Comments on: Kashkari, 2009′s Ideas, Richard Milhouse Obama, Frum!, Chinese-American Trade Imbalance, Obama’s Nobel, and Charborg http://2parse.com/?p=4410 politics, prose, and barack obama Fri, 10 Sep 2010 11:53:59 +0000 hourly 1 http://wordpress.org/?v=3.0.1 By: John Rose http://2parse.com/?p=4410&cpage=1#comment-8677 John Rose Fri, 11 Dec 2009 18:44:20 +0000 http://2parse.com/?p=4410#comment-8677 I've often heard this argument about the root of our fiscal deficits being our trade deficit with China, but it doesn't add up for me. First of all, our trade balance with China is only ~$190 billion/year. (http://www.census.gov/foreign-trade/balance/c5700.html#2009) Second, only 44% of our debt is held outside of the United States. And finally, only about $800 billion of our $12 trillion debt is held by China (http://www.treas.gov/tic/mfh.txt). It seems to be a much more diffuse problem, arising mainly from the U.S. public sector failing to correct the imbalances of the U.S. private sector. The argument that reducing our fiscal deficits will cause a depression is probably correct, but besides the point. Continuing to deficit spend forever is impossible, whether or not the alternative is difficult. The sooner we reduce the deficit, the easier the transition will be in the long run. As you've probably guessed, I see the deficit problem as a matter of misplaced investments. If we moved even a fraction of our $850-900 billion defense spending into investments that would improve our long-term domestic productivity (e.g. basic science, infrastructure, education), we could decrease our trade deficit through increased exports. As fun as it is to play real-world "Risk" with the United States military, and to pretend that our role as the last superpower is indispensable, most of our defense spending would not pass an objective cost-to-benefit test. I’ve often heard this argument about the root of our fiscal deficits being our trade deficit with China, but it doesn’t add up for me. First of all, our trade balance with China is only ~$190 billion/year. (http://www.census.gov/foreign-trade/balance/c5700.html#2009) Second, only 44% of our debt is held outside of the United States. And finally, only about $800 billion of our $12 trillion debt is held by China (http://www.treas.gov/tic/mfh.txt). It seems to be a much more diffuse problem, arising mainly from the U.S. public sector failing to correct the imbalances of the U.S. private sector.

The argument that reducing our fiscal deficits will cause a depression is probably correct, but besides the point. Continuing to deficit spend forever is impossible, whether or not the alternative is difficult. The sooner we reduce the deficit, the easier the transition will be in the long run.

As you’ve probably guessed, I see the deficit problem as a matter of misplaced investments. If we moved even a fraction of our $850-900 billion defense spending into investments that would improve our long-term domestic productivity (e.g. basic science, infrastructure, education), we could decrease our trade deficit through increased exports. As fun as it is to play real-world “Risk” with the United States military, and to pretend that our role as the last superpower is indispensable, most of our defense spending would not pass an objective cost-to-benefit test.

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