Monday, August 07, 2006

Keeping it real:

One of the big campaign issues Democrats have been pulling out of their hats besides the Iraq war has been America’s growing trade deficit and funneling of low skilled jobs offshore. American’s though need to get a refresher in recent history so they don’t fall into the Democrats trap into thinking a) that trade deficits are bad and b) that it’s President Bush’s fault. The reason is the real person responsible for our trade deficit is Bill Clinton.

If Americans recall, when Bill Clinton came into office in 1993 America was coming out of a recession and had a trade deficit of basically zero. Bill Clinton in an effort to stimulate the economy adopted his famous strong dollar policy behind his then Treasury Secretary Robert Rubin. The strong dollar policy gave foreign countries a distinct comparative advantage over a number of low skill manufactured goods. This led to an influx in cheap products into America, which led to a consumer driven boom and consequently a trade deficit that continues to grow today.

American’s should also recall that during Bill Clinton’s Presidency there was a number of times that the market had gotten concerned that Clinton would abandon the policy, which led Robert Rubin to come out and defend Bill’s strong dollar policy reassuring the markets that President Clinton still believed.

My point is not that a strong dollar or trade deficits are bad. I have always argued that there is no statistical evidence that a trade deficit is bad for an economy. On the contrary statistical analysis has shown that countries with trade deficits like the U.S., Spain and Australia have faster growing economies than those with large trade surpluses like Germany and Japan. Actually if American’s think harder they’ll remember that the U.S. recession in the early 1990’s was a time when our trade deficit was non existent. American’s including Republicans should take this evidence and call out Democrats on their misleading campaign.

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