Hornberger's Blog

Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
Here's the RSS feed or subscribe to our FFF Email Update to receive Hornberger’s Blog daily.

Trade-Deficit Nonsense

by

Do you ever wish that the federal government would stop publishing data on the so-called trade deficit? It would be one of the best things the government could ever do. At the very least, it would bring an end to the nonsensical obsessiveness over the trade deficit that characterizes so many mainstream economists.

The latest example of concern over the trade deficit comes from Clyde Prestowitz, president of the Economic Strategy Institute and former counselor to the secretary of commerce in the Reagan administration. In a recent op-ed in the Los Angeles Times, entitled “The All-Too-Real Costs of Free Trade to Average Americans,” Prestowitz argues that the trade deficit is a root cause of unemployment in America. Reflecting standard statist concern over “income inequality,” he says that the trade deficit is, in large part, responsible for that too.

Prestowitz writes that the problem is that the federal government continues to enter into “free-trade” agreements “that seem to open the U.S. market while leaving others relatively closed.” He says that President Obama should “balance” U.S. trade, which, he says, would create 5 million jobs and finally bring “full employment and greater equality” to America.

What a pile of economic nonsense! It’s really just an excuse to avoid confronting the central problem: the horrific damage that economic statism has done and continues to do to our nation.

Think about the trade deficit between my state of Virginia and your state. Are you concerned about it? Do you know which state has the favorable balance of trade and which one is on the unfavorable side? After all, the chances that trade between our respective states perfectly balances is pretty close to nil.

Do you pace the floors at night worry about that trade deficit? Do you toss and turn in your sleep wondering what you can do about it? Do you try to get more Virginians to visit your state and buy things there in order to shift the trade balance in your favor?

I’ll bet your answer to all those questions is: “Jacob, I don’t give a hoot what the trade deficit is between my state and yours. It makes no difference to me at all.”

And that’s precisely what would happen if the federal government stopped publishing data about the trade deficit between the United States and other countries. It wouldn’t make any difference whatsoever, just like it doesn’t make any difference what the trade deficit is between different states or, for that matter, different cities.

The real cause of America’s economic woes, including chronic unemployment, has nothing to do with any trade deficit. America’s woes, which economic statists will do anything to avoid confronting, are rooted in the type of economic system that modern-day Americans have chosen to embrace — one that is managed, directed, regulated, and manipulated by the federal government.

Prestowitz would undoubtedly call America’s economic system “capitalism.” That’s what statists have long called an economic system based on income taxation, welfare, Social Security, Medicare, Medicaid, economic regulations, minimum-wage laws, the drug war, immigration controls, trade restrictions, a Federal Reserve System, and fiat money, along with a massive warfare state that dominates economic activity in the United States and other parts of the world.

Libertarians know better. We understand that all that junk constitutes not a free-market system but rather a statist system. We also understand that it’s all that statism — that is, the heavy role that the federal government plays in economic activity — that is the root cause of America’s economic woes.

Consider chronic unemployment. Prestowitz says it’s because of the “trade deficit.” Really? What about the trade deficits that exist between the several states? Do those trade deficits cause unemployment too? Should we amend the Constitution to require each state to have a balance of trade with every other state?

It is economic interventionism and the federal government’s heavy role in the economy that is the root cause of unemployment. There are minimum-wage laws that lock out of the labor market everyone whose labor is valued by employers at less than the mandated minimum, including black teenagers, where the unemployment rate stays between 30 and 40 percent. Moreover, heavy income taxes across society to fund the ever-burgeoning expenditures of the public sector, both welfare and warfare, destroy existing businesses and prevent new businesses from coming into existence.

Prestowitz’s notion that the trade agreements that Washington enters into are “free trade” agreements is as palpably nonsensical as his obsessive concern over the trade deficit and income inequality. These agreements are the opposite of free trade. They are managed trade, managed by the central government. Genuine free trade is trade that is entirely free of government control and intervention. That’s why it’s called “free” trade. If Washington favored free trade, it wouldn’t enter into any trade agreement. It would simply drop all federal restrictions imposed on trade, unilaterally and immediately.

What should Americans do who would like to see a society based on liberty and prosperity, especially for those at the bottom of the economic ladder? They should reject the nonsense of economic statism, which has proven to be a disaster. And things are only getting worse, both from a liberty standpoint and an economic standpoint.

Americans should instead restore the principles of economic liberty, free markets, and a limited-government republic to which our American ancestors bequeathed to us. That means a dismantling, not a reform, of the welfare-warfare state way of life, including an abolition of the federal department that publishes the data on the trade deficit.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.