How many times must Thomas Sowell (whom EVERYBODY around here swears to read religiously) explain this simple concept before people grasp it?
Well, I for one can’t grasp his logic.
His example is that US trade surpluses did not seem particularly helpful in the Great Depression, or that US trade deficites were not particularly hurtful in the 1990s.
Where is the evidence that trade surpluses did not help us in the Great Depression. We had massive deflation. Is it not possible that the trade surpluses slightly offset the massive deflation? If so, with still massive economic contraction, it would be hard to measure the value of the trade surpluses.
Then in the 1990s, how do you measure the impact of the trade deficits in light of the MASSIVE credit expansion.
You would have to have a society where there was no deflation and no credit expansion, and then see the effect of a trade deficit or surplus in that controlled environment.
I do appreciate Sowell’s argument that trade imbalances don’t occur in a vacuum. As he says, our deficit in automobile trade gets offset somewhat when our trading partners invest in new auto manufacturing plants, returning some of that imbalance back to us as investments.
I get that.
All I know is that during the 1950s we were massive net exporters of goods and our economy soared.
Since the 1970s we have had very large trade imbalances where we imported far more than we exported, and over that time our living standards have steadily eroded.
I would need Sowell to explain it, but I find it impossible to believe those were just coincidences — that prosperity coincided with massive exports, while decline coincided with massive imports.
Then there is the ascendency of the Chinese economy? Who in their right mind doesn’t understand that the Chinese economy has gained almost solely from massive exports and large trade imbalances in their favor with many nations?
The same was true in the soaring Japanese economy.
You can quote Sowell all you want, but I would need him to explain to me why our economy soared in the 1950s and why Japan and massive China and tiny Japan became economic powerhouses, without any discussion of trade deficits and exporting goods and services to the world.
Have at it. I am anxious to learn.
It’s one of those things (private monopolies are BAD, trade deficits are bad, the “wage gap” needs to be corrected, etc) that has been so drilled into the public that not even reason stands a chance.
I’ve tried explaining it with the grocery store analogy. I run a trade deficit with the grocery store (I buy their goods, they never buy mine). The more money I make, the more groceries I buy, the bigger my “deficit” becomes. Is this a bad thing?