8cda82da_brary_of_Economics_and_Liberty__ast_Highlights_HIDE_HIGHLIGHTS
[Time] 53:30
Trade deficit or current account deficit is not a measure of our indebtedness. You can define those deficits as being debt, but that's not the way we use the word. Have Apple computer, previously had a Sony Vaio. Suppose after I bought the Vaio, Mr. Sony had stuffed the $2000 in a sock drawer. Then U.S. has a trade deficit, but there's no debt involved. If Sony takes the money and lends it to someone in the U.S. it becomes debt, but if he does something else like buying U.S. stock, there is no debt. Part of the trade deficit can be transformed into debt, but it is not automatically debt. U.S. Federal government borrows in the open market--from both U.S. citizens foreigners. The debt itself is because government spending exceeds taxes, though; it's not related to the trade deficit. Debt itself is not necessarily bad--allows for investment, buying factories, houses. Federal government's funding of programs with borrowing. When we run a trade deficit, we are given the privilege of consuming more than we produce. To do that, we have to attract capital. To say that we are "living beyond our means" is incorrect. John Makin article. Would you be upset if Bill Gates wanted to invest in you? Suggests you have promise. It's encouraging when U.S. investment account rises, foreigners have confidence in our future. Nationalizing U.S. industry would definitely reduce our current account deficit, but it would be disastrous for us! Doug Irwin, Free Trade Under Fire, 1/3 of U.S. imports are capital goods used in production--machinery, etc.--not just U.S. citizens on a buying spree. Hal Varian article on iPod components: all China does is assemble them, but it's counted as a Chinese product. It was American creativity, which is paid for when you buy an iPod; small amount for Chinese value added.
Don Boudreaux on Globalization and Trade Deficits | EconTalk | Library of Economics and Liberty