Shattering another modern myth.
By Emil Franzi
JANUARY 26, 1998: We often hear about the big problem America has with its balance of payment in foreign trade. Other countries are buying less of our stuff and we're buying more of theirs--which, in the perspective of many economists, is considered to be bad. Considered almost equally as bad is a similar negative balance of trade with any one country. Like a whole lot of things many establishment economists worry about, this one is based on faulty logic.
While the Japanese buy fewer of our goods than we do of theirs, there are a whole lot less Japanese than Americans. Per-capita consumption of each other's goods is about even. It seems a tad unreasonable to expect them to consume more than twice as much of our stuff per capita to make it "balance."
Remember when economists used to compute something called Gross National Product? Whenever there was a hurricane on the East Coast or an earthquake in California, the costs of repairing all the damage contributed to the plus side of the GNP. Disasters were considered an economic gain.
I've been applying the balance-of-payments logic to my own household, and, if the economists are correct, I'm in real trouble.
Several times a week I go to Basha's and buy groceries. Eddie Basha has never hired me to write any of his ad copy. That leaves me with a major imbalance of payments.
I've been getting haircuts at Johnny Gibson's Barber Shop for years, and Johnny has never shown up at any of my yard sales. Neither have any of the folks at Garcia Cleaners. And I've never sold any guns or ammo to Dave at West of the Pecos.
On the other side of the ledger, I've never bought advertising in the Tucson Weekly or any of the other publications that print my stuff, although I do subscribe to a couple of them. Clearly they're in the same trouble--they buy from me, but I don't buy from them.
This illustrates just how ludicrous the balance-of-payments myth really is. I buy stuff in many places because I have the money and can afford to. Some Third-World citizens can't afford to buy much of anything. All they can do is sell raw materials and cheap labor, meaning they should be economically healthy because their payments show more coming in than going out.
America's balance-of-payment deficit was at its modern low-point in 1991--the last year we had a recession.
In the early 19th century, the French writer Frederic Bastiat took apart many economic fallacies. He also liked to simplify theories, and used Robinson Crusoe and Friday as examples. One of his best shots was aimed at the early socialists and the Labor Theory of Value, which claimed the amount of labor that went into producing something made up a major portion of its worth.
Bastiat spins a story about Crusoe and Friday building a dugout canoe out of a fallen log. The work is arduous, as they have few tools. One day Friday is exploring and comes across a hidden canoe. He runs back to tell Crusoe the good news--they can quit working on the dugout!
Crusoe becomes livid and calls Friday a fool. The discovery of the canoe will bankrupt them, because it involved no labor on their part and will destroy all of the effort--and value--they have put into the dugout. The only solution to protect their investment is to immediately destroy the new find, which Friday reluctantly helps Crusoe accomplish. Then they go back to hacking away at the log with rocks.
Too bad Bastiat didn't live long enough to encounter the balance-of-payments myth.
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