But Mr. Mankiw know that high growth and low inflation—what economists used

to call “internal balance”—are not the be all and end all of macroeconomics. Later chapters of their textbooks introduce them to “external balance”, telling them also to keep an eye on the economy’s balance of payments with the rest of the world. By this standard, America’s economy has a real problem. According to figures released shortly before the Fed’s interest-rate decision, America’s trade deficit rose to a new record of $55.5 billion in October. A day later, the Treasury revealed  that America attracted only $48.1 billion of net foreign capital to help finance that deficit. This was not because foreigners had given up on dollar assets, but because American capital has momentarily fled overseas: Americans added a net $12 billion of foreign shares to their portfolios in October, and a net $3.2 billion of foreign bonds.

      Mr. Mankiw neglected to mention the trade deficit in his speech, and the Fed’s rate-setting committee never mentions it in its statements. But it is on the minds of the committee’s members. According to the minutes of their June meeting, they mulled over staff projections of how this imbalance might unfold and how it might unwind. Their staff hoped for a “benign” resolution, but could not rule out the possibility that restoring balance to American external accounts would involve “more wrenching changes”.

As the Fed’s chairman, Alan Greenspan, said in a speech in Frankfurt last month, America’s lack of external balance—its need to borrow huge sums from foreigners—reflects a lack of national savings. He bears no small responsibility for this dearth: tempting households to abjure thrift and embrace debt was part of his strategy for rescuing America from its recession. But, as he was anxious to point out, the most effective way to “augment” domestic saving is for America’s federal government to curb its borrowing.

How likely is that? On Wednesday, Mr. Bush will explain his economic agenda for the next four years at a summit of economists and businessmen in Washington. He has, as he was keen to point out after his election victory, some “political capital” to spend. Unfortunately, he has rather less capital of the economic kind. The government’s budget was $412.6 billion in the red in the fiscal year that ended on September 30th.

Budget deficits, as Mr. Mankiw has pointed out, “are a mechanism whereby one generation of taxpayers passes the buck for its spending on to future generations”. That is why they are so insidious economically, and so attractive politically. Politicians can pass the buck for their spending on to some future generation, on whose votes they do not rely.

Mr. Mankiw in the White House no longer has to worry about facing the voters. Thus the president’s budget proposal for this fiscal year showed somewhat tighter fists. He requested only $388 billion for discretionary spending, excluding homeland security and defense—an increase of just 1% over the previous year. Once the cost of guns is added to the cost of butter, the deficit for this fiscal year should come to about $350 billion, or 2.8% of GDP, according to Goldman Sachs, an investment bank.

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