Re:My Personal Trade Deficit
by mhartl on Friday January 18, 2008 @09:52PM
(#100720)
This is a better analogy. The author has a job which makes $50k a year, yet he spends $75k a year = earnings < spending.
That's not a good analogy for a trade deficit. One way of increasing the trade deficit is to borrow money and spend it. If you mortgage your house to buy books, that certainly increases the "trade deficit" with Barnes & Noble. But someone with, say, a $500K/yr. job could easily afford to spend $75K a year on books, and would run a massive "trade deficit" with B&N without going into debt.
It's a potential problem if US individuals or the US government go into massive debt, of course, but whether they use that debt to buy foreign or domestic goods is immaterial. If some of that debt happens to finance the purchase of foreign goods, it drives up the trade deficit, but the problem is the debt, not the deficit.
This looks like a linguistic problem as much as anything---people get so hung up on the word "deficit". Given its pervasiveness, though, I suspect that causation actually goes the other way: mercantilism is so intuitively appealing that the imprecise terminology seems almost inevitable.
That's not a good analogy for a trade deficit. One way of increasing the trade deficit is to borrow money and spend it. If you mortgage your house to buy books, that certainly increases the "trade deficit" with Barnes & Noble. But someone with, say, a $500K/yr. job could easily afford to spend $75K a year on books, and would run a massive "trade deficit" with B&N without going into debt.
It's a potential problem if US individuals or the US government go into massive debt, of course, but whether they use that debt to buy foreign or domestic goods is immaterial. If some of that debt happens to finance the purchase of foreign goods, it drives up the trade deficit, but the problem is the debt, not the deficit.
This looks like a linguistic problem as much as anything---people get so hung up on the word "deficit". Given its pervasiveness, though, I suspect that causation actually goes the other way: mercantilism is so intuitively appealing that the imprecise terminology seems almost inevitable.