What's more important, big trade deficits or high productivity? Debt to foreigners is building up, but productivity is soaring. Last Thursday's data from the BLS shows that output per hour has been rising at a 2.9% rate over the past ten years, not much below the post-war high of 3.3%.

I'd argue that productivity is winning. The best way to see this is to look at net real wealth per capita--that is, the net worth of households, subtracting government debt, and adjusting for inflation and population. This measure summarizes the combined effects of the higher borrowing from foreigners and the increased output from productivity.

By my calculations, net real worth per person is up 57% over the past ten years. That's one of the biggest increases on records. By comparison, real net worth per person rose by 36% in the 1980s, 21% in the 1970s, and 32% in the 1960s.

I'd say that as long as net real worth per capita is rising, that's a sign that the plus of higher productivity is stronger than the minus from the trade deficit.

(For more about the different views of the sustainability of the trade deficit, see Nouriel Roubini's excellent and comprehensive note. )

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