"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

324 Miscellanea
be extended to other countries. If you did this you would emerge probably with
a new world, essentially a tripolar world, a world of three poles: the U.S. and
Company, Europe, and Japan, with a situation which is quite normal. You have
essentially three equal groups.
From the point of view of exchange stabilization, this situation has possibilities.
First, if you have large groups, the exchange rate, even though reasonable
for individual countries, is much more stable. Essentially the whole change in
exchange produces a very large drop because it comes from a large group of countries,
so these three groups were floating something. The situation probably would
not be too bad assuming the U.S. has learned from the past and is not going to
repeat. I think you know for certain that the U.S. would not repeat past errors,
because the system requires the maintenance of certain fiscal policy standards—
Japan has a pretty good tradition so just left alone might not be so bad.
Second, there is reasonable hope of some coordination. In other words there
is hope that, being just three blocs, they might come to agreement on certain policies
and measures. There are various forms that these things can take. One possibility
is target zones, a situation where each country has a zoned target within
which it intends to stay, but within that zone the exchange is free—so you do not
intervene. This system is promising and has been widely discussed.
Now I come to a different story, that is, the question of the past and future role
of the U.S. and Japan—and some other Asian countries you may recognize—but
most importantly, I would like to discuss these two countries. I point out here
that the U.S. has lost much of its position. It once had well above half the world
trade, up to 70 percent immediately following the war. But after the war this figure
declined gradually to well below 50 percent. Where as the U.S. has lost much
ground, Japan has grown accordingly. The question is, why has this happened. I
take the view held by the Japanese and many people around the world, that the
American economy lost its vigor, whatever that means, and it has a huge deficit
in the current account. It was unable to meet competition. In addition, it was the
culprit of many bad things; for example it had a very low ceiling interest rate
compared to other countries. In Japan productivity is high, people are working.
People are not making financial deals. Savings is high over the population, as
high as 30 percent in some years, whereas Americans have been spendthrifts. The
Japanese have been virtuous, putting large sums aside for the future. And they
have a wonderful government, no corruption, everything perfect. The problem is,
there is very little difference between the U.S. and Japan.
Let me take this one-by-one. International trade: Why did we develop this enormous
deficit? Simply, this was an elementary and necessary consequence of the
government deficit. If you have a government deficit you will attract capital. You
have less capital left, and if you attract capital you must have imports in excess