Timothy Taylor on Net Debtor Nations
By David Henderson
Conversable Economist Timothy Taylor has an excellent post on the net international investment position of the United States. Tim has been hitting two-baggers, three-baggers, and home runs for a long time now. If you want to see a well-informed economist write calmly about the modern economic landscape and if you don’t have his blog on your RSS feed, I highly recommend that you do so.
You can see a criticism coming, right? Why would I praise him this heavily if I’m not about to make a criticism. Well, you’re right. I am. But the praise above is completely genuine.
My criticism is of the language Timothy and the IMF use to talk about net international investment positions. Both the IMF and Tim claim that if foreigners own more U.S. assets than Americans own of foreign assets, then the United States is a net debtor. That’s wrong.
Here’s what I wrote in “America for Sale?” in Reason, July 1988.
First, no economist or journalist who claims that America is a net debtor has presented data on net debt. Those who write about the subject typically classify foreign-owned U.S. stocks and real estate as debt. But they are not: My ownership of my house, for example, makes no one indebted to me.
The admittedly cumbersome term to describe what people are concerned about is the U.S. net international investment position, that is, U.S. assets abroad–stocks, bonds, structures, and equipment–minus foreign-owned assets here.