His point is that software engineering is more important than industrial manufacturing, much of which represents 19th Century technology. "That's what the current account measures, your comparative advantage in 19th Century manufactured goods," he says. "We have moved far beyond that."
Why Current Account Deficits Are Irrelevant
When asked about the current account deficit, Jean-Marie Eveillard likes to quote legendary hedge fund manager George Soros's remark that "the current account deficit doesn't matter until it matters."
If you ask OppenheimerFunds' Bill Wilby about it, he might say that even when you think current account deficits matter, they don't. Well, almost.
"One of the most important things in the psychology and the perceptions of the U.S. is this current account deficit," Wilby says. "It's not important in a reality sense, but it's highly important in a psychological sense."
The current account deficit has expanded significantly in the last several years, approaching 5% of GNP, about as high as it's ever been. "That's what's causing a lot of people to wail and moan and talk about how the U.S. is overspending, and you know, it's spending beyond its means and all this kind of thing," he says.
A trained international economist, Wilby views that current account deficit in a very different fashion. "We don't care what the current account deficit is between, you know, West Virginia and California, nobody measures it, nobody looks at it, nobody even cares what that is. It's basically a balance of revenue, " he argues. "It's not a balance of profitability, it doesn't say anything about the returns on capital in any of the two countries. It just says what the balance of revenue is."
The composition of international exerts tremendous influence on trade balances. "Japan has become one of the leading automobile manufacturers and so has Germany. So they've got a lot of big-ticket items that are big revenue producers," Wilby continues. " I don't think it's that important for the U.S. to be the leading auto producer in the world. It's much more important that we're the source of leading biotechnology, of genetically engineered drugs, or strongest information technology, or the strongest chip design capabilities."
His point is that software engineering is more important than industrial manufacturing, much of which represents 19th Century technology. "That's what the current account measures, your comparative advantage in 19th Century manufactured goods," he says. "We have moved far beyond that."