The Current Account Deficit: Low National Savings Redux

I have been reading something Lawrence Summers wrote over 12 years ago. A lot of interesting comments but let me pick out one key segment:

Tautologously, a current account deficit is the difference between national savings and national investments; or, equivalently, between net national savings and net national investment, removing the effects of depreciation. It is natural to look at the U.S. current account deficit and ask whether its level and its deterioration is better attributed to increased investment or to reduced saving. In the last year, the net national savings rate of the United States has been between 1 and 2 percent.

Taking a look at this source and updating what Summers said for 2015, it seems net investment was only 5.5% of NNP. With the trade deficit running at about 3.75% of GDP, net national savings is still only 1.75% of NNP. As Brad DeLong notes:

Let me disagree a bit with Paul: although evidence does suggest that we are near full employment, we are not at full employment--and the suggestion that we are near full employment is a very weak one

Brad was responding to Paul Krugman who also noted:

Trump deficits won’t actually do much to boost growth, because rates will rise and there will be lots of crowding out. Also a strong dollar and bigger trade deficit, like Reagan’s morning after Morning in America.

With a national savings rate of only 1.75%, we should not repeat the mistake of 1981 giving the rich another massive tax break which would further reduce national savings and make the trade deficit worse. We should instead think in terms of how to get investment demand – be it public infrastructure or private investment – higher. As Brad notes, lower interest rates and infrastructure investment would be good policy.