Trade deficits: A look beyond the economic view

Abstract

That the United States faces a “crisis situation” regarding the state of its trade deficit is a matter that has been widely proclaimed by several reputable economists, policy makers, and the public at large. In this paper, we analyze the etiology of this crisis situation and indicate that within the paradigm of economic theory, trade deficits constitute a “no-problem” situation. The paper argues that to explain the origin of the “crisis dimension” that has been ascribed to this situation, one is required to step outside the received economic view and look toward fields of inquiry like psychology and politics. It is shown that moralistic and/or political arguments are the primary cause of the current perception of the crisis situation. Standard economic theories provide, at best, minor perturbations to these central moralistic and political themes. It is argued that it is unlikely that current economic theory can be adjusted to provide useful results by incorporating these political and moralistic issues as “added variables,” because the proper inclusion of such issues would challenge the basic axioms on which the edifice of modern-day economics is built.