You often hear about how bad the budget or trade deficits are, but what you rarely see is an in depth look at both of these economic indicators and their historical trends. Add to this a little historical background information like the fact that since the Kennedy Round of trade negotiations went into effect in the late 1960’s the United States has only ran a budget surplus two times out of a possible 44 years. I certainly do not claim to be an economist but why don’t you take a look at these graphs and come up with your own opinion about whether or not the information on these charts represent the healthy byproduct of a nation’s trade relationship with the rest of the world or could they tell us that we might need to address these problems before they completely consume us. While you look at these charts keep in mind that the trigger for the last economic meltdown here in 2008 was when the housing bubble burst. This bubble was fed by foreign investment from the nations we run large trade deficits with.
So as you can see soon after the Kennedy Round went into effect the nation began flirting with running a trade deficit in the late 1960’s, this became permanent by the mid 1970’s. Now below take a look at a chart about the historical trend of budget deficits.
As you can see above the trend, while not exact, does follow a similar pattern which to me suggests the two are interrelated. The only exception being the latter years of the Clinton’s administration showing a surplus, which although I can’t prove right now, I would attribute much of that to unusual circumstances like the tech bubble. This leads me to wonder if since the introduction of the Kennedy Round of trade agreements has almost all of our gdp growth since the late 1960’s been because of deficit spending helping to prop up the economy, which as you see by the chart above only seems to need more and more deficits to get any kind of growth as time goes by. Like I said before I don’t claim to be an economist so I would be curious to hear what others had to say, but I also think that the typical knee jerk reaction from a free trade die-hard about all trade is good no matter the deficit doesn’t seem to work here considering we do have to pay back governmental debt. It also begs the question, is the whole free trade policy just one massive wealth redistribution scheme were the US sends all its good manufacturing jobs to Asia in return for cheap trinkets? Or better yet, do we really have a real free trade relationship with countries like China or are they taking advantage of the spirit of free trade (if you have read past articles hear you will remember that this blog asserts that our trade relationship with the Chinese is unbalanced at best and possibly predatory on their part at worst) ? These are all legitimate questions that I feel have for too long been ignored by our so-called leaders.