Is payday just around the corner?

More than five decades have passed since the Englishman John Maynard Keynes conveniently provided a rationale for the deficit financing by the federal government that President Franklin Roosevelt had stumbled onto. FDR was trying by every means possible to pull our country out of the Great Depression.

Keynes said that whenever consumer spending plus investment does not keep the economy fully employed, it’s in the public interest for the government to step in and make up at least part of the shortfall. Thereby employment is increased, and perhaps business profits, too.

Years later, President Nixon declared that “we are all Keynesians now.” Even President Reagan’s supply side economics had a Keynesian ring to it.

At the moment, though, we are not deficit financing ourselves. On the contrary, both the President and Congress are basking in what they report as a budget surplus, even though it is more apparent than real. The deficit financing we are engaged in now is not of our economy but that of the rest of the world and especially the Third World. We are doing it primarily by running a big international trade deficit.

When we buy more from other countries than they buy from us, we are applying a Keynesian style stimulus to their economies. To be sure, we provide some aid to troubled countries via the International Monetary Fund, which we help finance. But the big contribution we make lies in our trade deficit. It reached a record $169 billion last year, thereby constituting a huge demand-booster for the economies of a large number of countries.

A columnist for a large Missouri newspaper recently stated that “without the affluence of acquisitive Americans” and their buying spree of recent years, “most of the rest of the world would have no hope of reviving their economic fortunes.” Most economists today apparently see no harm in running this deficit, noting that it provides the means to surfeit ourselves with creature comforts. But these same economists rarely mention the financial meaning to us. Trade accounts must balance. A trade deficit account is balanced in one or both of two ways: by selling assets or by borrowing, thus incurring international debt. Both are negative; one shrinks our economic base and the other imposes payments to be met in the future.

A third unwelcome feature of our trade deficit is the flood of imports that we pay for via trade-deficit financing that in turn compete with products of our own firms and workers. Textiles may be the most prominent example, although steel also has been much in the news lately. And how many imported fruits and vegetables did you buy at the supermarket yesterday?

A question that comes to mind is why it is that other countries cannot generate adequate demand for their own products. The answer seems to be their policies are often not expansionary enough. Another view is that foreign firms have not paid wages high enough to enable workers to buy their products. This has a convincing touch to it.

One inference to be drawn from all of this bears on prospects for our exports of farm products. A few years ago Missouri’s farmers were told that booming Asian nations would soon become eager buyers of our products, especially meat and soy products. But if rank and file consumers in those countries have remained underpaid, they can’t be expected to become large consumers even if the financial condition of their countries is relatively stable and growing.

The cold, hard, Show-Me truth is that this anomaly follows: increases to date in Asia’s buying farm products made in America have been financed in large part by our very own, made in America trade deficits.

The moral to be drawn from this interpretation of trade patterns is that Asian and other Third World countries had better learn to generate their own demand. They cannot count on the Untied States and its taxpayers to deficit-finance their markets indefinitely. And it’s probably wise to mention that some of our economic problems cannot be resolved just by advocating another shipment of U.S. products abroad.

@6 left = [Missouri News & Editorial Service, Inc. Copyright (C) 1999 MANES Corp.]

by Jack Stapleton, Jr.