Inequality, Financialization, and the US Current Account Deficit

The United States has been running a persistent current account deficit since 1982. Its growth particularly accelerated in the early 2000s, and the deficit peaked at about 6 percent of US GDP in 2006. Coincidentally, the distribution of income and wealth has grown progressively unequal, while the so-called financialization of the US economy has deepened. This paper argues that the concomitant processes of persistent current account deficits, rising inequality, and deepening financialization are not merely coincidental but can be traced to common causes arising from the global restructuring of US production through foreign direct investment and offshoring, which has underlain the structural transformation of the US economy since the 1980s. On the one hand, the US is the world’s biggest exporter of capital and recipient of foreign investment income; on the other hand, it is the biggest importer of foreign goods, often produced with the involvement of US capital. Ultimately, deindustrialization at home – a major factor behind the loss of middle-wage, middle-class jobs, and thus of rising income inequality – and the transnationalization of US production have boosted corporate profits, thereby propping up and accelerating the financialization of the US economy.