In “Needless needle of current account surplus countries” (Letters, July 24) Frank Boll is right to remind us that, as in a successfully danced tango, international trade requires a minimum of two parties. He misses the point, however, in his complaint that your columnist Martin Wolf and others have a “deep-seated aversion to current account surplus countries” — ie countries that depend for their economic vigour on running current account surpluses, or what used to be called “mercantilism” (“Is Germany the sick man of Europe again?”, Opinion, July 17).
Trade — and economies — work best when they are in balance or moving towards balance. John Maynard Keynes shocked his contemporaries by pointing out that persistent trade surpluses are as damaging as deficits, and that therefore international interventions should be aimed as
much at reducing surpluses as deficits because unregulated free markets cannot be relied upon to restore balance.
Countries seeking to invest more than their economies set aside as savings hope that other countries will lend to them. They do not “create debt”; lenders create debt if they are confident that the debt will be repaid (or if they think that they will be able to sell the debt to someone else who has that confidence). It is similar, although on a much larger scale, to the way that individuals unable to come up with the cash to buy a dwelling hope that a financial institution will lend them the cash they need.
Without the loan, the potential homebuyers would, in most cases, lead more restricted lives and the construction industry would have less business. Boll thinks that changes in something he calls the long-term debt to output multiplier shows that this reduction in welfare and industrial activity is less damaging than the restrictive effects of mercantilist policies. I, for one, would like to see the numbers behind this argument.
Anthony Murray
London KT2, UK
