Fashionable Worry

It has become almost fashionable in Washington to worry about the U.S. balance-of-payments deficit, that longstanding cause of the U.S. gold outflow. Economists frequently deplore it, businessmen point to it with alarm, and the Administration itself has put some of its best minds to work combating it. Thanks to all the fuss, the balance-of-payments problem may no longer be such a worry. Last week Treasury Under Secretary Robert V. Roosa told the House Banking and Currency Committee that the U.S.'s payments deficit in the second quarter of 1962 was very much smaller than in the first quarter, and that the deficit for the year is shaping up at between $1 billion and $1.5 billion, a vast improvement over last year's $2.5 billion.

The Administration has taken several measures to solve the problem, with some strong help from U.S. business. The latest improvement is the result of better control of military expenditures abroad, more procurement in the U.S. of goods financed by U.S. loans, and a continued rise in U.S. exports; in April, exports climbed to an annual rate of $21.5 billion, a near record, putting the balance of trade at an annual rate of $5 billion in the U.S.'s favor. The hopeful balance-of-payments figures were also helped along by a decrease in short-term capital outflow (thanks in part to devaluation of the Canadian dollar) and the prepayment by France of $293.4 million owed to the U.S. Last week's drop in the gold supply to a 23-year low, which alarmed many who read the financial pages, was largely accounted for by a single transaction: France's routine exchange of $112 million in accumulated dollar reserves for U.S. gold.

In any case, the balance-of-payments problem, while bothersome enough to a nation that aspires to keep its books balanced, is not the bugaboo that it has sometimes seemed to be. It would be crucial if the U.S. had a true payments deficit in the sense that other deficit nations do-but the U.S. does not. The U.S. deficit is a result of its heavy foreign aid and military programs abroad--without which the U.S. would have a healthy payments surplus--and not of any basic imbalance in its economic relations with other nations. It is therefore far less important than the health of the U.S. economy itself, which holds the real key to how the balance of payments goes. Treasury Secretary Douglas Dillon is sticking to his prediction that the adverse balance-of-payments situation will end by late 1963. If that hopeful prediction does nothing else, it should at least enable economists to concentrate more attention on solving the problems of a sluggish U.S. economy.

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