It is a surprise...
The view of the Treasury's Office of Economic Policy is (or at least used to be: I haven't talked to them about this in a couple of years) that the rising external debt placed very tight constraints on U.S. policy: any hint that the Federal Reserve was subordinating price stability to any other goal, or that the Clinton administration was subordinating budget balance to any other goal, and we would have had large-scale capital flight on our hands--falling exchange rate, spiking interest rates, recession, and so forth.
We also thought, though, that there were no better options. With a low national savings rate, a high-investment recovery required a substantial trade deficit to finance an inflow of investment from abroad. And a high-investment recovery was the only thing that might generate a high productivity growth recovery--and that only if we had a high productivity growth recovery would social democracy become politically possible once again.
The fact that the U.S. now seems so attractive to foreign capital makes me wonder whether the space of options open to the Clinton administration in 1993 was as narrow as we thought it was then: we thought our choice was between Eisenhower Republicanism and economic collapse. Perhaps we were wrong and the Reich-Sperling strategy of public investment first, deficit reducation later (if at all) was a possible option...
(Then again, only three years ago the question was whether the dollar would fall in value below 70 yen; and there is a long line of examples stretching back to Mitterand and Carter suggesting that social democratic Keynesianism in one country is no longer a live option...)
Brad DeLong