Hit by a Clue-by-Four
After correspondent Kitty Pilgrim read off a litany of complaints about the trade deficit from Congressional Democrat press releases, Dobbs asked in a video clip, How can you say that all of this is so good for the United States when weve run 29 consecutive years of trade deficits. Even though that question answers itself, the man demands an answer:
As the Cato Institutes Daniel Griswold has shown, hot
economies are best characterized by large trade deficits. As a
matter of fact, the two have a correlating relationship. As
Griswolds January 11, 2005
acknowledged, How valid is the widespread assumption that a growing
trade deficit means slower economic growth? Hard evidence of such a
connection appears to be lacking. In fact, an analysis of economic
data from the last quarter century (emphasis added) shows that a
growing current account deficit (as a percent of GDP) is actually
associated with faster, not slower, economic growth, as well as
rising manufacturing output and falling unemployment.
Free trade has kept prices and inflation steady amidst
tumultuous shocks to energy markets. Inexpensive imports have
allowed for cheaper consumer products and more efficient
business methods, and as a result have kept prices steady. As
American Enterprise Institute Scholar James Glassman pointed
out in a 1998 Washington Post op-ed, imports lower
Complaints from Dobbs that the trade deficit results in
totally unsustainable debt levels have no basis in economic
reality. As Griswold pointed out in his February, 2003 primer
on the trade deficit, money sent abroad to foreign countries
is reinvested in our domestic economy. The resulting net
surplus of investment capital buys new machinery, expands
productive capacity, funds new research and keeps interest
rates lower than they otherwise would be.
Evidence from 2001 and 2002 shows that a lower trade deficit
could actually hurt manufacturing. According to Griswold:
While manufacturing output was falling 4.1% in 2001 from the
year before, real imports of manufactured goods were falling
5.4% after four straight years of double-digit increases.
Over the last 25 years, the United States has made amazing gains in
productivity, wealth, jobs, and standard of living. Free trade and
imports have contributed to this growth and to growth abroad.
In her report, Kitty Pilgrim had the audacity to ask, Why is America not getting the point? After almost a year of reporting from a default position of economic illiteracy with no discernable balancing view point, the more compelling question is Why is Lou Dobbs Tonight not getting the point?