Sunday, May 19, 2019

Interview: Richard Ebeling says "the trade deficit, in itself, does not matter"

Editor's note: This interview was originally published in March 2017.

This is the fourth of seven articles spanning my discussion with Dr. Richard Ebeling. The firstsecond, and third pieces are available. 
Story by Joseph Ford Cotto
"Soon after taking the oath of office, President Donald J. Trump signed a series of Presidential Memoranda to fulfill his promise to make America Great Again on trade and other issues," the White House's public relations arm declared shortly after Trump assumed office.
It continued: "The first executive action the President took was to permanently withdraw the United States from the Trans-Pacific Partnership, a multinational trade agreement that is not in the best interest of American workers. 
"This action ushers in a new era of U.S. trade policy in which the Trump Administration will pursue bilateral free trade opportunities with allies around the world, wherever possible, to promote American industry, protect American workers, and raise American wages. It is the policy of the Trump Administration to represent the American people and their financial well-being in all negotiations, particularly the American worker, and to create fair and economically beneficial trade deals that serve their interests."
A few days later, the Donald announced his plan to change the conditions of America's participation in the North American Free Trade Agreement, a trilateral commerce bloc which binds us with Canada and Mexico.    
“I’m deeply concerned by President Trump’s statements today reaffirming his commitment to renegotiate the North American Free Trade Agreement (NAFTA)," John McCain said shortly after. "While renegotiations could help to strengthen and modernize NAFTA to benefit American businesses and consumers, any effort to restrict or impose new barriers on our ability to trade with Mexico and Canada could jeopardize the future of this trade agreement and have serious consequences for Arizona and the country." 
McCain later added: “The free flow of trade has been the foundation of U.S. economic policy for decades, and a major factor in our prosperity and greatness. We should not have to relearn the lessons of history. Retreating from NAFTA and other international trade agreements will harm our ability to compete in today’s global economy, raise costs for consumers, threaten jobs, and undermine our relations with our closest neighbors.”
What is going on here? So many sparring perspectives on trade from such powerful people.
The Trump-McCain spat is but one theater in a battle of ideas between protectionist and laissez faire personalities. This disagreement has come not only to dominate the right, but our country's left -- think of the difference between Bernie Sanders and Hillary Clinton on economic policy.
Few people are so familiar with the limited government perspective as Dr. Richard Ebeling.
As his employer, The Citadel (South Carolina's prestigious military university -- an unlikely site for such a titan of libertarianism), tells, he "is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership .... Among the courses he offers are "Entrepreneurial Leadership and Capitalist Ethics" and "Ethical Entrepreneurship and Profit-Making."
"Dr. Ebeling is recognized as one of the leading members of the Austrian School of Economics and is the author of Austrian Economics and Public Policy: Restoring Freedom and Prosperity (Future of Freedom Foundation, 2016); Monetary Central Planning and the State (Future of Freedom Foundation, 2015); as well as the author of Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition (Routledge, 2010) and Austrian Economics and the Political Economy of Freedom (Edward Elgar, 2003)." 
Ebeling recently spoke with me about several issues concerning the American economy. Some of our conversation is included below.
Joseph Ford Cotto: China is notorious for its currency manipulation schemes. Beyond this, however, it not only owns a tremendous amount of America's national debt, but accounts for much of our trade deficit as well. How do you suppose that the U.S. could level the playing field in the near future?  

Dr. Richard Ebeling: As I’ve pointed out in my previous answer, the trade deficit, in itself, does not matter. At the end of the day the balance of payments balances. But there is one element that is worth highlighting. Out of the revenues earned from selling goods in the United States, the Chinese government-managed sovereign wealth funds have invested in and hold over a trillion dollars of U.S. government debt. This requires interest payments to be paid and, the principle to be repaid. But the only source of money at the U.S. government’s disposal to do so are the dollars it either taxes from the American citizenry or from new borrowing to pay back what it owes to the Chinese from earlier borrowing.

In the last decades of the nineteenth century, the United States went through an industrial revolution that made America increasingly the economic powerhouse of the world. Much of the industrialization was funded through foreign investment in and foreign loans to American private enterprises. By the beginning of the twentieth century, most of this private borrowing had been paid off and the U.S. was becoming a global creditor rather than a global debtor.

But the U.S. government’s accumulated debt to fund its annual budget deficits offers none of the productive and profitable return that the private sector can offer. The government uses this borrowed money on what amounts to pure and simple wasteful consumption on the expenses of the welfare state and spending on special interest groups with influence and pull in Washington, D.C. It is a drag and a lien on the wealth produced by the American citizenry in the future to pay off the government’s unproductive spending of the past.

The answer to this problem does not lie in Beijing. It lies in Washington, D.C., and requires getting the U.S. government’s fiscal house in order by reining in spending and borrowing. It not China’s fault or problem; it is Uncle Sam’s spend thrift ways.