Milton Friedman Revisited

A student speaks

One of my first Econ professors was Milton Friedman, it was a short course at Northwood Institute in 1987. (Two credits and cost twelve hundred bucks if I remember right). He talked about the trade deficit, as if it could never possibly be a problem. He was wrong. And no, Trade is not the problem. The problem is living off of debt, which is how we fund our trade deficit.

On the micro level, trade is always good and it would only be good on the macro level as well, if not for debt. He wasn't wrong about that and he wasn't talking about our current situation, so he can easily be forgiven.

If you can get a nation to send you stuff for super cheap and you don't have to pay extra, that's one thing, but we aren't doing that. This deficit with China is debt driven.

Think of it like putting a trillion bucks on a credit card, that's what we keep doing. If you think that's smart, I have an investment in a bridge I'd like to talk to you about.

We send them money, they send us goods, they use the excess money to buy our debt in the form of bonds. Now we owe them interest and they have us over a barrel. That is only possible because they bought our debt. And that's only possible because our leaders are assholes who keep spending too much and don't care who they sell our souls to.

If Uncle Sam wants the money to stay in our economy, then he should sell the bonds to American citizens at a higher yield. But he won't because it's so expensive already that he can't afford it. But who told him to go so far in debt that the American people themselves can't buy the debt and instead we have to beg China?

In a real sense we funded our wars with debt and China bought it, during WWII we sold war bonds to US citizens instead. If we had to fund WWII with foreign money the interest on those bonds would have left the country, instead it stayed here and helped us get out of the depression after the war was over. We also massively cut taxes after WWII.

Should we blame China or should we blame our government for putting us all in debt? All China did was sell us cheap stuff and "invest" in American Bonds. The problem is that "investing" in bonds is not the same as investing in American Manufacturing, not even close.

Due to how the world banking system works the dollars we send China are only valuable once they clear our system, which means they must buy something, they could have built factories like Japan did when we ran deficits with them in the 80's, instead they funded our forever wars. Was it bad to get Toyota factories in America? Nope, not at all, everyone loves their Toyota's, including me, but I digress.

Is a deficit always a problem?

No, it's not always a problem.

We ran a deficit for the first hundred years of our nation, which makes sense considering we didn't have much manufacturing but we did have a ton of potential. They took our dollars and sent us goods and then they took those dollars and often sent them back in the form of investments. We were a nation full of promise, so why not invest?

Eventually we built up our manufacturing base so that we were independent and ran trade surpluses, that were usually based on agriculture. We produced everything we needed and had excess food. Not a bad situation.

So what happened?

Decades back a group of globalists from around the world decided that the US would no longer be the manufacturing capitol of the world. Washington Bureaucrats (deep state) agreed, It was dirty and smelly and we didn't have the cheap labor to make it work anymore. They decided the US would still rule in Technology, Pharmaceutical products, Agriculture and Financial Services.

The laid off factory workers could learn to code.

The world decided they could not get enough dollars at about the same time. This allowed us to export inflation and fund a deficit driven economy. American workers and ex-workers traded a white picket fence for beads from China, so to speak.

Trade is not the problem; putting it on a credit card is.

I'd also like to clarify that I'm talking about an "Aggregate" deficit. If we have a deficit with one nation and a surplus with another, it balances out and, of course, is not a problem; it only becomes a problem when our Total Exports are far below our total imports AND it's based on Debt.

Our massive trade deficit is currently a sign of a very sick economy because it's debt-driven.

What would help? Obviously, we need to produce more stuff, which would do a lot more than blaming China ever will.

My own "Law" of economics is "Prosperity Follows Productivity". We need to produce more goods and not just any goods; they must be goods that the Market Demands. In other words, they must be priced right and needed.

If Uncle Sam would take his boot off the neck of producers, it would help a hell of a lot and it's about the only thing that will. Punishing China with Tariffs will hurt our manufacturers as well, as they rely on tons of parts from China, so we should not put punishing tariffs on them.

Am I against raising tariffs? Not completely.

If Trump truly wanted to fund our government with Tariffs I'd be fine with it, on the condition that he drastically cuts spending and eliminates the corporate tax as well as the income tax. Sadly, Trump will do none of the above, he likes big government, he just wants a big "efficient" government, which is a joke.

As I've said in the past, there is no such thing, All Government is Waste, Fraud and Abuse! Every single thing they do is predicated on first stealing your money and not content with your money, they have mortgaged your children and grandchildren too.

The biggest threat to the US is bankruptcy and they are bragging about a trillion dollar budget for "defense". A trillion a year goes to paying interest on the debt as well. Does that make sense?

I have a suggestion.

If they want to fund the military at that rate, why not have a bond that funds it like we did during WWII and have it only sold to American Citizens? If the people don't want to fund it, then they won't buy the bonds, let them decide how big the military budget should be. If the people think we are under threat they will buy bonds, if they think the money is being pissed away, like it usually is they won't. And remember, I say this believing that our number one threat is the Debt, not Russia or China. (We do have nukes after all.)

They bitch and moan about China, but they won't do it will they? Nope, they will go crawling back to China to fund that Trillion dollar monstrosity of a budget.

One last thing, there always is. I like to make predictions to see if I have a good grasp of things. My prediction is that Trump's friend Xi will allow Trump to save face by lowering some tariffs on something eventually and Trump will call that a win.

Brad Smith, Guest Columnist