As a new year dawns, let's hope that in 2010 our economy returns to "internal and external balance." Yes, I know it is 2009, not 2010. But there is no hope that ongoing economic turmoil will end this year. Downward trends remain much too strong and too many surprise packages remain unopened.

The following year, 2010, could be a different story. With good fortune and prudent policies, that year may hold some improvement. As we wait for prosperity, however, it would be good to think a bit about what sort of economy we would like to prevail in the future and how we can avoid some of the mistakes that brought us where we are.

In that vein, James Meade's idea of "internal and external balance" merits some thought. Meade and Swedish economist Bertil Ohlin won the 1977 Nobel Prize for their work in the theory of international trade and capital flows.

Meade focused on the interaction between domestic economic policies - taxes, spending, money supply, interest rates - and the flows of money, goods and services between countries. In particular, he focused on how a nation's attempts to achieve some domestic objective - say, full employment or low inflation - might affect its trade and capital flows, perhaps in harmful ways.

Internal and external balance is not a theory per se. Rather, it is a vague shorthand for a desirable economic situation.

Internal balance is one of growing output with moderate unemployment and inflation. It is not utopia, but a situation where no general economic problem is severe.

External balance means that a nation's balance of payments, the flows of money in and out of the country for all purposes, is roughly "in balance" and that the value of its currency in terms of other major currencies is stable.

Looking back, while our nation has had long periods of relative prosperity, we really have not had simultaneous internal and external balance for decades. We enjoyed being insulated from the effects of such imbalances for years. Now, however, the pent-up forces from those imbalances are one of the reasons why the economic downturn is so severe and why it will be so protracted.

Internally, with the exception of relatively mild recessions in 1990 and 2001, we have had low inflation and unemployment, at least relative to the 1970s.

But this has been accompanied by large federal budget deficits in most years. Both government and household savings are near zero. And for the last 15 years, the money supply has grown substantially faster than the economy as a whole.

Over the last decade especially, we have had a high level of consumption and growing indebtedness. We financed growing public and private debt by borrowing from other countries, especially from East Asia and from oil exporters.

But to suck in money this way in the capital account portion of the balance of payments means that we must run a deficit in the "current account." That includes trade in goods and services, income from investments, remittances by individuals and so forth.

We are learning that these imbalances are not sustainable in the long run. But having dug ourselves into a deep hole, it is not clear how best to get out of it. Maybe instead of 2010, we should hope for improvement by 2012.

Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com.