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Bonus Quotation of the Day…

… is from page 21 of the 1936 English-language edition (translated from German by Alfred Stonier and Frederic Benham) of Gottfried Haberler’s classic 1933 work, The Theory of International Trade With Its Application to Commercial Policy:

But the modern economic system is composed of a number of different countries, each of which trades with each of the others. There is no reason to expect that one country’s balance of payments with any other individual country will be in equilibrium.

DBx: Indisputably so.

I explain to my econ-principles students that whenever they encounter anyone complaining about (or celebrating) a bilateral trade deficit or surplus – complaining about, for example, the so-called “U.S. trade deficit with China” or “China’s trade surplus with America” – they should conclude immediately and without qualification that the person who is complaining (or celebrating) either doesn’t know a darn thing about the economics of trade or is trying to bamboozle the audience with nonsense.

As Haberler says, there is simply no reason in our world of more than two countries whose residents participate in global commerce to expect that any pair of them will import from each other exactly (or even close to) the same value that they export to each other.

Talk of bilateral trade deficits is the economic equivalent of claims that the earth is flat and sits atop a stack of turtles all the way down, of cancer being curable with magic crystals, or of the planet Mars literally being inhabited by little green creatures with antennae. If the president of the United States actually expressed a belief in such things, he or she would immediately be revealed as an ignoramus unfit to work as a substitute kindergarten teacher, and much less to exercise enormous power over hundreds of millions of people.

And yet today Trump and members of his administration – as well as too many other Washington grandees, both Republican and Democrat – routinely complain of the U.S. trade deficit with China.

Why does anyone take such people seriously?