Economic growth and the fiscal deficit have had a lot of attention in this election campaign. But the current account deficit may be more important.
Imports may cause more problems, as current account deficits, than government spending, as fiscal deficits, or the level of GDP growth. (“Debts and deficits, Europe”, December 2011, https://ammpol.wordpress.com/ammten ).
To improve the current account, consumption should be reduced and production encouraged. A relevant policy was favoured by the FoE in the European election campaign. They recommended “a new EU economic strategy . . . which shifts the tax burden from labour to resource consumption” ( http://www.manchesterfoe.org.uk/eu-election-survey-response-peter-cranie-green-party/ ). Citizens incomes could be used to make resource taxes progressive. (“Red and blue reasons for a Green tax switch”, https://ammpol.wordpress.com/ammgts).
In the UK in the quarter-century from 1987 to 2012, the trade balance, exports minus imports, was nearly always negative, and the government balance, government spending minus tax receipts, was mostly positive.
The domestic private sector balance, private savings minus private investment spending, was also mostly positive, with two three-year exceptions, from 1987, when the sharemarket crashed, and around 2000, when the dot-com crash happened.
Richard C. Koo wrote in 2009 that under ideal conditions, a country’s economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero. ( http://en.wikipedia.org/wiki/Balance_sheet_recession ).
Fred Bethune described three examples of sectoral balances in the USA ( http://stopmebeforeivoteagain.org/2010/07/intro_to_economism.html ):
Clinton Era (1992-2000): The trade deficit results in the foreign sector saving. The government also saves by reducing its deficit and eventually establishing a fiscal surplus. The private sector picks up the slack by increasing its borrowing, encouraged by Greenspan’s low interest rates.
Trend: private dissaving, public saving, foreign saving .
Bush Era (2000-2008): The trade deficit is still widening, and the foreign sector is saving even more (Bernanke’s “savings glut”). The drag from the trade deficit is so bad that Bush’s large fiscal deficits and Greenspan’s low interest rates are necessary to keep the economy afloat. Trend: private dissaving, public dissaving, foreign saving .
Obama Era (2008-2010): The trade deficit is still an issue, but now the private savings rate has gone up while private borrowing has collapsed. The private sector can’t be convinced to increase its borrowing, even with interest rates at 0%. Now the public sector has to pick up the slack for two sectors, necessitating huge deficits. Trend: private saving, public dissaving, foreign saving.