American Economy As A Family
Over at Control Congress, there’s a post about How Bad Trade Deals are Destroying the Middle Class. It was a call for greater protectionism, because the authors believe that we are not negotiating trade deals that are free:
These days comparable numbers are imports are 16.22% of GDP and exports are 10.46% of GDP. Per se, there is nothing wrong with trade growing as a percent of GDP. However, the brutal reality is that our nation can no longer pay its bills. Imports of goods are almost double exports of goods. We enjoy a small (and shrinking) surplus on services and are now in deficit for payments (profits received from overseas US investments versus profit earned by foreign investment in the US).
If you could only pay half of your bills, your debts would be soaring. Guess what? So are the debts of the United States. Of course, the national debt is growing and more than 50% owned by foreigners. However, the debts of ordinary Americans are rising as well and a growing percentage are owned by foreigners as well.
The trade debate is usually depicted in terms of “cramped, narrow minded, locally oriented protectionists” versus “visionary, open minded, free trading globalists”. This caricature is largely correct. However, that doesn’t mean the protectionists are wrong. With America going broke, they are at least on the right side of the issue..
Now, I’m reflexively against protectionism. I could point to just about every post at the Eidelblog, as Perry is very strong on this subject, but a very recent post at Coyote Blog makes the point even better. Even without the trade deals being ideal, we’re likely to be getting the better end of the deal than the Chinese people.
But I decided to go a different route. I drew an analogy in the comments section over there, and I thought it was a pretty good one:
Is America going broke, or is the US Government going broke?
Think of it like a household. You’ve got two working parents who own a small business, paying their bills, getting increases to their income every year, etc. Overall, they’re doing fine. Then you’ve got a spoiled brat of a child, who wants to spend, spend, and spend some more, but the parents have put on an allowance.
The US Government is the spoiled child. That’s not a problem so far.
The problem is when you give the spoiled child a credit card. Now the child can get themselves into trouble and require the parents to bail them out. And if the child spends too much, it can overwhelm the parent’s ability to pay the bill. At the very least, it forces the parents to put off capital expenditures that could grow their small business (and thus their income). They want to go to the bank to get a loan for their business, but the bank won’t lend to them (it’s got it’s money lent out through its credit card branch, and their child’s debt make them a bad risk).
The parents are the US economy. The child is the government. The credit card is public debt, and China is the bank/credit card company.
The problem has nothing to do with trade. The problem has to do with a government that is spending more money than it’s taking in, and is getting so far in debt that the people giving it an allowance (the taxpayers) are in danger of being overwhelmed paying off its debt.
A trade deficit isn’t a bad thing, if China were spending its money investing in US equities/etc, that could be fueling economic growth. Instead they’re investing their money in T-bills, fueling government spending that is little more than a sink-hole, affecting economic growth little (if at all). Then, when the bill comes due, the government will have to take money out of the economy (further damaging economic growth) to finance their burden.
If we had a trade deficit with China, and they were using their excess dollars to invest in American business, we’d be in good shape. We can use that investment to make more jobs here than what we outsource to “over there”. Unfortunately, we’ve got a spoiled child spending our money, giving us back nothing useful for it, and sucking up the money we need to build our economy.