Tuesday, March 21, 2006

The Gist of It

A good portion of my post on “Trade, Government Spending, and Economic Growth” is about the meaning of the trade deficit. This post, by Donald Boudreaux of Cafe Hayek, gives the gist of my argument:

My friend Jack Wenders, Emeritus Professor of Economics at the University of Idaho, notes this passage in a recent AP report:

The U.S. must borrow more than $2 billion per day from foreigners to finance its huge trade deficits.

Jack’s reaction to this typical way of framing the so-called ‘trade deficit’ is noteworthy:

Maybe a better way of putting this would be to say: “Foreigners must sell the U. S. more than $2 billion per day in goods and services to finance their huge purchases of U.S. assets.”

Exactly correct.