U.S. Trade Deficit

Okay, so not everything I have to say about economics and finance will go onto my other site, despite the bifurcation.

Proxypartisans.blogspot.com will get the micro-economic stuff, which will free me up to be macro when I write here.

Today, let's say a little something about the U.S. trade deficit, which is the one of our nation's problems that troubles me the most -- the war saddens me, but the trade deficit troubles me.

I'll begin with what must be the least controversial statement possible on the subject. The trade deficit comes about because, by definition, the US is selling to the rest of the world less than what we collectively are buying from the rest of the world.

The US/China trade deficit has caused the greatest amount of angst, although to talk about these things in bilateral terms always risks distortion. Consider my relationship with my barber. He cuts hair for a living, I write about economics for a living. He doesn't have any need of my services -- except perhaps very indirectly -- I have regular need of his. So I'm in a drastic condition of trade deficit vis-a-vis my barber.

Fortunately, I'm in a condition of trade surplus vis-a-vis my employer, so I use the proceeds from the labor I sell to pay for the haircuts I buy.

The problem arises, though, when I'm in a trade deficit as against the rest of the world. And the problem compounds as that trade deficit preserves itself year after year, decade after decade, and I have to borrow from the rest of the world in order to finance my purchases from the rest of the world.

This is a dynamic situation. On a national level, its the de-something-or-other. Deindustrialization? Maybe not. But de-something. And on a national level, too, it is worth noting, whatever the particular terminology you wish to adopt for it.

Fortunately, things may be improving. The US trade deficit decreased somewhat in August 2007, the last month for which statistics are available. But it decreased to the still quite impressive number of $57.6 billion. In other words, in August the United States sold the rest of the world goods and services worth $138.3 billion. We bought from the rest of the world goods and services worth $195.9 billion.

Blaming "the media" doesn't cut it. Don't shoot the messenger. That is real news about which there ought to be more reporting, not less. This sort of deficit has become almost taken for granted over the last twenty years or so. Google the phrase "Plaza Agreement 1985" and you'll see what I mean.