Sorry posting has been light this week. A reader was nice enough to point to the latest rant by Lou Dobbs here. Apparently, he has decided to take the position that free traders are now elitists, while folks like him who want the government to pick and choose winners among American businesses and industries as "populist." The obvious response of course is that beneficiaries of American protectionist legislation tend to read as the who's who of politically connected elitists. It is also hilarious to equate free trade, whose benefits are backed by 100 out of 100 economists, with some irrational faith-based belief system. But I will leave that aside to point to this line:
He and others completely disregard the $5 trillion in trade debt that
the United States has built up through 30 consecutive years of trade
deficits. That trade debt is rising faster than our national debt and
is simply economically unsustainable, no matter what any faith-based
economist would argue. Our political, business and media elites
continue to disregard reality.
Here is my very, very simple challenge for Lou Dobbs to help those of us who obviously don't get it: Point to where this $5 Trillion of Debt is. What private individuals or corporations owe it to whom? That should be simple. With the national debt, we can just go out and count all those government bonds. But where is this trade "debt"?
Answer: IT DOESN'T EXIST. What he means is that over some time span of several decades, American has a cumulative trade deficit of $5 trillion. But trade deficit does not mean debt. I showed this in great detail here. Calling it a "trade debt" is not a sloppy mistake on Dobbs part but an outright lie, meant to make the point that running deficits every year is unsustainable. But America has become the wealthiest country in the world running trade deficits for the majority of the last 100 years. In fact, one can argue that the trade deficit itself only exists as a phantom of the awkward and limited way in which we measure trade.
Postscript: I constantly get people who write me that the fact the Chinese are buying up a lot of US government bonds or corporate bonds with their trade profits is proof of a "trade debt." No such thing. The US Government bonds are evidence of a fiscal deficit of the federal government, also called the national debt, and exists not because of trade but because Congress has no fiscal discipline. Corporate debt is growing to buy back stock, make corporate acquisitions, and to buy new plants and facilities. The fact the Chinese help to fund these debts does not mean that trade caused this debt. In fact, foreigners buying US debt securities depresses interest rates and actually keeps the national debt lower.
Here is a thought experiment: Wal-Mart runs a multi-billion dollar trade deficit every year with China. Why isn't it building up lot's of debt to the Chinese?