Friday, June 17, 2005

Is a Trade Deficit Necessarily Bad?

The increase in the trade deficit in the past year in the U.S. seems to be a constant topic now as the media seems convinced that this sour news must be broadcast so that every citizen will know precisely how poor our nation is 'performing.' But, as Walter Williams argues, the trade deficit is not necessarily a bad thing. He points out that in some ways, the trade deficit is just a larger scale of the way that we all buy consumer goods. There is a trade deficit in my own household because we spend to bring in goods more than we sell. Williams argues that in some respects, the trade deficit is just a sign that our nation is growing in wealth since our citizens are buying goods.

On another level, we are getting something in return. If our currency is being spent, we are bringing goods into our country and into our homes. Of course, some of our goods are being consumed, but others are added to our possessions, which builds our net worth.

The presentation by the media is one of gloom and doom, as if the United States will cease to exist as a sovereign nation if our trade deficit gets too large. There has been an automatic assumption in many circles that the trade deficit is an evil that must be handled. Like many things that are spun through the presentation, we need to take a step back and evaluate what is actually going on.

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