There's been a few article about this; the Mike Norman Economics web site is keeping up with the links. For example, this MNE article links to the article by Ramanan, and 'Detroit Dan'.
As I discussed earlier, I do not know whether Bernie Sanders (or Jeb Bush's) economic plans will drive economic growth to 4-5% over any particular horizon. I am just arguing that there is no reason to say that such a growth rate is impossible.
External Limits To Growth?In Limits to Growth? Ramanan argues:
But things are not easy. What surprises me is that in none of these discussions from either side, is there any discussion of the U.S. balance of payments. [emphasis mine] The U.S. does not have exports of just a couple of hundred billions and a GDP of some $16 tn. It has exports of about $2.5 tn and GDP of about $16 tn, meaning the GDP is a few multiple of exports. The United States is a net debtor to the rest of the world. So a rapid rise in growth by any means will come at the expense of terribly deteriorating balance of payments which cannot last long.
Of course the above doesn’t mean that things are as pessimistic. It depends on what is going on in the rest of the world and the United States being the economic center of world activity can convince others to boost their economies and there is no reason to assume that it cannot. if there is rapid growth in other economies, the U.S. balance of payments is not something to worry about.I will start by saying that I agree with Ramanan's analysis (although my article did have a glancing mention of external trade, so technically such a discussion did appear somewhere...). However, I am less concerned about the absence of the discussion of the external constraint.
From a U.S.-centric analytical viewpoint, the "external constraint" shows up as trade drag, since the American "establishment" has given up on the idea of the U.S. Treasury facing an external "financing constraint." (As I discussed in this article, financing risks were treated more seriously pre-2008, and remain a point of discussion in other countries.) This trade drag acts an ever-present automatic stabiliser, in much the same way the progressive income tax system. That is, if the U.S. economy grows quickly, there is an increasing trade deficit that acts to slow growth.
Theoretically, what should matter is relative growth: if the rest of the world is growing faster, there is less of a constraint on U.S. growth. However, that really only matters if your external trade account is near balance; U.S. imports are larger than exports, and so it takes a lot of export growth to catch up with import growth, if those imports are growing at all. Correspondingly, U.S. economists can get away with largely ignoring what the rest of the world is doing when discussing domestic growth. All we need to do is keep in mind that there are automatic stabilisers, which can be seen in historical data. (The effectiveness of those automatic stabilisers is why it is reasonable to be skeptical about GDP growth projections that deviate too far from trend.)
In any event, the U.S. could get away with strong GDP growth without causing external difficulties right now. There is plenty of spare global manufacturing capacity, so rapid U.S. growth would be accommodated by exporters. After awhile, there would be a self-reinforcing global growth spurt, which will reduce the pressure on the U.S. trade balance. The only way that the growth train goes off the rails is if we start hitting supply constraints for raw materials (particularly oil).
Moreover, there is no reason to believe that GDP growth must drive a worsening of the trade balance. One could imagine policies that cause a rebalancing towards the consumption of domestic goods and services. In fact, this rebalancing is probably necessary if one wanted to generate strong job creation, and hence GDP growth. However, I am unsure which policies could cause such a rebalancing within our current policy framework.
(c) Brian Romanchuk 2015