What Are We to Make of the Trade Deficit?

This article convincingly argues that a trade deficit like a personal deficit is not necessarily bad. The deficit may in fact result from investors eager to lend to a rapidly developing economy. This is a good thing that helps the developing economy develop even faster than if there existed no trade deficit because a lot of this consumption is for modern tooling, which improves manufacturing efficiency. However, a trade deficit may also result from government consumption, which is seldom for investment and more often for financing aggressive wars (such as the War to Exploit Iraq).

In summary, one should not be overly concerned about a trade deficit per se, but rather, how that money is used. Government will typically squander the funds to finance its expanding empire; whereas, the private sector will tend to invest the funds in improving productivity. Government is like a financially mismanaged, inefficient, and thoroughly corrupt business that never fears bankruptcy because it makes the laws about how much it will steal from the productive economy.