Two recent articles ought to give pause to current political and journalistic ignorance, perhaps demagoguery, about our international trade deficit. In a December Wall Street Journal article titled "Embrace the Deficit," Bear Stearns' chief economist David Malpass lays additional waste to predictions of gloom and doom associated with our trade deficit.
Since 2001, our economy has created 9.3 million new jobs, compared with 360,000 in Japan and 1.1 million in the euro zone (European Union countries that have adopted the euro), excluding Spain. Japan and euro zone countries had trade surpluses, while we had large and increasing trade deficits. Mr. Malpass says that both Spain and the U.K., like the U.S., ran trade deficits, but they created 3.6 and 1.3 million new jobs, respectively. Moreover, wages rose in the U.S., Spain and the U.K.
Professor Don Boudreaux, chairman of George Mason University's Economics Department, wrote "If Trade Surpluses Are So Great, the 1930s Should Have Been a Booming Decade" (www.cafehayek.com). According to data he found at the National Bureau of Economic Research's "Macrohistory Database", it turns out that the U.S. ran a trade surplus in nine of the 10 years of the Great Depression, with 1936 being the lone exception.
During those 10 years, we had a significant trade surplus, with exports totaling $26.05 billion and imports totaling only $21.13 billion. So what do trade surpluses during a depression and trade deficits during an economic boom prove, considering we've had trade deficits for most of our history? Professor Boudreaux says they prove absolutely nothing. Economies are far too complex to draw simplistic causal connections between trade deficits and surpluses and economic welfare and growth.
Despite all the criticism from abroad and the doom-mongers at home, the world finds our economy attractive. Just as we've been chomping at the bit to buy foreign goods and services, foreigners have been chomping at the bit to invest trillions of dollars in the U.S. Mr. Malpass says our 10-year government bonds yield 4.6 percent per year compared with Japan's 1.6 percent; our government debt is 38 percent of GDP versus 86 percent in Japan; and while Europe's debt to GDP ratio is not as extreme as Japan's, it's not nearly as favorable as ours.