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A trade deficit with my favorite bar ...

November 4, 2009 - Lee Smith
Every so often, for as far back as I can remember, a report comes out of Washington about the U.S. "trade deficit." At some point, you realize this is a silly statistic and a concern of neurotics.

The problem, it is alleged, is that the United States buys more from foreign nations than it sells to them. And the implication is that if we keep doing this, we're going to go broke. This is hooey.

First and foremost, nations don't buy goods from other nations. Businesses and individuals buy goods and services from other businesses and individuals. Saying the U.S. has a trade deficit with China is akin to saying Minnesota has a trade deficit with New Jersey, because many consumer products are produced there. Or like saying Fairmont has a trade deficit with Mankato, because people here like to travel there to shop. Or like saying you have a trade deficit with your grocery store, because you buy all kinds of things from them and they buy nothing from you.

In other words, it's meaningless. Often ignored is the fact that the "trade deficit" is measured in monetary terms. It leaves out the fact that money is used to obtain goods and services that people want. And those goods and services have value. Trading value for value is free trade, or what markets are all about.

Free trade has many benefits, including encouraging competition, which lowers prices and raises quality. Remember: The amount you earn is not as important as what you can obtain for a given dollar. This is called real income. Everyone disposes of their income differently but when you have income (because you produce a good or service), you should value free trade.


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