FOREIGN EXCHANGE RATES AGAIN.

FOREIGN EXCHANGE RATES AGAIN. This Harvard Magazine article summarizes the views of several Harvard economists on America’s large trade deficit. Most of them think that the trade deficit poses major risks of a sudden decline in the value of the dollar. There is one dissenter, Richard Cooper, who “sees global imbalances as a natural consequence of a decline in investment “’home bias.’” I am certainly not in a position to weigh the arguments (“Nobody knows anything”), but I think that Professor Cooper, the dissenter, makes a very important point. Cooper argues that: ” Because the United States is 30 percent of the world economy, a world with no home bias would see foreigners investing 30 percent of their savings in the United States and Americans investing 70 percent of their savings outside the country.” Cooper also thinks that the American trade deficit could continue to grow as a percentage of GNP because America will continue to be a good place for a foreign investor to put his money.