E C O N O M I C R E P O R T O F T H E P R E S I D E N T

continue prudential regulation of the financial system, to help it remainsound and keep pace with new technology and deregulation. The strong U.S.financial system is well positioned to channel capital inflows into profitableuses, and it is important to maintain that strength.Although, again, the appropriate level of the current account deficit is difficultto assess, at least two principles are relevant should it prove necessary toreduce the deficit. First, the United States has an interest in policies thatstimulate foreign growth, since it is better to reduce the current accountdeficit through faster growth abroad than through slower growth at home. Arecession at home would obviously be a highly undesirable means of reducingthe deficit. The cyclical component of the deficit, caused by declines inglobal demand in recent years, should reverse itself as the world economyrecovers. For the future, the new international financial architecture, discussedearlier, should help maintain stronger and more stable foreign growth.Second, any reductions in the deficit are better achieved through increasednational saving than through reduced domestic investment. If there areattractive investment opportunities in the United States, we are better offborrowing from abroad to finance these opportunities than forgoing them.On the other hand, incomes in this country would be even higher in thefuture if these investments were financed through higher national saving.The United States needs policies that make saving more attractive. Indeed,the Administration has proposed substantial tax cuts to promote saving,especially among low- and moderate-income families who currently save relativelylittle. The United States also needs to maintain prudent fiscal policies.Here again, the Administration’s proposals, which would lead to large andgrowing budget surpluses in the decade to come, are highly desirable.A growth strategy for the United States based on continued prudent fiscalpolicy would also extend macroeconomic assistance to the problems faced bythe manufacturing sector. By increasing national saving, such a policy wouldallow interest rates to remain lower than they would otherwise be. Lowerinterest rates would lead to higher domestic investment, which, in turn,would boost demand for equipment and construction. For any given level ofinvestment, increased saving would also result in higher net exports, whichwould again raise employment in these sectors.ConclusionOver the long term, increasing the standard of living in the United Statesrequires that Americans embrace change. We should not retreat from theconstant succession of new opportunities that arise in an ever-changingworld economy. The United States has long welcomed the opportunities that236 | Economic Report of the President