Viewing the current account deficit as a capital inflow

Viewing the current account deficit as a capital inflow helps to dispel misconceptions about the consequences of economic globalization. The current account deficit, seen as the net balance in the trade of goods and services, does translate into fewer jobs in export- and import-competing firms and industries. Yet when viewed as the net inflow of foreign investment capital, the current account deficit produces jobs for the economy as a whole: both from the direct effects of higher employment in investment-oriented industries and from the indirect effects of higher investment spending on economywide employment. Increased investment spending, however, comes at the cost of greater foreign debt. The federal government has done its part to slow the accumulation of debt by eliminating the budget deficit, an action that helps ensure the productive use of the foreign capital inflow. Nevertheless, because of the downward trend in private saving, the US must continue to rely on foreign capital to maintain an adequate rate of investment spending.