Trade Deficit? Don't Panic!
I have never been bothered by the trade deficit. Concern over the trade deficit always seems to be a holdover of 18th century mercantile thinking. The key failure seems to be thinking of wealth as static or zero sum. In a zero sum world, running a consistent trade deficit might indeed pour all of a countries wealth overseas like a tank springing a leak.
Wealth, of course, is not zero sum. New ideas, productivity, technology create wealth. Ever year, the US creates tremendous amounts of new wealth. If we spend some of it overseas, so what?
Often, problems like the deficit that seem problematic at a macro level fall apart when studied as part of individual behavior. Cafe Hayek takes this approach in a nice post on why not to panic about the deficit:
If my paying my Virginia neighbor $10 to mow my lawn creates neither
debt nor other economic problems, how would my paying a Canadian $10US
to mow my lawn create debt or other economic problems? What conceivable
economic difference can the latitude or longitude of the seller's
residence make?
UPDATE: I always felt this same way, from Steve Landsburg:
I hold this truth
to be self-evident: It is just plain ugly to care more about total
strangers in Detroit than about total strangers in Juarez. Of course we
care most about the people closest to us-our families more than our
friends and our friends more than our acquaintances. But once you start
talking about total strangers, they all ought to be on pretty much the
same footing. You could say you care more about white strangers than
black strangers because you've got more in common with whites. Does
that make it okay to punish firms for hiring blacks?....Stealing assets is wrong, and so is stealing the right to earn a living, no matter where the victim was born.
