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August 07, 2006
Aha! on Trade
For quite a while there is one macro economic indicator which has never made sense to me and that is the US Trade Deficit or the US Current Account Deficit. The fact that we always run a deficit has never passed my sniff test and this sniffer has delved into all sorts of FASB accounting silliness as a policy minded former pubco CEO. In fact, I had asked Steve Conover who runs The Skeptical Optimist (conveniently linked over there at the right) to opine on why this indicator didn't make sense. Now I see that he happened upon an article that lead him to write this column about a paper from Harvard explaining why the traditional accounting just doesn't really state the true facts of the wealth creation and transfer. As Steve likes to say, remember that accountants count what is easy to count (which still makes me wonder why we're expensing stock options, but I guess they think Black-Scholes counts something other than MS Excel revenue...)
This is one of the more important pieces of academic work I've seen so far this year. It has that key insight that makes you smack your forehead and go "of course we use risk capital overseas which leads to capital gains instead of low risk income that foreigners seek here..."
Posted by hoffmang | August 07, 2006 09:01 PM