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Thursday, June 01, 2006

Trade Deficit Means They Have More Pieces Of Paper And We Have More TVs

An anonymous comment in the heated debate a few posts below quoted P.J. O'Rourke. He recently wrote a wonderful article in the Weekly Standard where he explained free trade and the silliness of the trade deficit Chicken Littles.

But there is no such thing as a trade imbalance. Trade can't be out of balance because a balance is what a trade is. Buyers and sellers decide that one thing is equivalent to another. Free trade is balanced trade...

There is no such thing as a trade deficit. It doesn't matter if America imports all of its goods from China and exports nothing but pieces of paper. The Americans want the computer monitor, and the Chinese want handsome portraits of Benjamin Franklin. No coercion is involved. Nobody is making Americans buy Chinese goods...

But let us consider the parable of Japan in the 1980s. Japan kept giving America radios, TVs, stereos, and cars, and we kept giving Japan money. The Japanese didn't want anything America made except Michael Jackson tapes, and we didn't even make the valuable part--the tape cassette part--of those. So the Japanese decided to buy America itself. They bought office complexes, hotels, and golf courses. The Japanese bid up the price of American real estate until the bubble did what bubbles do. By the 1990s America had all the radios, TVs, stereos, and cars, and all the office complexes, hotels, and golf courses, and all the money.

There were even more gems in his article. Do the genuises in DC understand these basic facts?

3 Comments:

At 5:52 AM, Anonymous Anonymous said...

Interesting site. Useful information. Bookmarked.
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At 12:59 PM, Anonymous Anonymous said...

Interesting website with a lot of resources and detailed explanations.
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At 3:01 AM, Anonymous Anonymous said...

Keep up the good work » » »

 

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