On 28 June 2019, the members of Liberty Discussion Group sat down at Gaia Restaurant and Coffee Shop to discuss the article ‘America’s Misunderstood Trade Deficit’ by Daniel Griswold.
The first argument that hit the table was regarding distrust presented by a member that the value by which current account would change will exactly equate the value by which the capital account has changed in order to create the state of null Balance of Payment (BOP). The member argued such assumption to be unrealistically perfect that recognized intensity or elasticity of the change in the capital account and current account to be perfectly opposite. He argued that the reason that such perfection in equal elasticity does not exist is the reason for economies in the real world to face positive or negative value of Balance of Payment (BOP) on a substantial scale. On the contrast, a defendant of the paper argued that even though the state of perfect level of elasticity between capital and current account may not prevail, the substance of theory in the paper that regards capital account and current account to be inverse affair is fundamentally proven. And as provided in the paper itself, there exist real-world empirical examples of it.
In the meantime, the other member localized the theory and argued that the logic of the theory is not applicable in Nepal is where the monetary structure of the country subscribes to the fixed-peg regime and capital convertibility is severely limited as the law only allows foreign inflow of capital but the extremely limited outflow of capital. The member mentioned that this theory is fundamentally based on the prevalence of floating exchange rate regime, and therefore is limited in terms of application among only monetarily liberal economies. As such argument was expressed in the table there was no counter-argument to it as all members seemed to agree on it. And therefore, the table came to a consensus that trade policy has significant implication on the current account or trade balance of an economy that subscribed to fixed-peg or even managed float monetary regime.
Finally, another member attacked the thought presented in the article that the current account deficit is not a worrisome condition per se. She argued that if it was not a worrisome condition why would politicians and economists all over the country and even abroad are worried about deficits. No later the other members counter-argued that the zest of this paper is exactly to inform politicians and citizens to not be misunderstood by the fact that current account deficit is necessarily a worrisome affair. And, while discussing in the context of Nepal, the defendant of the paper argued that trade deficit would not be a matter of worry for Nepal if it was not for the state of industrial incompetence that is affecting the economic prosperity of common citizens. Otherwise, the state current account deficit would not be of concern as it is fundamentally not for United States America if omitted the unnecessary hype created by American politicians around it.
As time was limited, members could not discuss more on these issues even though they desired to. But as always, members can always continue their discussion on the Facebook group.