The Liberal Order

Ain't It the Truth

Apparently, Hillary Clinton sees government, and her preferred role as president, as Santa Claus doling out goods and services provided by little elves.

John Tamny on the Trade Deficit

An argument that is frustrating for economists to continue making, but John Tamny does a good job of explaining why a trade deficit is meaningless.

I run a variety of trade deficits, including a large one with a Safeway supermarket located in the Glover Park section of Washington, D.C. Unfortunately, as many customers of this Safeway are presently aware, it’s going through a partial re-model. As a result, many of the goods I would normally buy are not available thanks to the store’s reduced level of inventory.

If I were a country, economists and journalists would rejoice. Either because I can’t find much of what I used to buy, or because it’s not in stock due to the re-model, my trade deficit with Safeway has plummeted of late.

Am I better off? If we factor in that the goods I buy at Safeway tend to be healthier than my alternative choices, probably not. Economists would point to my falling Safeway deficit and say that I’m at least economically better off, but then my reduced trade deficit with Safeway has occurred alongside rising deficits with both Popeye’s Chicken and Domino’s Pizza. Whatever one thinks of my non-Safeway alternatives, I’m certainly worse off because at least at present, I can’t consume my surplus in the most optimal way.

In short, when we reduce trade to individual exchange, we see there can’t be deficits. We can only engage in deficit trading to the extent that we have a trade surplus elsewhere; usually with our employers, but sometimes with lenders and investors willing to curtail immediate consumption in order to capture a portion of the economic upside we offer.

HT to Management R & D.