Skip to comments.Trade Deficit Is Most Meaningless Economic Indicator Of All
Posted on 05/07/2018 8:24:51 AM PDT by SeekAndFind
The trade deficit doesn't matter. There shouldn't be anything controversial about this fact. As Adam Smith, the father of modern economics, wrote in "An Inquiry into the Nature and Causes of the Wealth of Nations," "Nothing ... can be more absurd than this whole doctrine of the balance of trade."
More meaningful economic indicators are the unemployment rate, wages and gross domestic product. Well, the unemployment rate is 4.1% and wages are growing. Although Barack Obama was the first president since Herbert Hoover not to see annual economic growth at 3% or higher during his presidency, the Congressional Budget Office has projected 3.3% economic growth in 2018.
Does the American economy face challenges? Absolutely. Budget deficits do matter, and the recent budget agreement that spends nearly $300 billion above the previously established spending caps is a serious problem. The budget deal accelerates the time frame in which Americans will see $1 trillion deficits, which may now come as soon as 2020. The rapid growth of entitlements like Medicare and Social Security threaten our long-term fiscal security.
Trade deficits, however, simply are not a concern. Well, at least not in the way politicians who preach fear would have you believe.
A trade deficit is a sign that Americans have purchasing power and are creating demand for products. When the economy is in a downturn, the trade deficit shrinks. In 2006, for example, the trade deficit was $762 billion and the unemployment rate was 4.9%. By the end of 2009, the trade deficit declined to $384 billion, and the unemployment rate peaked at 10%.
As the economy slowed during the Great Recession, manufacturing output also declined. But as the economy has improved, real manufacturing output has increased, reaching near pre-recession levels and record highs.
(Excerpt) Read more at investors.com ...
I’m sure that if they pout some thought into it, they could find even more meaningless indicators.
IF a business continues spending more money than it makes, then it eventually goes out of business. How is it different with a nation?
“A trade deficit is a sign that Americans have purchasing power and are creating demand for products. When the economy is in a downturn, the trade deficit shrinks. In 2006, for example, the trade deficit was $762 billion and the unemployment rate was 4.9%. By the end of 2009, the trade deficit declined to $384 billion, and the unemployment rate peaked at 10%.”
Real meaning: “We simply ran out of money to give the Chinese so our government could borrow it back!”
Quack Quack Quack
RE: IF a business continues spending more money than it makes, then it eventually goes out of business. How is it different with a nation?
Well, I have a “trade deficit” with my grocer, mechanic, barber and a whole heap of goods and service providers. I don’t consider it spending more money than I make....
A trade deficit is an indicator that some other country is producing more crap that people in your country want. If the majority of that crap was stuff your country USED to produce, then you have an economic problem and that IS an indicator.
The trade deficits the US incurs are a massive wealth redistribution from one nation to another.
Two nations have $100.
Nation A spends $50 to make a widget and sells it to nation B for $100.
Nation A now has $150.
Nation B only has a widget that cost $50 to make.
Tomorrow and every day to follow the widget will be valued a little less than the day before.
Is that a meaningless indicator?
Do you want to own, or be owned?
I prefer domestic owners than foreign.
And this explains why nations are rushing to reverse their national trade SURPLUS in favor of A DEFICIT. NOT!!!!
The author should list the countries that have trade deficits with us and their levels to show how they all balance out.
“Well, I have a trade deficit with my grocer, mechanic, barber and a whole heap of goods and service providers. I dont consider it spending more money than I make....”
And your employer or your customers have a “trade deficit” with you. So it’s not that trade deficits are “irrelevant” as suggested in this article, but that they have to be considered collectively. Either the US has to make up its trade deficits with trade surpluses elsewhere, or it’s got to draw value continuously out of the ground or out of thin air, and pay for the deficits that way.
This argument seems to me not just wrong but also dishonest.
Yes, the author does briefly mention that US service and capital accounts are in surplus, but says nothing about what that means.
It means first, that Wall Street and "coastal elites" are doing well while red states' manufacturing atrophies.
But it also means that more & more of America's capital inventory is owned by foreigners.
So is that necessarily bad?
No, not if you don't believe patriotism is a value to be cherished.
If you think putting Americans first is just obsolete hokum, well then sell everything, what do we care?
But if it matters whether we make America great again, that has to begin with making America's economy work for average working Americans.
A reasonable balance of trade is a good indicator of that.
True. Economics has both micro and macro theory. Macro theory is national income accounting. This is where the writer is viewing things from as opposed to the many things that effect the costs of land, labor, and capital. Trump looks at both as a businessman has to have land, labor, capital, plus when we cannot compete with China due to labor costs, currency manipulation etc,. Failed policies/agreements cause entire industries like steel production to leave America. We buy steel from china. We need to make our own for national security reasons. I recall the smell of steel in cities like B’Ham, AL. We had all the cotton shirts, slacks, dresses etc. made in SC. We have lost entire segments of our economy to cheap labor PLUS terrible trade agreements. Monetary policy plays a large role and that includes Corp. taxes. Welfare to include social health insurance is hurting our ability to compete.
Well said, and in complete agreement with my economic instructors in grad and post-grad schools.
The Alleghany was populated with industrial mills years ago but has been depleted due to poor trade deals and unethical business practices from abroad.
The author is correct.
IBD SOCIALIST FOOLS
IBD wants other people to pay for their bad deals.
The IBD Invester Business nimwits, buy an IPhone from China, but deceptively it is a FAKE IPhone, a phony empty plastic case. The IBD Socialists want ME & OTHER people to compensate their loss.
Only China charges a Tariff. ONLY China can compensate.
USA has zero Tariff, so nobody can oversee and compensate IBD loss buying their fake products.
The Trade Deficit says USA has NO RIGHTS. Only China has rights. And OTHER PEOPLE must pay for IBD foolishness.
IBD Investor Business nitwits are Socialist Losers.
TY. I checked out the writer’s BIO. The Freedom Works Pres has a BA and MA. Nothing about Econ period. No MBA.
Yes, the budget deficit is huge and stupid. The trade deficit is not a budget deficit.
How is it different with a nation?
Well, our nation will make about $20 trillion in GDP this year. How do you figure we're spending more than we make?
I supposed industry loss and job loss are meaningless too.