This morning I awakened to find an email from someone (who I don’t know) telling me that I erred in this response to Oren Cass – my error being that I adjusted for inflation using the Personal Consumption Expenditure deflator rather than the GDP deflator. I can’t tell whether or not my correspondent largely accepts my criticism of Cass.
So I here repeat the relevant portions of my post, but now with nominal dollars from the past adjusted into 2024 dollars using the GDP deflator.
Want evidence of the absurdity of balance-of-trade accounting? If the story you tell were true – a story of U.S. trade deficits being a sure sign of Americans going on reckless spending binges funded by selling off assets to, and borrowing funds from, foreigners – we Americans would now be destitute. After all, America has run an unbroken string of annual trade deficits every year starting 1976. That’s nearly a half-century-long run of annual trade deficits, or 20 percent of our nation’s existence. And yet —
– Inflation-adjusted net worth of nonfinancial corporate businesses in America today (June 2024) is
386417 percent greater than it was in 1975, the last year America ran an annual trade surplus. (I adjusted for inflation usingthis Personal Consumption Price Index calculatorGDP-deflator calculator.)– The ratio of nonfinancial corporate business debt to the market value of corporate equities is today (June 2024) only 26 percent of what that ratio was in 1975.
– Most tellingly, the inflation-adjusted total net worth of American households is today (June 2024)
281278 percent greater than it was in 1987 (the earliest date for which I can get consistent data). Because the number of households in the U.S. today (2023) is only 47 percent greater than it was in 1987, the average inflation-adjusted net worth of an American household has increased significantly over the past 37 years. This fact alone suffices to discredit your economically naïve tale of American trade deficits draining Americans of wealth.
