Trade Deficit Hysteria

Trade deficit hysteria is a psychological illness closely related to budget deficit hysteria (see Wednesday, April 21, 2004). Why do people (e.g., CNN's Lou Dobbs) get all excited when the value of U.S. imports exceeds the value of U.S. exports? They think we're shipping "our" money overseas.

Wrong. When the value of U.S. imports exceeds the value of U.S. exports, it means that we're able to buy more things than we could in the absence of foreign trade.

But where does "our" money (the deficit) go? Well, our deficit is a surplus to foreigners. Guess what they do with their surplus. They invest it in U.S. Treasury bonds, the U.S. stock market, and U.S. real estate. That's more good news for Americans.

So, if you're suffering from trade deficit hysteria, calm down and quit watching CNN.