Modern Money Theory: Deadly Innocent Fraud #5: The trade deficit is an unsustainable imbalance that takes away jobs and output. – Warren Mosler. 

Facts: Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living. Jobs are lost because taxes are too high for a given level of government spending, not because of imports.

In economics, it’s better to receive than to give. Therefore, as taught in 1st year economics classes: Imports are real benefits. Exports are real costs.

Put more succinctly: The real wealth of a nation is all it produces and keeps for itself, plus all it imports, minus what it must export.

A trade deficit, in fact, increases our real standard of living. How can it be any other way? So, the higher the trade deficit the better.

The mainstream economists, politicians, and media all have the trade issue completely backwards. Sad but true.

To further make the point: If, for example, General MacArthur had proclaimed after World War II that since Japan had lost the war, they would be required to send the U.S. 2 million cars a year and get nothing in return, the result would have been a major international uproar about U.S. exploitation of conquered enemies. We would have been accused of fostering a repeat of the aftermath of World War I, wherein the allies demanded reparations from Germany which were presumably so high and exploitive that they caused World War II. Well, MacArthur did not order that, yet for over 60 years, Japan has, in fact, been sending us about 2 million cars per year, and we have been sending them little or nothing. And, surprisingly, they think that this means they are winning the “trade war,”and we think it means that we are losing it. We have the cars, and they have the bank statement from the Fed showing which account their dollars are in.

Same with China – they think that they are winning because they keep our stores full of their products and get nothing in return, apart from that bank statement from the Fed. And our leaders agree and think we are losing.

This is madness on a grand scale.

We are benefiting IMMENSELY from the trade deficit. The rest of the world has been sending us hundreds of billions of dollars worth of real goods and services in excess of what we send to them. They get to produce and export, and we get to import and consume.

Is this an unsustainable imbalance that we need to fix? Why would we want to end it?

As long as they want to send us goods and services without demanding any goods and services in return, why should we not be able to take them? There is no reason, apart from a complete misunderstanding of our monetary system by our leaders that has turned a massive real benefit into a nightmare of domestic unemployment.

All we have to do is keep American spending power high enough to be able to buy BOTH what foreigners want to sell us AND all the goods and services that we can produce ourselves at full employment levels.

Where’s the “foreign capital ?” There isn’t any! The entire notion that the U.S. is somehow dependent on foreign capital is inapplicable.

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