The Earth Does APPEAR to be Flat….

by Don Boudreaux on March 10, 2011

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to MSNBC.com (HT Nick Mueller):

Martin Crutsinger asserts that “A widening trade deficit hurts the U.S. economy.  When imports outpace exports, more jobs go to foreign workers than to U.S. workers” (“U.S. trade deficit widens as price of oil surges,” March 10).

Although Mr. Crutsinger makes this assertion frequently, I challenge him to do what I don’t recall him ever doing – namely, offering supporting evidence.

He’ll have difficulty finding any.

Evidence to the contrary, however, is abundant.  For example, America ran a trade deficit for only 18 of the 120 months of the greatly depressed decade of the 1930s.  For the 1930s as a whole, the U.S. trade surplus of $4.92 billion means that U.S. exports during that decade were 23 percent higher than U.S. imports.  Yet U.S. unemployment remained unprecedentedly high.

More recently (according to data reported by Daniel Griswold in Fig. 5.2 of his book Mad About Trade), between 1982 and 2008 America’s unemployment rate rose over spans of months when America’s trade deficit fell, and the unemployment rate fell over spans of months when America’s trade deficit rose.*

True, data showing that U.S. trade deficits are correlated positively with low, rather than high, rates of unemployment don’t prove that Mr. Crutsinger is mistaken.  But in light of these data – and in light of the fact that higher U.S. trade deficits mean that more capital flows into the U.S. and, therefore, plausibly promotes economic growth – for Mr. Crutsinger to ‘report’ as if it’s an established fact that “a widening trade deficit hurts the U.S. economy” is professional malfeasance.

Sincerely,
Donald J. Boudreaux

* Data here

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