In my first year of grad school, one of my professors had a long list of “forbidden words”. These were terms that do more to confuse than enlighten when used in economic analysis. Terms like “need”, “afford”, “exploits”, “vicious circle”, etc. Today, I’ll argue that we might wish to add the term “must” to that list.

Brian Albrecht has an outstanding new post that nicely illustrates the problem:

This approach eliminates human choice entirely. [Michael] Pettis treats markets as foreigners imposing their will: “the United States has no choice but to run a corresponding trade deficit.” Capital flows are just forced upon you like the weather if the government doesn’t do something about it. In his telling, Americans are passive victims who must automatically adjust their saving and spending when foreigners decide to invest here.

The starkest example: “If a country organizes its economy in such a way that its savings vastly exceed its investment, the rest of the world must automatically adjust either its savings or its investment.” I mean that must be true, but how does that framing help us? If I sell goods, does it make sense to say the rest of the world “must” buy them? Only under weird definitions of “must.” In both cases, we are looking at an outcome (savings > investment, or my sales > 0), not some abstract goal. These are the traded quantities. And, again, it removes any choice. Why am I selling the goods? Can policy change my sales? Sure. 

In a recent post, I tried to explain the confusion over the US current account deficit by looking at some other countries.  For instance, Australia has run fairly persistent current account deficits over the past few decades, whereas the Netherlands has run large current account surpluses.  There is a sense in which it is true that whenever non-Australian countries, in aggregate, run current account surpluses, then Australia “must” run a current account deficit, just as the fact that I succeed in selling goods from my small convenience store implies the rest of the world “must” buy goods from me.  Not must as an authoritarian order, rather “must” as an accounting relationship, quantity sold must equal quantity bought.  

It’s also true that if all non-Dutch countries, in aggregate, run a current account deficit, then the Netherlands must run a current account surplus.  And why stop there?  If Andorra runs a current account surplus, then all non-Andorran countries, in aggregate, must run a current account deficit. How dare those perfidious Andorrans force a current account deficit on the rest of the world!!

Now let’s think about possible explanations for Australia’s current account deficits and the Netherlands’ current account surpluses.  Does anyone seriously believe that a useful explanation for those patterns is: “Non-Australian countries run surpluses, and hence Australia must run a deficit, whereas non-Dutch countries run deficits, and hence the Netherlands must run surpluses.  That’s why Australia has a deficit and the Netherlands has a surplus.”  Is that what we mean by an “explanation”?

Albrecht’s entire post is excellent—read the whole thing.