I oft lamented the fact that the federal government is the largest employer in the U.S., and to what end? Where in the Constitution are we told that this is to be? Who made the "discovery" of the that gem the founding fathers had hidden so well that the government exists to "create jobs"? Great piece David.
Certainly any elected official will take credit for the sun rising in the morning.
The bigger question: Is seemingly economic good news based on sound fundamentals or are we just having a big party running up the national credit card? The US Dollar’s status as the “reserve currency” allows us to sort of get away with massive budget and trade deficits, enabling America to consume more than it produces. But for how long?
WWII is often credited as ending the Great Depression, but what actually happened is that government debt displaced the unemployment and malaise. It took the post WWII government cutbacks to actually produce real growth.
What we're seeing, IMO, is similar. Big government spending is propping the economy, and we cannot forget that inflation has devalued the dollar by 20% since Biden took office. A good chunk of the market's gains are that inflation.
As for trade deficits - I'm of a very different opinion. They don't matter economically (although there is more of an argument geopolitically). If America sells one high-value processor chip for every thousand cheap memory chips China sells, is America diminished?
If our one super chip is worth only 500 of the cheap Chinese chips, how do we pay for the other 500? China could by two super chips but instead they buy one super chip and a Treasury bill to finance our budget deficit. If we weren’t running budget deficits and had no Treasury bills to offer, maybe China would instead buy that second super chip - and we’d have balanced trade and more work for our super chip factory.
But you presumably offset that with a huge trade surplus with your employer. But we really don’t have an argument. If the government cut spending to balance the budget (which I think you support) then I think our trade would be more balanced, perhaps not with every country, but overall.
My point is that the trade deficit is not a relevant metric. There isn't some scale to balance. There isn't a net inflow or outflow of wealth in a trade imbalance.
Cutting spending, balancing the budget, and tit-for-tat trade bilateral free trade agreements are all highly worthwhile goals, but we don't need to argue trade deficits to defend them.
Telling like it is, David.
I oft lamented the fact that the federal government is the largest employer in the U.S., and to what end? Where in the Constitution are we told that this is to be? Who made the "discovery" of the that gem the founding fathers had hidden so well that the government exists to "create jobs"? Great piece David.
Certainly any elected official will take credit for the sun rising in the morning.
The bigger question: Is seemingly economic good news based on sound fundamentals or are we just having a big party running up the national credit card? The US Dollar’s status as the “reserve currency” allows us to sort of get away with massive budget and trade deficits, enabling America to consume more than it produces. But for how long?
WWII is often credited as ending the Great Depression, but what actually happened is that government debt displaced the unemployment and malaise. It took the post WWII government cutbacks to actually produce real growth.
What we're seeing, IMO, is similar. Big government spending is propping the economy, and we cannot forget that inflation has devalued the dollar by 20% since Biden took office. A good chunk of the market's gains are that inflation.
As for trade deficits - I'm of a very different opinion. They don't matter economically (although there is more of an argument geopolitically). If America sells one high-value processor chip for every thousand cheap memory chips China sells, is America diminished?
If our one super chip is worth only 500 of the cheap Chinese chips, how do we pay for the other 500? China could by two super chips but instead they buy one super chip and a Treasury bill to finance our budget deficit. If we weren’t running budget deficits and had no Treasury bills to offer, maybe China would instead buy that second super chip - and we’d have balanced trade and more work for our super chip factory.
Who is "we" in this case? Trade deficits measure private trade.
I have a massive trade deficit with Home Depot, yet we are both thriving.
https://www.cato.org/blog/quick-dirty-lesson-about-trade-deficit
But you presumably offset that with a huge trade surplus with your employer. But we really don’t have an argument. If the government cut spending to balance the budget (which I think you support) then I think our trade would be more balanced, perhaps not with every country, but overall.
My point is that the trade deficit is not a relevant metric. There isn't some scale to balance. There isn't a net inflow or outflow of wealth in a trade imbalance.
Cutting spending, balancing the budget, and tit-for-tat trade bilateral free trade agreements are all highly worthwhile goals, but we don't need to argue trade deficits to defend them.