Respectfully Disagreeing with Peter Morici

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Peter Morici is a renowned economist and University of Maryland professor of economic means who believes that the "trade deficit" was a "principal cause of the Great Recession". He also believes that the deficit's existence "threatens to stifle recovery and push unemployment above 10 percent through 2011."

The irony in all this is that Professor Morici doubtless runs numerous trade "deficits" himself. Presumably he runs a deficit with the builder who put a roof over his head, with the automaker who built the car he drives, and with the grocery store whose items stock his refrigerator.

But do Morici's deficits impoverish him? Far from it. In order to run those alleged deficits, he achieves surpluses with others. In his case, Professor Morici has a trade surplus with the University of Maryland, not to mention the likelihood that he has a trade surplus with a book publisher eager to publish his views on why the very trade "deficits" that allow him to pursue his comparative advantage (economic research) are bad for others.

It's no doubt possible that in his case, Professor Morici is a master builder, carmaker and producer of food such that if he chose to be, he could be self sufficient. Maybe so, but since the pursuit of all three is time consuming, it seems achieving sufficiency in any of them would detract from his favored pursuit of economics. As a result, it's fair to suggest that Morici - like all the rest of us - runs surpluses so that he can run trade deficits.

The problem with Morici's musings on trade deficits and surpluses within countries is that countries do not trade. Only individuals trade, and much as Morici is able to enjoy deficits in trade with all manner of merchants thanks to his skills as an economist, so do all of us seek our own comparative advantage so that we can run trade deficits in pursuit of what we want.

In my case, I run a trade deficit with my landlord, Dewar's Scotch, Popeye's Fried Chicken and with my drycleaner. Thank goodness I do because I could never brew my own whiskey, let alone build my own apartment, cook fried chicken, or iron/clean my own shirts.

Happily, I don't have to. Thanks to my trade surplus with my employers, I'm able to "import" and be in deficit with those who don't employ me. Absent this ability to trade, I would be impoverished; that or I would suffer from a lack of Scotch, fried chicken, ironed shirts and an apartment with a roof that leaks and which lacks air conditioning and running water.

What's exciting about the trade deficits we all run as individuals is what they potentially suggest about the future. Not pleased with a life consisting solely of a rented apartment, Popeye's and Dewar's, I someday would like to run even bigger deficits in trade with more than one homebuilder, better restaurants, and with a more prestigious maker of Scotch whiskey. My present trade deficits, if I'm lucky, will enable me to do just that.

Indeed, so lacking am I when it comes to the skills to make that which I consume, I'm eternally grateful that others will do these things for me so that I can continue to pursue what I think (hope?) I'm best at. That there are people out there willing to create apartments I can rent, cook food I find edible and brew Scotch that I can drink means that I have time to pursue more remunerative pursuits when I'm not consuming. Someday it's hoped that a few of these pursuits will pay off such that my trade surpluses allow me to greatly expand my trade deficits.

Morici argues that money spent on subsidized "Chinese coffee makers and Middle East oil cannot be spent on U.S.-made goods and services". In my case I despise coffee, but if I ever develop a taste I surely don't want to concern myself with creating a coffee machine to scratch the itch. Instead, I'd like for my own productivity to be rewarded through import of such a machine from someone else.

Professor Morici would of course like me to "import" the machine from an American producer, and it's possible I might. On the other hand, a cursory search on tells me that coffee machines are mostly low-margin items. That being the case, I'd probably be more optimistic about the U.S. economy if my future latte machine came from overseas.

Indeed, that would signal to me that my fellow American workers found higher margin work that had similarly given them the ability to consume foreign goods not in their economic interest to create. To put it more simply, as individual Americans we import televisions, clothes and coffeemakers, and this "offshoring" of low value labor frees us up to work for Google, Microsoft and Cisco. A better deal would be hard to find; meaning the "deficit" in the trade deficit is in fact the inflow of foreign investment meant to capitalize on Americans achieving greater and more productive economic specialization. 

Same with the oil for the car I drive, and hopefully for the cars I drive in the future. If oil is more easily accessed in the Middle East, all the better for me to "import" it. And if my driving alone leads to lots more in the way of oil inflows, that will only result from me being terribly productive such that my labors merit the true compliment that would come in the form of "imported oil"; imported oil being a misnomer given the broader truth that once oil seeps from the ground, its origin is utterly irrelevant.

Sure enough the country that is Switzerland can lay no physical claim to oil, but its citizens consume quite a bit of it due to their success in other endeavors. Imports, far from impoverishing as Morici claims, are the ultimate compliment because they signal productivity on the part of the importer.

Morici concludes that the trade "deficit" is an economy killer, but since the only kind of trade is the balancing kind that occurs between individuals, the more logical conclusion is that when this supposed deficit increases, our economy is growing for individuals doing what they're best at and being rewarded with more investment for pursuing their specialty. When it comes to the trade deficit, I'll have to respectfully disagree with Professor Morici.

John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading ( He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015). 

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