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The Cafe’s Russ Roberts was a guest on yesterday’s Kudlow & Company [2]. Here’s part of the transcript:
KUDLOW: Russell Roberts, I want to read what you posted on your blog site, Cafe Hayek. I quoted it in my column this week. It’s about trade deficits with China and elsewhere. And you say that the US has run a merchandise trade deficit for every year since 1976, trillions of dollars of deficits. And since 1976 the US economy has created over 50 million jobs. Now that is an incredible set of factoids. The trade deficit doesn’t stop us from creating jobs. So why is everybody bashing China, Russ?
ROBERTS: Well, a trade deficit’s an incredible red herring. It’s a very useful tool for people who want to advance their own self-interest at the expense of the nation as a whole. When we run that trade deficit, we’re importing more from overseas than we’re exporting. People find that frightening. That’s actually to our benefit. It’s the same thing as running a capital surplus, which means the United States is a good place to invest.
As long as we’re a healthy economy, we have a stable currency, a stable political situation, we’re going to run trade deficits year in, year out. And there’s nothing wrong with that. Trade with China is good for us. It’s extremely valuable to let them make our toys and our watches and our shoes and anything else they can make better than we can make. That means we can make other things for ourselves as well. So it’s a–those issues, such as China, their currency, the threatened tariffs on them–those are all extremely dangerous things.
On air with Russ was Michael Darda. Chief Economist at MKM Partners. Darda has these wise words (consistent with Larry Kudlow’s own wisdom on the matter) about the scarlet-red herring that is the issue of China’s alleged manipulation of its currency (the Yuan).>
KUDLOW: You know, Mike Darda, it strikes me that the United States has been a greater currency manipulator. I mean, China has pegged with the currency board to the dollar for now 10 years. They’re on their 11th year. But the US dollar, to which they’re pegged, went up about 50 percent, and then it went down about 27 1/2 percent or 30 percent. So who’s manipulating what?
DARDA: Right. Exactly. Great point, Larry. The fact of the matter is they’re fixed to the dollar. The dollar floats. So if they want to charge someone with manipulation, it’s actually Alan Greenspan. So, you know, I think that entire bill, that Schumer-Graham bill, is prefaced on a false assumption. I listened to him on your show, and he said that in order to have trade–or free and open trade, you need a floating currency. Well, apparently he missed the last 200 years of history because the fact of the matter is all through the 18- and most of the 1900s we had fixed exchange rates…
KUDLOW: Right.
DARDA: …a gold standard and free trade. Tariff barriers went up and down, you know, and so forth. But we had a massive expansion of trade before World War I with fixed currencies and then after World War II during the Bretton Woods arrangements. So it’s just ridiculous.
Thanks very much to Larry Kudlow for inviting Russ to appear on his excellent program — and, more importantly, for so effectively arguing the case for free trade [3].