The Election and The Economy

Ignore the trade deficit. That’s one way a smart candidate can win the 2008 election in terms of the economy. I will come back to explain that statement, but the disparity between that advisory and the behavior of the front-running politicians demonstrates just how poorly most understand the economy and how a nation’s chief executive should run it.

Bill Clinton ran in 1992 on the theme, ‘it’s the economy, stupid’. And in that time, it was true. Regardless of whatever else we want to say about President Clinton’s performance, the economy hummed along while he was in the White House, which if nothing else shows he knew when to not mess with it. Of course, ol’ Bill deviated from the customary accounting methods used by the government to claim his “surplus”, which never existed in any material sense, but since the United States government has not used anything much like GAAP in my lifetime, I can’t really say too much against Bubba, except to observe that his Administration’s bookkeeping was more creative than most.

— continued —

]]>< ![CDATA[

No matter whether the party in power is Republican or Democrat, the plain fact is that they plan on spending your money. Lots of it. Sometimes a President gets to feeling a mite guilty about how much they grab from the taxpayer, and they give just a little of it back. Of course, when this sort of thing happens, the other party gets nasty and tries to claim that the tax cuts will lead to terrible consequences. This claim is generally a lie. And when we talk about lies and the government and the economy, this leads us to talk about the trade deficit.

“Nothing is more absurd than this doctrine of the balance of trade.” Those words come to us from Adam Smith, the author of The Wealth of Nations, and he wrote this in summation of his great experience and a long-considered debate back in 1776. Trade, when it began, was just what the name suggests, a person trading something they are willing to give up, for something they want to get, with each party pleased with the agreed terms. For all the fancy talk, that is what trade is now. Just because we use cash instead of barter, and in many cases buy on credit, does not change the fact that trade is always a transaction where both sides are satisfied with the deal. No one, despite the protestors, is forcing you to buy a certain brand or from a certain country. And despite the politicians trying to say otherwise, no nation in history has been undone because of a trade deficit. Look, for example, at Japan. During the 1970s Japan was going great guns, and all sorts of people were worried about the “inbalance” of trade. By the late 1980s and early 1990s, Japanese investors were buying up American real estate and companies. Everyone was crying gloom and doom, surely we’d end up no longer the United States, but some dismal possession of Japan. Yet, within a decade, everything was largely back to where it was. This is because the Japanese were no more immune to bad business decisions than Americans were, and the market corrected itself in a number of ways, leading to some startling reversals. No, that does not mean that stupidity gets a ‘reset’ button, but it does mean that panicking because one nation happens to have more cash than other nations at one point or another is just silly. If you’ve ever played ‘Monopoly’, you know that just because one player has a lot of cash does not mean that the player is going to win; a lot of things can and do happen. And that board game is a very simplified environment; it is essentially impossible to buy an entire country, especially in a global economy.

That global economy is another reason not to sweat a deficit. If we are back in the barter days, there’s not going to ba a lot of trade. Why? Because the guy you are dealing with will only have a few things you may want, and it is not easy to find a point where both sides agree on a trade. Is that sweater worth a whole cow? What do mean, he won’t take eggs … you get the idea. Now, a look around your town and what do you see? Yes indeed, some folks do better financially than others, but that doesn’t mean the rich guys own the town, does it? Money can’t buy happiness and all that, the point is that there’s more to even financial success than a flash of cash. Also, these weasels who go on about a trade deficit are forgetting that this is not the United States making deals with other countries, this is individual consumers buying things and individual companies and sellers supplying the products. They are, it may surprise you to learn, happy to accept our money at the agreed price, and none of them have any real intention of desctroying our economy, since doing so would ruin the value of the money they worked so hard to get from us.

So, in the end the “trade deficit” is largely a myth, so far as the government is concerned. Oh sure, the statistic is real, and to a limited extant it is a quality which should be watched, but in the political sense it’s a non-starter. This is because there is not much, at all, that the government can do to help things. They can, and often do, make things worse, with such tactics as tariffs and quotas and the like; all this does in actual effect is anger the country from which the products are coming, while making our own citizens pay more for products they want or might even need. The government does its job to make sure that certain strategic products are not sent overseas (we should be careful not to let China have the technology to make ICBMs or Stealth Bombers), but China is simply not going to take over America by making inexpensive plasma television sets or novelty items. And before anyone gets the idea that China is some deviously brilliant nation which will outwit the United States, I may need to remind you that all that contaminated food and unsafe tires and so on that we got so angry about, is still being sold to China’s citizens, who lack the means to protest in the way that the American media can. Also, the regime in charge of China has been importing wheat and other basic foodstuffs for a generation, because they thought the “Great Leap Forward” was a winning plan.

Should the United States government track what comes in and goes out of our country? Absolutely. Should we play gatekeeper on certain dangerous items and consider the intentions of foreign governments? Of course. But using scare tactics to create a boogey man so that citizens will grant even more control over their lives to the government? That should disqualify any candidate for federal office.