i guess i don’t think just running a tighter fiscal policy would have the same effect at all. your view of causation is fiscal => trade deficit, mine is trade => fiscal deficit. refusing to run the fiscal deficit i think would have meant depression and/or financial crisis. 1/

i agree that the US was foolish to let the twin deficits finance consumption rather than investment in future tradables capacity (or “metacapacity”). 2/

it would have been hard to do that right thing, as there would have been no market forces to guide it (market forces suggested tradables come cheaply from abroad, don’t produce them), and mistakes would be made that would look like boondoggle and cronyism. 3/

it still would have been the right strategic response to aggressive foreign mercantilism. 4/

but really, the political economy and information problems render it too unlikely, for the US, or really for any country on the other side of a lot of subsidized exports. destructive choices like tariffs are much more tenable. 5/

that’s why i think we do need to go back to Keynes and insist on balance as an international norm. and develop tools, like a financial payouts tax, by which countries can enforce that norm without relying on supranational agencies we have too little international consensus now to manage. /fin