Evil Twins: US Federal Budget Deficits and US Trade

By Jane L. Johnson – Mises Wire

One hears little today of the US “twin deficits,” a phrase familiar during the 1980s when the US had consistently run both federal budget deficits and international trade deficits. Economists hypothesized at that time that there was a theoretical and/or empirical relationship assuring the two deficits’ increasing or decreasing together.

The twin deficits hypothesis arose to explain the experience of the US during the 1980s. Observers noted that federal budget deficits and trade deficits rose and fell together, although whether there were a causal relationship in the movements of the two deficits was unclear.