I decided to buy Crash 2.0 the other day to see what the author had to say about possible investment strategies during what I believe will be a very challenging few upcoming years in the US. Our government is on a deliberate path of self-destruction and their efforts are succeeding. I do not believe our economy will be able to withstand the consequences of deficit spending, an unstable dollar, and hi taxes. These next few years are going to suck for the average American, especially the ones dependent on employers for their security.
I expected to find in Crash 2.0 some good advice about how to invest, and maybe the author's advice investment advice is good, but the advice was immediately suspect to me because his concern for the economy was based on his alarm for the "trade deficit".
He is not alone in his concern. Everywhere I look I see fear about the looming trade deficit and how all this spending overseas will seal our doom.
This fear is completely misplaced. Completely. There is nothing to fear from trade deficits. Nothing. Let me try to convince you.
When an individual buys something, he does so because he has determined that his life is better off with the purchase than it is with the money he'll be using to buy it. When we buy things our lives and circumstances are improved. Buying a car makes it possible to drive to work, buying a computer makes it possible to email, work, shop, and do research. Buying a tool makes it possible to do things you couldn't do without that tool. These things make us more productive and better off.
You may think this not to be the case when considering what other people buy, but these are personal choices, it doesn't matter what you think, it matters what the buyer thinks.
If a person chooses to buy something made in China, both he and the person in China say thank you at the conclusion of the transaction. They both walk away happy. It is irrelevant that the individual now has less cash, he has weighed his options and decided he is better off spending the money. Furthermore, though he might have a personal trade deficit with the Chinese individual, he doesn't care, he isn't depending on the Chinese person for income, just for the product that he wanted. The individual has a source of income independent of the Chinese merchant.
What is true for the individual is also true for the group. If ten people individually buy something from China, they have all decided that they are better off and that their lives are improved by the purchase. If it is true for 10 it's true for millions. Millions of people buy things from China and each person doing so has decided that their life is better off as a result.
So yes, we run a trade deficit, but our wealth has increased because we now own the things that make us more happy, effective, and prosperous.