," Jan. 21). Not so. A current-account imbalance might reflect conditions that portend recession, but it cannot cause a recession.
To see why, suppose that Uncle Sam declares
But just as no such reclassification can cure a recession, no recession can be caused by the initial classification of economic transactions. Whatever foolish monetary or fiscal policies might spark bad investments, whatever irrational bubble-izing behaviors might move the market, or whatever unwise regulations (or lack of regulations) might encourage unsustainable investments, it is REAL factors such as these that bear the blame for market unrest and not the arbitrary measurement called the "current-account imbalance."
Donald J. Boudreaux
Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.