Shrinking the “Other” Deficit

Chart-2linesIf you’re looking for good news, take a look at what economists call the “current account deficit,” which is a way of measuring the flow of goods and services into and out of the country. Up until around 1980, Americans tended to sell more products and services to the rest of the world than they were purchasing. Since then, dollars have been flowing out of the country at rates ranging from troubling to alarming–and in the runup to the recession, Americans were buying so much more from the world than they were selling out to it that the difference amounted to more than 5% of the total U.S. economy.

But the trend has been positive lately. Last year the deficit ran to just 2.3% of GDP, the lowest level since 1997, and it looks like the economy is starting to get back in balance with our global competitors. Part of the story is a reduction in petroleum imports–a trend which economists expect to continue. Also contributing is a small decrease in humanitarian aid flowing out of the U.S., from $34 billion down to $31.6 billion–which still represents more than a third of the $81.1 billion total.

Perhaps the most interesting component is services; last year, American businesses and consultants sold $57.92 billion more in services to the outside world than were purchased by Americans. This suggests that in an increasingly knowledge-based economy, our country is well-positioned, even against countries that live or die by export surpluses, like Japan and China.

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