The Wealth of Foreign Nations Depends on America’s Endless Budget Deficits

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The economists’ brief gestures toward intertemporal trade theory that nations, like households, may rationally borrow when young to invest in productivity, then save when mature. You accumulate trade deficits today but see surpluses tomorrow.

But the United States has run trade deficits every year since 1971—54 consecutive years. Tomorrow never comes.

Intertemporal theory explains temporary imbalances that reverse over a lifecycle. It cannot justify a permanent structural position as the world’s borrower. At some point, chronic deficits cease to be an investment strategy and become simply the terms of existence.

If the borrowed capital were financing productive investment—infrastructure, education, industrial capacity—the theory might hold. But U.S. infrastructure has deteriorated, educational outcomes have stagnated, and manufacturing capacity has declined relative to our trading partners. The deficits have largely financed consumption and asset appreciation, not productivity growth.

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