Cato’s Dan Griswold amasses further evidence against the myth — a myth piled higher than the dung in King Augeas’s stables — that the U.S. trade deficit is a drag on American economic growth, or that this "deficit" is necessarily evidence of poor American economic performance:
[T]here is no evidence that an expanding current account deficit is
associated with slower economic growth. In fact, data show the opposite
correlation:
- In those years since 1980 in which the current account deficit
actually shrank as a share of GDP, real GDP growth averaged 1.9 percent. - In those years in which the deficit grew modestly, between 0.0 and 0.5 percent, GDP growth averaged 3.0 percent.
- And in those years in which the current account deficit expanded by
more than 0.5 percent of GDP, real GDP growth grew by an average of 4.1
percent.
In other words, economic growth has been more than twice as fast, on
average, in years in which the current account deficit grew sharply
compared to those years in which it actually declined. If trade
deficits drag down growth, somebody forgot to tell the economy.
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Don,
Would you agree that the recent declines in our trade deficit are a leading indicator of a coming economic slowdown?
By pure coincidence, Dan Griswold happens to be my first cousin, so here's an excerpt from today's email exchange about the article in question:
"I'm glad you share my concerns about "government debt, fiat money, and inflation," as history says all that needs to be said beyond the fact that fiat currencies are infinitely easier to debase than coinage and that with global liquidity running in double digits, it's only a matter of time before The Great Fiat Ponzi collapses under its own weight (or rather, weightlessness).
As for the trade deficit, insofar as it's driven by private investment — i.e., the buying of American productive capacity rather than American production — it simply represents the sale of US assets to foreigners. Thus will China time its exit from the bond market relative to the ability of its other foreign markets, as well as its own consumers, to make up the difference. Not that it will be able to do so fully, but when it's finally had it with the dollar's demise, China will then let the yuan appreciate while US asset prices nosedive, at which time it, along with the rest of the world, will be able to "buy America" at bargain-basement prices, taking vast amounts of intellectual property and related technical expertise with it.
In other words, we're already in the process of selling cows, not cow milk, and the cheaper the cows get as the Mother of All Bubbles bursts, the more of them will be sold, until America has been "cowed" into third-world status."
That is a big pile of BS!
GDP is hardly a measure of economic health. A family that earns $100,000 and spends $200,000 have a higher GDP than a family that earns $100,000 and spends only $50,000. Infact the family that spends more than it earns will have better outward appearances of prosperity. It is not a matter of if but a matter of when, before the self indulgent ways destroys the over spender financially.
$50,000 saved is the capital available for future production. $100,000 borrowed money spent today a burden placed on the future. There is no free lunch.
The burden is manageable if the interest rate on the loan corresponds to increases in long term income.
Besides, why the tremendous generosity on the part of American creditors, all the same interest rates for allegedly plummeting expected value?
And as for the sale of US assets, the location of the owner of the asset has nothing to do with the ammount of employment and capital it provides to local economy. Foreign automakers make 25 percent of the cars in the United States, yet because the owners are in Japan the jobs and capital investment are all components of American "debt".
Mickey,
"Foreign automakers make 25 percent of the cars in the United States, yet because the owners are in Japan the jobs and capital investment are all components of American "debt".
Being ignorant of such matters, are these expenditures officially recorded anywhere as 'American debt'? If so, where can I find it?