Laffer Throws Curve with Latest Theory

American Economic Alert ^ | Tuesday, August 29, 2006 | Alan Tonelson

[A. Pole]

Although most economists keep insisting that their discipline is all about peaceful competition, it’s increasingly clear that they need to do violence to language and logic when defending today’s U.S. globalization policies.

The latest example: Arthur B. Laffer’s recent suggestion in a Wall Street Journal article that the term "trade deficit" is a misnomer. Instead, insisted the "Father of Supply-Side Economics" and former guru to President Reagan, Americans should call their country’s bloated excess of imports over exports a "capital surplus" – reflecting the borrowing from abroad needed to sustain it.

Unfortunately for the United States, word games can’t possibly reduce the dangers created by piling up so much debt, and in the process squandering so much of the earnings capacity needed to restore balance.

But if they really believe such verbal gimmickery reflects reality, the least Laffer and his fans at the Wall Street Journal could do is this: manage their personal finances by maximizing their debts, paying only the interest, and expecting to remain creditworthy and to maintain their high lifestyle because they’re running "individual capital surpluses."

[A. Pole]

"Let London manufacture those fine fabrics of hers to her heart's content; let Holland her chambrays; Florence her cloth; the Indies their beaver and vicuna; Milan her brocade, Italy and Flanders their linens...so long as our capital can enjoy them; the only thing it proves is that all nations train their journeymen for Madrid, and that Madrid is the queen of Parliaments, for all the world serves her and she serves nobody."

(Prominent Spanish official - Alfonso Nunez de Castro in 1675)

[lonestar67]

Laffer is correct

Trade deficit is a bogus term.

There is no deficit.

[Moonman62]

Unfortunately for the United States, word games can’t possibly reduce the dangers created by piling up so much debt, and in the process squandering so much of the earnings capacity needed to restore balance.

The real imbalance is that our economy is so much stronger than all others. Cripple our economy and the imbalance will go away.

[llevrok]

Cripple our economy and the imbalance will go away.

Cripple our economy and the world's economy goes away.

[Strategerist]

Arthur Laffer has more economic knowledge in his left toenail than Alan Tonelson and Pat Buchanan combined.

[hedgetrimmer]

Cripple our economy and the world's economy goes away.

The whole globalist scheme has been funded by the US taxpayer and our domestic economy. If either fails (both are looking very sickly right now) so does the monsterous scheme of the "free traders" to redistribute OUR wealth so they can build markets for themselves in foreign countries.

[hedgetrimmer]

Whatever happened to indivdiual rights? Do you know?

[D-Chivas]

Cripple our economy and the world's economy goes away.

Absolutely right on target here....

[redbaiter]

Like I explained to the Kerry campaigners in Philly in 04 when they listed the 'trade deficit' as a reason to vote for Horseface: "I've been buying spinach lettuce and grapes from the Korean grocer at the Reading market for five years. She has yet to buy anything from me. Should I be concerned?"

[Common Tator]

What do you think happens with our trade deficit? They give us goods and we give them paper. But they don't spend that paper with us. They don't buy from us.

Think about a personal trade deficit. I sell you my car and you give me a check. I never cash the check.. that is a trade deficit. You have to carry me on the books as someone you owe. But You have the money still in the bank and You have my car.

That is what a trade deficit implies. The bad part is we supposedly spend the same money again. This time if you cash your check it will bounce. And that is bad.

But that is not what is happening. Trade consists of durable goods. Stuff like Japanese cars and Chinese made shirts.

So are they just failing to cash those checks or are they spending the money on things that don't show up in the trade category.

It has to be the latter... Not even the Chinese are going to sell us stuff and never cash the check.

[Fiddlstix]

BTTT

[keithtoo]

Correct. 'Trade' is a self-defining term. When I trade a vending machine $1.00 for a soda, we both come out even. I have traded $1.00 in currency for $1.00 worth of soda. I have no 'trade deficit' with the owner of that vending machine.

[ChessExpert]

He may have been right, as long as Spain could obtain gold easily in the new world.

[A. Pole]

Arthur Laffer has more economic knowledge in his left toenail than Alan Tonelson and Pat Buchanan combined.

Is he infallible?

[A. Pole]

Good tagline

[A CA Guy]

Here you go, I'll throw a curve...

[ChessExpert]

Yours too!

[woofie]

Chinese surplus ?

[eddie willers]

I have traded $1.00 in currency for $1.00 worth of soda. I have no 'trade deficit' with the owner of that vending machine.

Good analogy.