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Foolish Economic Stimulus Policies Aggravate the Trade Deficits
Raymond Richman, 3/11/2011

The U.S. international trade deficit unexpectedly widened in January 2011 to US $46.34 billion compared to $40.26 billion in December 2010. Both imports and exports increased but imports increased at a substantially faster rate than imports. An increase in exports(X) shows up as a contribution to the Gross Domestic Product while an increase in imports(M) shows up as a subtraction from GDP. To refresh the reader’s memory, if he or she took a course in economics, GDP = C + I + G + X – M, where C is the sum of consumer goods and service produced in the country, I is the sum of investment goods (Machinery, buildings, and the like), G is the sum of goods and services purchased by governments, and X equals exports of goods and services and M equals imports of goods and services.

DeficitWithWorld0209to0111.gif

The U.S. has not had a favorable balance of trade in decades. In 1992, X-M amounted to $39 billion; by 2000, the last year of Pres. Clinton’s second administration, it had grown to $379 billion in spite of the fact that the federal budget was in balance that year. We mention that because many believe that our budget deficits are responsible for our trade imbalances. By 2008, the last year of Pres. G.W. Bush’s second administration, it had grown to $699 billion. The trade balances are no respecter of the President’s party affiliation.

Nearly all academic economists gazed passively on the growing trade deficits. Many were aware that it was costing American workers millions of good factory jobs and that it was accelerating the decline of manufacturing. But they considered that a price that had to be paid in the interest of their ideology, free trade. The fact that it was contributing to a worsening of the U.S. distribution of income, they refused to admit. They argued instead that it was the poor education of the American worker that denied him access to good jobs. As though the workers abroad whose products we were importing were better educated rather than lower paid.

 The December to January increase in exports of goods reflected increases in industrial supplies and materials ($3.7 billion); automotive vehicles, parts, and engines ($1.3 billion); and foods, feeds, and beverages ($0.1 billion). Decreases occurred in consumer goods ($0.6 billion); capital goods ($0.4 billion); and other goods ($0.3 billion). The December to January increase in imports of goods reflected increases in industrial supplies and materials ($4.4 billion); automotive vehicles, parts, and engines ($2.7 billion); capital goods ($2.1 billion); consumer goods ($0.9 billion); and foods, feeds, and beverages ($0.5 billion). A decrease occurred in other goods ($0.6 billion). The list indicates that the goods we import and export fall in similar categories. It is not the lack of skills that prevents American workers from producing the goods we import at home.  

U.S. International Trade in Goods and Services

(billions of dollars, seasonally adjusted)
Period Balance Exports Imports
2007 -702 1,649 2,351
2008 -699 1,839 2,538
2009 -375 1,571 1,946
2010 -495 1,834 2,330
Dec 2010 -40 163 204
Jan 2011 -46 168 214

The cause of the chronic trade balances that we are experiencing are the policies made in Washington by our elected officials. Pres. Obama’s economic ,ed about a third of its funds to transfers to the states to pay for expenditures already budgeted but for which tax revenues were insufficient. The beneficiaries were teachers and blue states that helped him get elected. About a third went to subsidize “alternative” energy plants like solar and wind farms. Expenditures in Spain and Europe have already proved that their costs exceed any possible environmental benefits. Both are cutting back on the unwarranted subsidies they require. Analysis of two projects, the largest solar energy and the largest windmill approved to date, shows that while each is spending over $200 million, they will add only about 30 permanent jobs each raise the cost of electricity and hurt consumers and make businesses less competitive. To make matters worse, each project with add to the trade deficit because one-third to one-half of the required inputs will be imported. 

To make matters worse, Pres. Obama has followed the recommendations of environmental extremists by deliberately delaying the completion of oil wells in the Gulf of Mexico and making it difficult or impossible to drill offshore in the Atlantic and Pacific, and to drill on government land and national parks and forests. This appears to be a deliberate policy designed to end the use of fossil fuels for transportation. A major side effect is a worsening of our trade deficits.

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]