Late-night comedian, Jimmy Kimmel, used a second-grader to explain America’s trade deficit to his Left-leaning audience. HuffPost writer, Lee Moran, claims the young lady’s video is an “education for both POTUS and anyone else who may be bewildered by trade terminology.” Kimmel’s approach makes sense when looking deeper into this audience. YouGov, a British market research firm, polled 8,215 adults in the United States and discovered a third of Millennials aren’t convinced the Earth is actually a sphere. They noted 18-to-24-year-olds are the largest group in the nation to deny scientific facts about the planet’s shape. Comparatively, 82 percent of respondents 35-44 years of age; 85 percent of those 45-54; and 94 percent of adults 55 and over are confident the world is round.
Are these flat-earthers Republican-leaning conservatives who rely on the Bible for scientific answers or conspiracy-ladened Democrats from the left? I realize Democrats are powered today by feminists, People of Color, students, LGBTX community and leading Hollywood entertainers. Few Millennials are financial analysts, economists or business owners, and it’s difficult to grasp the realities of science or economics from the basement of their parent’s house.
Sadly, the second-grader’s understanding of trade deficits is as flawed as those who believe the earth is a pancake. Her educational video suggests we suffer a generation of Mental 2nd-Graders. I’m a life-long progressive and economist. Mr. Kimmel didn’t invite me to appear on his show. I’m serious and he prefers comedy — thus, he selects a second-grader. Yet it’s time for liberals to get an Adult Education — before it’s too late!
The youngster is correct on a number of facts. The USA incurs monthly and annual trade deficits with China, as well as other nations in the world, such as Canada, Mexico, Japan and Germany. A trade deficit means we import more in dollar value than we export. We have the largest trade deficit in the world and it’s been that way since 1975. Prior to that year, the U.S. tended to run trade surpluses.
Americans lost $566 billion in 2017
In 2017, the U.S. suffered a trade deficit of $566 billion. We imported goods and services worth about $2.875 trillion. At the same time, we exported goods and services valued about $2.329 trillion. These are big numbers — too large for second graders and most Americans. What this means is we LOST $566 billion in 2017. The young second-grader is correct that we received more goods and services, but Americans overall have less cash.
Let’s look at this more simply. In my example, there are two trading partners — Jessica and Ashley. Jessica sells cookies. Ashley sells milk. They want to trade.
In January, Jessica sells Ashley $10 worth of cookies. She now has $110. Ashley has milk and some cookies but only $90. Economists say Ashley has a Trade Deficit of $10 — or they could say Jessica has a Trade Surplus of $10. Both expressions are correct. The result is Jessica now has $20 more than Ashley.
In February, Ashley sold Jessica $30 worth of milk. She now has $120 ($90 + $30). Jessica now has milk and cookies but only $80 ($110 – $30). Economists could say Ashley now has a Trade Surplus of $20 ($30 in sales for February subtracting the $10 in purchases from January). Or they could say Jessica has a Trade Deficit of $20 ($10 in sales in January subtracting $30 in purchases in February).
Both expressions are correct. Due to their trading this month, Ashley now has $40 more than Jessica.
This brief example shows the complexity of comparing trade surpluses and deficits. In January, Ashleigh ended up with less. In February, she ended up with more. What happens if Jessica needs to buy more milk than Ashley buys in cookies each month?
In March, Ashley sells Jessica $30 more of milk, while Jessica sells Ashley $10 of cookies. Ashley now has $140; Jessica has $60. Ashley has a Trade Surplus of $40 with Jessica; or economists could say Jessica has a Trade Deficit of $40 with Ashley. Both statements are correct.
In April, the two ladies do the same as they did in March. Ashley again sells Jessica $30 more of milk, while Jessica sells Ashley $10 of cookies. Ashley now has a Trade Surplus of $60 with Jessica; or economists could say Jessica has a Trade Deficit of $60 with Ashley.
More importantly, Jessica is almost out of money. She is becoming poor. Ashley increases her wealth and is becoming rich. Since the U.S. continues to run Trade Deficits with China, our Asian neighbors are becoming rich and we’re become poorer as a nation.
In May, the two ladies continue their buying patterns as they have the two previous months. Like the U.S. and China, Jessica continues to run a Trade Deficit with Ashley. And, the trade gap continues to widen.
The difference in cash is now $160. Jessica has a total Trade Deficit of $80 with Ashley; Ashley has a total Trade Surplus of $80 with Jessica. Ashley is happy, as she is taking in more and more cash. Jessica should be getting worried.
In June, the final month of my example, the two ladies trade as they have the three previous months.
Jessica is out of money and has Trade Deficit of $100 with Ashley; Ashley has all the money and a Trade Surplus of $100 with Jessica. Ashley wins! She has all the money. China is winning our national game of trade. What must Jessica do now that she’s broke? She has to borrow from Ashley. Just as Americans are borrowing from China today.
Compare U.S.A and China
Prior to 1975, the U.S. ran an annual Trade Surplus with other nations around the world. We produced and sold more exports in dollar value than we purchased in imports. As a nation, we accumulated more cash and Americans became richer as a whole. The pattern reversed in 1975. Each year since that time, we have purchased more imports in dollar value than we have exported. We have reduced our collective cash and are becoming poorer as a nation relative to China and other trading partners. Our national debt just passed the $21 trillion mark. We remain afloat by borrowing money. Our economy is sick and broken.
A second-grader and many Democrats might tell you this isn’t a Big Deal. Although our population continues to increase, about 320 million Americans at this time, our Economic Pie is growing more slowly than it was years ago. This means there is less for all of us. At the same time, the Most Rich are taking more and more, while Middle Class and poor families increasingly fight over the crumbs. Some call this Trickle Down Theory.
You likely played the game of musical chairs. The game might have started with 15 chairs and 16 people. When the music stopped, one person was left without a chair. That player had to exit the game and one chair was removed. The music started again with 14 chairs and 15 players. Participants continue removing chairs and players until one individual is left standing and is declared the winner.
Today, as Americans, we play a national game of musical chairs. With 320 million Americans, we start with about 60 million chairs — about half of citizens do not get a chair when the music stops. More importantly, the Most Rich ten percent (some 30 million) are privileged and always get a chair. This means about 290 million Americans fight over about 30 million chairs. When the music stops, most of us are left standing. It seems nobody wins. We are frustrated and angry with each other. Many believe the game is rigged. In addition, our trade deficit removes chairs from the game as well. We lose about $500 billion each year. This leaves less for the rest of us.
Republicans remain relentless in efforts to ensure the Most Rich continue to get a chair. Democrats, on the other hand, fail workers and Middle Class families. They further divisive Identity Politics, such as claiming the privilege of White men is the problem. It is the rich who are privileged — poor and Middle Class men receive no breaks in America’s competitive society. The fragmented opposition is a gift to the Most Rich (the 1%). While the 99% fight amongst themselves, America’s richest few becomes more wealthy. Nobody disputes inequality is increasing.
A second-grader can’t tell you this. I will. Isn’t it time to start winning the game? What do you think? Please leave your comments below.