Why Is This Upbeat News?

So, reading an article about weak earnings and Wall Street’s concern over what January will bring, do you get the sense that this was thrown in there without thought?

There was some upbeat news. The Commerce Department said Tuesday that the trade deficit fell to its lowest level in five years. The deficit narrowed 28.7 percent to $40.4 billion in November from $56.7 billion in October as demand for oil dropped by a record amount.

For the sake of argument, one can stipulate that the mercantilist understanding of economics, where trade deficits matter quite a bit, is correct. In that case, a bit of upbeat news would be either that the trade deficit shrunk due to increasing American exports, or that it shrunk due to replacement sales of foreign-made products with American-made products.

A negative spin on this news, though, would simply be that Americans are unable to consume, and that consumption (and likely production) of all goods and services has declined, which is an indication of a shrinking economy. After all, the fact that Americans are able to buy a lot of foreign-made products is a sign of our affluence (and for worldwide demand for US Dollars), and if that has disappeared, it is not a positive development.

A neutral spin, of course, would be to recognize that– in nominal dollar terms– the price of oil has fallen sharply. Thus, even if we were importing the same amount of oil as a few months ago, the nominal value of the trade deficit would likely fall. That is a positive development for American consumers (because less of our money must be spent on oil/gas), but is not as meaningful in the trade balance discussion because it doesn’t signify that we’re producing more oil domestically.

So this line is nothing more than a throwaway “trade deficits are bad, and they are shrinking” statement. And they wonder why journalism is in the shape its in.

  • http://www.blognetnews.com Dave Mastio

    Yet another example of opinion pretending to be fact.