The Efficiency of Adjustment

Despite its current magnitude, the problem of the major overhang of “indebtedness” facing the US economy and its currency is of fairly recent origin. This chapter focuses on the identification of three categories of factors, which are likely to adversely affect the efficiency of policy measures designed to eliminate the international dissaving. The factors consist of three types: “natural phenomena;” “contrary or counterproductive measures” and “internal inefficiencies.” “Natural” phenomena are largely beyond the control of policymakers in either surplus or deficit countries. “Contrary” measures can be seen as deliberate, defensive measures adopted by policymakers in surplus nations. Contrary measures can also be instituted by groups in the deficit country who have the power to neutralize policies which adversely affect their private interests. “Internal inefficiencies” consist of existing arrangements that reduce the effectiveness of some policy instruments to be used in the elimination of a sizeable deficit. This does not mean that the latter measures were without social merit at the time of legislation but that the legislative process did not allow for the side-effects when reductions in the rate of international dissaving had to be imposed.