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My Personal Trade Deficit
Since the Barnes & Noble opened in neighboring Pittsford,
my trade deficit with that town has exploded.
By Steven E. Landsburg
(804 words; posted Thursday,
June 26)
To my vast delight,
a Barnes & Noble superstore has arrived in Pittsford, N.Y., about a
mile from my home in the neighboring town of Brighton. I shop at Barnes
& Noble several times a week--mostly for books, sometimes for music,
occasionally for software, and nearly always for coffee.
My trade deficit
with Pittsford has grown explosively since Barnes & Noble arrived.
In other words, I spend more money in Pittsford than I did before. A trade
deficit is the amount you spend in a given place minus the amount you earn
there. (A trade surplus is just the opposite: The amount you earn in a
given place minus the amount you spend there.) I don't earn any income
in Pittsford, so my trade deficit is equal to the amount I spend.
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 've
been thinking about trade deficits because I picked up the local newspaper
this morning and read an op-ed piece about the U.S. trade deficit with
Mexico. It says that, pre-NAFTA, the United States had a trade surplus
with Mexico--the average American earned more in Mexico than he spent there.
(Producing goods for sale to Mexicans counts as "earning in Mexico"; buying
goods made by Mexicans counts as "spending in Mexico.") Today the opposite
is true: The United States has a trade deficit with Mexico, and it's growing.
According to the
op-ed piece, that's proof that the average American was better off without
NAFTA. But the identical logic "proves" that I was better off without Barnes
& Noble. Not only is the conclusion false, it's the exact opposite
of the truth. When people take advantage of new opportunities to buy things
they want, it usually makes them happier.
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 he
truth is that any change in our trade position with respect to Mexico--in
either direction--is evidence that free trade has been good for Americans.
My neighbor got a job at the new Barnes & Noble. His trade surplus
with Pittsford grew, just like my own trade deficit. In both cases,
the changes meant that our lives had got better.
The same analogy
illustrates another point: Although NAFTA-induced changes in the
U.S.-Mexican trade deficit are evidence of improvements, the actual level
of the trade deficit means virtually nothing. If Barnes & Noble had
located in the town of Penfield instead of in Pittsford, I'd have a higher
trade deficit with Penfield, a lower trade deficit with Pittsford, and
my life would be about the same as it is now.
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more interesting number is my overall trade deficit--the total of
all my spending minus the total of all my earning. My overall trade deficit
was pretty high yesterday: I spent $600 on a living-room rug, and I earned
$0. (It was a Sunday and I didn't feel like working.) My overall trade
deficit was $600.
Traditionally, business
journalists describe every increase in the overall trade deficit as a "worsening."
According to that tradition, I had a very bad day yesterday. But it didn't
feel like a bad day--I like my new rug, and it would have
been inconvenient to put off buying it until a day when I felt like earning
enough to pay for it.
When the nation's
overall trade deficit increases, it means that Americans, on average, are
spending more than they are earning. Maybe that's because your neighbors
are behaving foolishly; maybe it's just because they have the good sense
to realize that you can sometimes spend more than you earn--provided you're
willing to draw down your savings.
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n
any event, foolishly excessive trade surpluses are a greater danger
than foolishly excessive trade deficits. That's because excessive
trade deficits are self-limiting: If you run a trade deficit every year,
bankruptcy will eventually force you to stop. But excessive trade surpluses
can go on forever. A perpetual trade surplus is likely to mean you're either
working too hard or consuming too little; either way, you're not getting
enough enjoyment out of life.
Here's the final
thing you should keep in mind when you read about the nation's overall
trade deficit: The nation is nothing but the sum of individual households.
But there are limits to how much you ought to care about what goes on in
other people's households. Even if you are convinced that the average American
spends too much, or earns too little, or spends too little, or earns too
much, it's not entirely clear why it's any of your business. As long you
have your own household in order, fretting about your neighbor's spending
habits is a lot like fretting about the color of his living-room rug. Maybe
lime green was a big mistake, but it's his mistake to live with.
 Links
The U.S. Department of Commerce maintains a NAFTA
home page to help answer questions about the agreement. The NAFTALab
of the University of Texas contains further analysis and research resources.
NAFTA
Watch is a regularly updated page listing new business opportunities
in Mexico. Less strident fans of free trade can read the text of H.R.
2651, the NAFTA Accountability Act, or learn about "NAFTA's
Broken Promises" from Ralph Nader's Public Citizen's Global Trade
Watch group.
Steven E. Landsburg, author of The
Armchair Economist: Economics and Everyday Life, is a professor of economics
at the University of Rochester. You can e-mail him at armchair@troi.cc.rochester.edu.
Illustrations by Robert Neubecker
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