Sunday, April 25, 2004

I am amazed that the New York Times saw fit to give comedian Ben Stein 1000 words in today's paper to say absolutely nothing. If reserving space for people to say nothing is their policy, I should be getting 1000 words from them in no time!

The subtitle of Stein's piece is "How Trade Deficits Are Good". Per standard liberal economics, trade deficits are "good" because they are good for the consumer. We're all consumers, so we all benefit, right? (we're also workers, citizens, stewards, parents, children, etc., but let's forget about all that now)

In like manner, all the subtleties of the US current account deficit are erased in 1000 words of nothingness. Japanese and Chinese capital flowing to the US lower US interest rates (except for exacerbating the US budget deficit, which as the IMF warned this week, raises US interest rates). It's good for us when foreigners park their capital in the US and spur our development (except for removing capital investment in other countries, limiting their growth and cutting into the ability of the US to export its way out of a current account deficit of some $550bn). We can always print more money to pay off our debt (except for sparking inflation and a run on the dollar, as well as dislodging the USD from the center of the global economy).

The best part, of course, is when Stein quotes his later father, former Chairman of Nixon's Council of Economic Advisors, on the sustainability of not only an ever-increasing current account deficit but also an ever-increasing net investment deficit which must be financed: "If a thing cannot go on forever, it will stop." One thousand words for that insight?

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