The Weak Links in the Twin Deficit Chain

SOURCE www.breitbart.com
Jason Furman argues that President Trump's tax cuts would widen the trade deficit based on the 'twin deficits' hypothesis. However, historical data and economists challenge this idea, suggesting that the relationship between budget and trade deficits is weak and conditional. Tax cuts may not necessarily lead to higher interest rates, a stronger dollar, or a worsening trade balance.

Key Points

  • Historical data shows that the relationship between budget and trade deficits is weak and conditional
  • Tax cuts may not necessarily lead to higher interest rates or a worsening trade balance
  • Economists challenge the idea that budget deficits directly lead to higher trade deficits

Pros

  • Challenges the conventional wisdom regarding the relationship between tax cuts, budget deficits, and trade deficits
  • Provides historical data and economist perspectives to support the argument

Cons

  • The 'twin deficits' hypothesis may not always hold true in real-world scenarios