I know that Ronald Reagan talked a better line than he walked. (He was a successful politician, alas – seldom a good situation for one’s character.) And I do not excuse Reagan’s many violations of the free-market and free-trade principles that he espoused. But it remains noteworthy that Reagan did espouse such principles, often with great eloquence and far deeper understanding than is typical even among the relatively better sort of politicians.
Take a look at the portion of this September 17th, 1985, press conference, starting at the 21 minute, 35 second mark. (HT Bryan Riley) Compare Reagan’s understanding of trade and trade-balance issues to the “understanding” possessed by the current resident of the White House. There is no comparison. Reagan’s understanding of economics was far superior to that of Trump. (Trump’s “understanding” of economics is, I’m aware, an exceptionally low standard. I do not here mean to damn Reagan with faint praise.)
Q. For the first time in 70 years, we have become a deficit nation—since 1914. Does this disturb you? Throughout your political life, you have decried deficit spending and our secondary posture in the world of trade. Do you have a solution for this?
The President. You used the word “deficit”; you mean our trade imbalance?
Q. Yes, the fact that we have become a debtor nation for the first time since 1914.
The President. Are we? I think this false impression that’s being given that a trade imbalance means debtor nation. This isn’t our government that is expending more than it is for imports than it is getting back in exports. These are the people of our country and the businesses and the corporations and the individual entrepreneurs.
On one hand, the American people are buying more than the American people are selling. Incidentally, those figures of export and import have some failings in them, some weak spots. They don’t include on exports anything that we’re getting back for services. There’s a lot of technical things I won’t get into, because they get too complicated here, about the difference in the two figures.
But let me point something out about this. The deficit that I’m concerned about, that is the most important, and that can be the biggest problem for us and that must be solved, is the deficit in Federal spending-here, our domestic spending. This is the threat to everything that we hold dear.
But the trade imbalance—from 1890—or 1790 to 1875, this country, all that 85 years, ran a trade imbalance. And in those years, we were becoming the great economic power that we are in the world today. Now, we come up to the present. And in the last 33 months, we have seen more than 8 million new jobs created.
Yes, we’ve lost since 1979 1.6 million jobs in manufacturing, but we’ve added 9 million new jobs in travel and service industries. We’ve had this great recovery; we’ve brought inflation down; the interest rate is coming down—all of these things that we want.
This recovery, the greatest one we’ve known in decades, has been done with this same trade imbalance. Now, in the 1930’s, in that depression that I mentioned earlier in my remarks, in that depression, 25-percent unemployment—the worst depression the world has ever known—we had a trade surplus every one of those 10 years until World War II ended the depression.
So, I think this has been exaggerated, and it isn’t a case of us being a debtor nation.
Another thing we don’t count is that from abroad, that is not counted in our export figures are the billions of dollars of foreign capital that has been invested in the United States, invested in our private industries, invested in our government bonds, if you will, things of this kind, because we are the best and safest investment in the world today.
(Note: I think that Reagan made a slight mistake when he spoke about the 1930s. By my calculation , in only nine of those ten years – not in each of the ten years – did the U.S. run a trade surplus. A slight trade deficit was run in 1936. Overall, though, the Greatly Depressed 1930s were a time of U.S. trade surpluses: in 102 of the 120 months of the 1930s the U.S. ran monthly trade surpluses.)