Trade deficits are one of, if not the, most misunderstood concepts in all of economics. The Build America Buy America Act, which this month celebrates its second anniversary of taking effect, seeks to reduce trade deficits by restricting the use of imported goods for certain infrastructure projects. Last month, President Biden suggested reducing our trade deficit with China by “tripling the tariff rates for both steel and aluminum imports from China.” Former President Donald Trump has stated that he also seeks to reduce trade through aggressive tariffs, floating a “10 percent tariff on all imports, and a more than 60 percent tariff on Chinese imports” to create a “ring around the country.” The former President and his advisors have even gone so far as to suggest devaluing the US dollar as a means of reducing trade deficits. The misunderstanding of the effects of trade deficits on economies pervades Washington, DC. It is time to correct this misunderstanding.
A trade deficit is merely an accounting identity, not an economic identity.
Despite this truth, policymakers of all stripes fundamentally treat trade deficits as if they were a source of economic harm to the nation.
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Policy makers and the would-be-intelligentsia of both the American Right and the American Left who carp on about the trade deficit and use it as a means of speaking authoritatively on the state of the US economy reveal one thing: a stunning lack of understanding about which they speak. Trade deficits are merely an accounting number, nothing more and equally, nothing less.
The United Nations has lousy ideas about nearly everything these days, but sometimes even Turtle Bay outdoes itself. Secretary-General Antonio Guterres did that last week when he said countries should ban advertising for fossil fuels.
“Many in the fossil fuel industry have shamelessly greenwashed—even as they have sought to delay climate action,” Mr. Guterres said. “I urge every country to ban advertising from fossil-fuel companies. And I urge news media and tech companies to stop taking fossil-fuel advertising.”
“Greenwashing” is the word climate alarmists use to attack anyone who disagrees with them. Mr. Guterres lacks the power to enforce an advertising restriction, and thank goodness. But he is using his bully pulpit to call for what amounts to global censorship of anyone speaking on behalf of the industry that supplies most of the world’s energy. He wants to censor anyone who doesn’t sign up to the U.N. climate agenda.
Phil Gramm and Terrence Keeley have edited a new book on the folly of ESG “investing.”
Let’s hope they succeed: “‘Anti-Woke’ shareholders are going after corporate boards.”
Christopher Snowdon asks: “Why was George Orwell as socialist?” A slice:
Orwell could clearly see the dangers of socialism, but since he believed that capitalism was doomed and socialism was the only game in town, he had to believe that these dangers could be avoided and that his own brand of libertarian collectivism could prevail. And so he reached for the same comforting explanation for Big Brother’s tyranny as he had for the Bolsheviks’ – that they were bad actors from the outset and had never really believed in socialism.
Axel Kaiser describes Joseph Stiglitz as the “patron saint of Latin America’s radical left.” A slice:
Stiglitz’s involvement in the 2021 Chilean presidential election followed the same pattern of ideological alignment with radical left-wing populism. Shortly before the second round of the election, Stiglitz, along with other left-wing economists such as Mariana Mazzucato and Thomas Piketty, signed an open letter expressing support for socialist candidate Gabriel Boric in the following terms: “We see in the program of candidate Gabriel Boric that openness to the future, that way of creating a new economy that delivers these ambitious goals. Its objectives are viable and help to sustain democratic values. It is a modern strategy to mobilize a dynamic and sustainable productive agenda capable of achieving growth, equity, and development.”
Central Michigan University economist Jason Taylor’s letter in today’s Wall Street Journal is superb:
While I have a great deal of respect for Prof. Blinder, the flaw in his distributionist logic is staring him in the face. He complains that government social spending targeting the nation’s low-income households, elderly, disabled, sick, unemployed and youth is a lower proportion of GDP in the U.S. than it is in France and Germany.
But U.S. GDP per capita far exceeds those of France and Germany, so that the amount of U.S. social spending per person surpasses that of both these traditionally redistribution-focused nations—over $19,000 in the U.S. versus than $15,000 in Germany and France. (If the GDPs are compared under purchasing power parity, social spending per capita is closer in the three countries but the U.S. still comes out ahead.)
Distributionists (whether re- or pre-) focus so intently on making sure that everyone’s slice of pie is identical that they neglect the most important factor in the human condition: How much pie is everyone actually getting? History shows that policies that focus too heavily on equity result in there being far less to go around over time, and the most vulnerable suffer from this greater scarcity. As Milton Friedman liked to say, “There’s nothing that does so much harm as good intentions.”
Phil Magness understandably tolerates no excuses for any of Karl Marx’s many idiotic scribblings.
