In a recent Econ Talk podcast, host Russ Roberts and then later Don Boudreaux both explain how trade deficits are not worrisome, that globally there must be a net balance in trade surpluses and deficits, and that anyway, giving away paper to get stuff doesn't seem like such a bad deal. Boudreaux's take is more sober, as he specifies that when the paper exchanged for goods goes bad (the currency loses value, the debt is defaulted on, the market value of the company for which the equity represents plummets, etc), things really work out well for the one running the deficit, whereas the assets exchanged appreciating rapidly in value is not so rosy for the country running the deficit. Roberts, in contrast, seems stuck on pieces of paper for stuff is a great deal!
My method for thinking about economic issues is surely risible in the eyes of professional economists who understand economics infinitely better than I do, but as a simpleton, I'm stuck with my method. That method is to analogize whatever is in question to myself at the individual level. Attempting to stimulate the economy through massive spending after people have lost trillions in wealth therefore strikes me as absurd, just as going on a shopping binge after losing my job would be.
Similarly, applying for and maxing out every credit card I can get my hands on seems like a disastrously profligate idea. But like the US running a trade deficit with China, if all I have to do is swipe these pieces of plastic--don't even have to give away paper!--in return for food to eat, stuff at Home Depot to improve my house, and all kinds of other things to play with, joke is on the fools who are giving up valuable stuff for nothing but the opportunity to hold my credit card for a few seconds! Doubly so when I am unable (or refuse) to pay what they say I owe and declare bankruptcy to get them off my back.
I'm sure there is a trade-deficits-don't-matter answer ready for deployment in response to this, but I never hear it from economists like Roberts or Boudreaux. They might respond that the flip side of a trade deficit is a capital surplus, but that works in the credit card analogy as well--whatever I'm buying (or at least many of the things I buy) are capital goods, obvious cases being the purchase of a car or materials to build a fence on my property. Thus I'm enjoying my own capital surplus while I run up my trade deficit.
So is going into credit card debt as long as banks will keep issuing you credit a good idea? Is running a net trade deficit year after year a similarly good idea? If the answer in the case of the former is "no" but in the latter is "yes", why? Simpletons want to know.
My method for thinking about economic issues is surely risible in the eyes of professional economists who understand economics infinitely better than I do, but as a simpleton, I'm stuck with my method. That method is to analogize whatever is in question to myself at the individual level. Attempting to stimulate the economy through massive spending after people have lost trillions in wealth therefore strikes me as absurd, just as going on a shopping binge after losing my job would be.
Similarly, applying for and maxing out every credit card I can get my hands on seems like a disastrously profligate idea. But like the US running a trade deficit with China, if all I have to do is swipe these pieces of plastic--don't even have to give away paper!--in return for food to eat, stuff at Home Depot to improve my house, and all kinds of other things to play with, joke is on the fools who are giving up valuable stuff for nothing but the opportunity to hold my credit card for a few seconds! Doubly so when I am unable (or refuse) to pay what they say I owe and declare bankruptcy to get them off my back.
I'm sure there is a trade-deficits-don't-matter answer ready for deployment in response to this, but I never hear it from economists like Roberts or Boudreaux. They might respond that the flip side of a trade deficit is a capital surplus, but that works in the credit card analogy as well--whatever I'm buying (or at least many of the things I buy) are capital goods, obvious cases being the purchase of a car or materials to build a fence on my property. Thus I'm enjoying my own capital surplus while I run up my trade deficit.
So is going into credit card debt as long as banks will keep issuing you credit a good idea? Is running a net trade deficit year after year a similarly good idea? If the answer in the case of the former is "no" but in the latter is "yes", why? Simpletons want to know.
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