The Deficit You Didn't Read About

The deficit hit another record in July. It's now running at an $820 billion annual rate, more than 6 percent of GDP. Of course, I'm talking about the trade deficit, not the budget deficit. All the bad outcomes of large budget deficits are also true of large trade deficits, yet the media barely notice a trade deficit that is now more than 3 times as large as the budget deficit. (Even if we add in the money borrowed from Social Security the trade deficit would still be almost twice as large as the budget deficit.)

Like the budget deficit, in the short-run the trade deficit allows higher living standards. We can consume imported goods that we are not paying for, just as the government can spend money that is not paid for with tax revenue. In the long-run we cannot do this, we accumulate foreign debt on which we will have to pay interest. While the media never tires about talking about long-run problems from the budget deficit, they manage to largely to ignore the much larger trade deficit. They also never talk about its cause, an over-valued dollar.

--Dean Baker

You may also like