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Economy
See other Economy Articles

Title: Beware of Mistaking Artifacts for Economic Realities
Source: AIER
URL Source: https://www.aier.org/article/beware ... ifacts-for-economic-realities/
Published: Sep 23, 2023
Author: Donald J. Boudreaux
Post Date: 2023-09-23 01:50:33 by Charles_Byrd
Keywords: None
Views: 116

America runs a trade deficit during some period – say, a month – whenever the dollar value of that period’s imports exceeds the dollar value of that period’s exports. Unfortunately, the name given to this situation – “trade deficit” – is a never-ending source of deep confusion, sometimes even among economists. A few years ago, Scott Sumner appropriately scolded some prominent economists for their shallow thinking about the so-called trade deficit. Specifically, Sumner noted that these economists mistake human-constructed accounting categories for real and essential economic phenomena.

We can clarify Sumner’s concern by elaborating on one of his astute examples. He writes: “In terms of pure economic theory, the US sale of a LA house to a Chinese investor is just as much an ‘export’ as the sale of a mobile home that is actually shipped overseas. But one is counted as an export and one is not.” By choosing to classify all purchases of real estate as investments, the accountants who long ago created the rules and categories of international commercial accounting ensured that many transactions that are economically identical to each other will be recorded in international accounts in ways that create the false impression that these transactions differ from each other in economically relevant ways. It follows that these international commercial accounts convey misleading information.

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