A flurry over current accounts, intangibles and other dark matters
For me this all started when two Harvard scholars Ricardo Hausmann and Federico Sturzenegger published an article about the dark matters of exports. Their theory is interesting in itself but especially because it challenges the mainstream economic discourse as it has been presented with USA running a huge current account deficit on the back of other's savings also know as the saving glut argument. Doomsayers consequently translate this into global imbalances which will hurt particularly the American economy (e.g. through a falling dollar) when they start to adjust. For more on the saving glut argument, see this survey of the world economy from The Economist. Concerning the dark matter thesis it can be summarized by the quotations from my post at Cultunomics (blog for my CBS study programme)
"Let us be a bit more concrete though; according to the Harvard scholars there are three factors which account for the accumulation of dark matter because they are not included in offcial statistics:
(quotes below are from the paper)
1. "The first refers to foreign direct investment (FDI). (...) The point is that in the accounting of FDI, the know-how that makes
investments particularly productive is poorly accounted for."
2. "Our second source of dark matter is the unaccounted value of the liquidity services provided (i.e. exported) by the US. (...) We would say
that the US has exported dark matter in the form of liquidity services and is making a 5 percent return on it. This so-called seignorage, or the unmeasured provision of liquidity services is a second source of dark matter"
3. "Finally, consider the US borrowing abroad at rate of 5% (say through a Treasury bond) and then using the proceeds to buy a portfolio of debt from emerging markets which earns ex post (even after defaults) a return of 8 percent. (...) Dark matter thus includes the selling of unaccounted insurance, which generates a premium."
"In short, the US is a net provider of knowledge, liquidity and insurance."
For more background;
BW-blogger Michael Mandel's response to the article (In which he propounds the dark matter thesis)
A tangible discussions about intangibles
"But what if we told you that the doomsayers, while not definitively wrong, aren't seeing the whole picture? What if we told you that businesses are investing about $1 trillion a year more than the official numbers show? Or that the savings rate, far from being negative, is actually positive? Or, for that matter, that our deficit with the rest of the world is much smaller than advertised, and that gross domestic product may be growing faster than the latest gloomy numbers show? You'd be pretty surprised, wouldn't you?"
Michael Mandel's cover story in Businessweek has spurred a very interesting discussion about the argument and whether official statistics perhaps are not too well equipped to map out the flow of (important) factors, such as for example intellectual property, in a knowledge based economy?
See the posts below ...
On the origins of Dark Matter - Brad Setser (response to the Hausmann and Struzenegger paper)
Is national income accounting biased against the US? - Brad Setser (response to the BW cover story)
Brad Setser on intangibles - Michael Mandel (response to Brad Setser's response to the BW cover story)
Krugman: Economic and technological conservative - Michael Mandel (response to a Krugman column about the BW cover story)
Mandel v. Setser. round two - Brad Setser (self explanatory)
I am sure there is much more about this ... feel free to drop some links in a comment!
Should we really go intangible then?
Essentially, I don't know quite what to think about the discussion. But I think it is extremely important and telling because it asks some very important questions ...
1. Global imbalances or not?
2. How indestructable is the US economy?
3. Are statistics not capable to track flows in our globalized knowledge economy.
When I get my head more around the arguments I will probably be able to give a more personal and critical assesment :).