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.
Here's a smell test. Pretend you're a man from Mars knowing absolutely nothing about Earth and you're looking for a nice place to land. You find out that there's one country, say, country A, where earthlings from other countries voluntarily invest and entrust trillions of dollars of their hard earnings. There are other countries where they're not nearly as willing to make the same investment. Which one of those countries would you deem the most prosperous and with the greatest growth prospects? You'd pick country A, which turns out to be the United States. As such, you'd be just like most of the world's population who, if free to do so, would invest and live in the U.S.
Of course, an American auto producer, from whom I didn't purchase my car, might whine that it was unfair. He would like Congress to impose import tariffs and quotas to make Japanese-produced cars less attractive and available in the hopes that I'd buy an American-produced car. In my book, that would be unfair.