Saving Disparity and the U.S. Current Account Deficit

Abstract

The significant difference in saving rates between the United States (near-zero) and the developing nations (exceeding 30%) is a contributing explanation for the record U.S. current-account deficit, now almost 700 billion USD per year. Analytic support for this conclusion is provided herein by application of the instant-utility methodology - an approach to the social sciences originating with Herman Gossen (1854) and developed by numerous researchers over the past 150 years. In this methodology neoclassical economics is taken one step deeper, where utility (satisfaction) is identified exclusively with human mental and physical activity, in the basic or essential formulation, rather than directly and improperly with the commodities we consume. As an extension of the 2003/4 paper demonstrating that uneven expected-risk contributes to global poverty, the present model shows that uneven risk in addition effects or promotes excessive saving. A potentially serious consequence, in our increasingly interactive and integrated world-economy, is the extraordinary net foreign borrowing of saving-deficient United States from the developing countries. This emerging danger to the economic health of the United States, and the global community, is closely associated with the continuing and deepening poverty of major parts of the world. The essential or underlying cause of this threat to economic well-being generally is uneven discretionary power - a direct, attending consequence of the profound divide between the advantaged and disadvantaged. The result is a greater expected risk in the investment planning of the disadvantaged (individuals and nations), and a tendency, or natural disposition, to withhold investment (in education, skills, and business) - and a simultaneous tendency to produce and acquire (commodity and monetary) assets as protection against potentially severe hardship. These analytic results reinforce the earlier conclusion (2003/4) that continuing resource-transfers and new institutional/policy-initiatives are necessary, within nations and between nations, to defeat and reverse the natural tendency of markets (in their free and open idealization) to increase inequality and poverty. Here we may agree that an adequate resolution of these connected problems - world-wide poverty and international-trade imbalance - must take account of their basic or essential causes.