Friday, June 15, 2018

Weak, No-Backbone, Economists and Trump's Fixation on the Trade Deficit



By Gerard Gayou

President Trump’s preoccupation with the trade deficit is maddening to professional economists, who understand, as he apparently doesn’t, that it measures nothing useful. But there might not be a trade deficit today—that is, the government wouldn’t be tracking it—had an earlier generation’s economists had the courage of their convictions.

America faced a dollar-flow deficit in the early 1970s—more greenbacks were flowing out of the country along trade and investment channels than in. The causes were multiple, from a surge in European imports to the soaring price of Middle Eastern oil. The “deficit” sounded bad, but was it relevant to the health of the economy?

The U.S. government commissioned nine top economists in 1974 to find out. The committee’s primary concern was preventing Americans from taking these balances out of context. “Concentration on one or even several overall balances,” according to its 1976 report, would lead to distorted conclusions about the health of the economy.

Provocative language was of particular worry: “The words ‘surplus’ and ‘deficit’ should be avoided,” the committee wrote. “These words are frequently taken to mean that the developments are ‘good’ or ‘bad’ respectively. Since that interpretation is often incorrect, the terms may be widely misunderstood and used in lieu of analysis.”

The committee recommended the Commerce Department remove some confusing balances from monthly reports—but...

Read the rest here.

2 comments:

  1. Does RW want to give us his Wall Street Journal log-in info, so we can read the rest of the article? lol.

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  2. "America faced a dollar-flow deficit in the early 1970s—more greenbacks were flowing out of the country along trade and investment channels than in."

    How is this even possible? Were foreigners burying the greenbacks in their backyards, or spending them all in Ecuador?

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