I am friends with Don Boudreaux and I love that he is hammering away on free trade. (Check out this cool post showing how much more knowledgeable Reagan was compared to Trump.) But I also get bored and like to make nitpicky remarks. So take this post in that light.
Among economics data watchers, a country’s exports enjoy a hallowed status. The ability of producers in country A to sell goods and services to people in other countries is taken as a sign of A’s economic strength, although the underlying metric for economic strength goes unmentioned. In addition, job counters across the spectrum constantly count the number of jobs associated with exports. The more export-related jobs, the better. In a nutshell, exports are intrinsically beneficial—no questions asked.
The problem is that virtually no one, except perhaps for a workaholic, runs their personal economic affairs like this…
That the gains associated with exports ultimately trace to imports is no doubt a bitter pill for many to swallow! Nevertheless, virtually all of us organize our own economic lives consistent with this idea. In the marketplace we produce goods and services which we sell (export) to buyers. This is the source of our incomes which we use to buy goods and services from others—that is, import. The more imports, the better.
People who choose to export while importing as little as possible will find themselves ill-clad, ill-housed, ill-fed, and possibly dead in short order. How can it be that what is economic wisdom for the individual not apply to a nation? Hint: it can’t!
I understand what van Cott / Don are trying to get across with this line of argument. But strictly speaking, if they really want the layperson to think of the country as a household where “exports” is the income and “imports” is the consumption, then you end up with Trump’s worldview.
Don’t believe me? Consider the following conversation.
DAD: Jimmy, it alarms me that you’re living beyond your means. I’m looking over your Excel budget, and last year your income was $40,000 but you spent $60,000.
JIMMY: Right, I did a great job. The whole point of working is to consume. Imagine someone who worked and worked and worked his whole life, but never consumed. What an idiot! That would be confusing costs and benefits.
DAD: Okay Jimmy, it’s not the amount of spending per se that bothers me. It’s that you’re spending more than your income.
JIMMY: Dad, you need to take an accounting class. The reason I was able to spend more than my income is that the credit card companies invested more in me, than I did in them. I ran a capital account surplus last year of $20,000. Far from demonstrating my profligacy, it showed what a great investment opportunity I am.
See what I mean? I think Don should be a little more careful before telling people to think of trade like a household, where exports are income and imports are consumption. In fact it’s precisely that mentality that is tripping Trump up–he’s thinking of the USA as a giant corporation, where a trade deficit signifies unprofitability.