It’s The Trade Deficit, Stupid!

Bill Clinton, in 1992, made famous the campaign slogan, “It’s the economy, stupid!”  It wasn’t that he was calling anyone in particular “stupid.”  Rather, it was intended to serve as a reminder to himself and his campaign staff that the economy was the critical issue of the day and to not waiver from keeping it front and center.  (The economy was mired in a recession at the time.)

So please don’t take offense.  I’m not calling my readers “stupid!”  The term does apply to our nation’s economic leaders, however.  The root cause of our snow-balling economic collapse is right under their noses.  And I think they know it.  But they can’t bring themselves to admit that the golden calf they’ve created – “globalization,” gilded with unfettered free trade – is nothing more than a false idol.  The dream of turning the rest of the world into American-style consumers who, once they became wealthy enough, would begin to buy from us as much or more than we pumped into their economies, never came true.  Instead, we have unleashed an enormously bloated global labor force, eager to prey on the American market.  They’ve destroyed our domestic industries and drained our bank accounts.  Since 1975, the year of our last trade surplus, we’ve amassed a cumulative trade deficit of $9 trillion and shed five million manufacturing jobs.

“Just be patient,” we’re told.  “Markets will naturally re-balance themselves.”  “Currency valuations will swing our way.”  “The trade deficit is a non-issue,” they tell us.  “All of those dollars are re-invested in the U.S.”

Yeah, right.  “Re-invested.”  It’s like playing poker with your neighbor every night and losing, night after night.  “Don’t worry,” he says.  “My savings account is in the same bank as yours.”  Great for the bank, but it doesn’t do a damn thing to help your financial predicament.  How long do you think that bank will continue loaning you money to finance your poker addiction?

The globalization cheerleaders stand fast as the economy collapses around them.  “It’s not the trade deficit, it’s falling housing prices that are the problem,” they will tell you.  And why are housing prices falling?  Because Americans’ incomes are falling, thanks to the loss of millions of high-paying manufacturing jobs to the trade deficit.  The economists tried to cover up this simple relationship by cutting lending standards, ignoring the fact that these new buyers would soon begin to default.  “Things will get better when the housing market stabilizes,” they say.

Here’s how you’ll know when things will really begin to improve:  when you visit your local Hyundai dealer and see that the price has suddenly jumped 50%.  Looking more closely at the window sticker, near the bottom, you see a line that reads “import duties – $10,000.”  So instead, you opt for a much cheaper Chevy, Ford or Chrysler.  You pick up a paper on the way home, open to the classifieds, and find it loaded with ads from Chevy, Ford and Chrysler trying to fill the new shifts they’ve just added.  That’s when you’ll know that this economy is turning around. 

In the meantime, we stand at the brink of total financial collapse.  And our economists stand in denial.  Every night, we lose another $2 billion to our trading “partners” in the global poker game.  We’ll never solve this problem until we look it square in the eye and say “enough is enough.”  We can’t continue to fool ourselves.  It’s the trade deficit, stupid!

7 Responses to It’s The Trade Deficit, Stupid!

  1. FJ says:

    Going to put this up on if you don’t mind, if it’s not already there. Great post! I keep telling people this same thing and how all our problems are inter-related and stretch back years into the past when Greenspan was trying to keep an already-hot economy way too hot for way too long. Add globalism into the mix and poof, there goes the bubble of fiat currency and cheap lending.

  2. FJ says:

    Already dugg, so I dugg and commented – again, excellent points, love the blog, you’re one of the few truly forward-thinking economists.

  3. Pete Murphy says:

    Yup, that’s the government’s answer for everything these days: just print more money. Keep feeding the debt machine.

    I knew the Fed wouldn’t lower interest rates. With our rates so much lower than rates in Europe, we’re already having a hard time attracting foreign capital. Lowering our rates would only have made matters worse. But the Fed doesn’t explain it in these terms because it would send a bad signal. So they blame it on worries about inflation.

  4. nextgen08 says:

    I can’t tell you how much I liked this article. I loved the poker simile. At some point we have got to figure out that if more money is going out than coming in, we can’t balance our check book. It’s not rocket science.

    Thanks again for the great article. keep up the good work.

    Jerame Clough
    -Next Gen Politics

  5. MHT says:

    I agree, and always have. I believe that our corporate income taxes, unnecessary evironmental regulations and labor unions have contributed much to this problem, and eliminating these barriers for manufacturing corporations that manufacturer in America would be a good start. Notice I say manufactutering corporations. No only do I want to see an overall trade surplus, but a manufacturing trade surplus as well.

    I would also put a cumulative backstop in place with each country. Once our cumulative deficit with a specific country reachs certain thresholds, this triggers extreme tariffs to attempt to rebalance. These tariffs would not be budgeted, and could thus be used to reduce the national debt.

    Some may not like my comments regarding labor unions, but I believe the members of those unions would be better served in the long run if we let the labor market work for American coroprations.

    • Pete Murphy says:

      Regarding the manufacturing trade balance, I agree wholeheartedly. That gets to the heart of my book.

      Your “cumulative backstop” is an interesting idea. Such a backstop could probably be agreed to at the outset of a new trade deal, with neither country envisioning a perpetual trade deficit. For example, China may have agreed to such a thing with the U.S., fully expecting that it would enjoy a surplus with the U.S. but that it would return to balance over time, so that the backstop would never be invoked. But then, when our trade deficit persisted and grew and it came time for the U.S. to impose tariffs to restore a balance, it would have no legitimate complaint. Great idea!

      Regarding labor unions, I just don’t see them as much of a factor one way or the other. When the demand for labor is slack, they become virtually powerless, as we’ve seen with the UAW. When the demand for labor is strong, incomes improve for everyone, not just the unions. What I’m saying is that you’re ultimately right, it’s the labor market that determines the fate of American workers, their incomes and, ultimately, the fate of the economy as a whole.

      Good input. I hope to hear more from you.

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