We can always count on Robert Samuelson to give us some economic misinformation on Monday morning and he didn't let us down this week. In a very balanced column (yes, many tons of sarcasm here) decrying the economic proposals of both Donald Trump and Hillary Clinton he told readers:

"The United States runs chronic trade deficits because the dollar serves as the main global currency. This raises its exchange rate, putting U.S. manufacturers at a disadvantage."

This is wrong at just about every level. First, there are multiple reserve currencies, not just dollars. And, they trade frequently against each other, so there is a limit to how much the dollar will rise relative to the euro, yen, or pound because it is the main reserve currency. So, that is not the biggest part of the story of the trade deficit.

The more important part of the story is that countries are holding much larger reserves relative to their GDP now than they did in the years prior to the East Asian financial crisis in 1997. This is due to the harsh terms of the bailout imposed by the Clinton administration through the I.M.F. As a result of these terms, virtually every country in the developing world in a position to do so began accumulating massive amounts of foreign reserves. This was to avoid ever having to be in the same situation as the East Asian countries and have to rely on the I.M.F. for help.

The result was that instead of being net importers of capital from rich countries and running trade deficits, as standard economic theory would predict, developing countries became large exporters of capital running trade surpluses with rich countries. This was the origin of the "global savings glut" and secular stagnation that many prominent economists have complained about in recent years.

This is all worth mentioning in the context of the rest of Samuelson's piece since he seems obsessed with the idea that we face inadequate supply when the economy's problem is quite obviously one of inadequate demand. In other words, he is recommending that someone on the edge of starvation go on a diet.

His complaint about Hillary Clinton's proposals to expand Social Security and pay for college tuition for poor and middle-class children is that we don't have enough money. The whole story of secular stagnation is that we aren't spending enough money.


He carries this confusion into his self-refuting complaint about the country's problems with demographics:

"One irrefutable sign of this campaign’s unseriousness is the virtual absence of any discussion of America’s aging. In 1960, fewer than 1 in 10 Americans was 65 or older; now it’s 1 in 7, and by 2060, the ratio may be 1 in 4 , says the Population Reference Bureau. This trend is unavoidable, but it is missing in action. How does it affect the economy and politics? How can we prevent spending on the elderly from crowding out other important functions of government, including defense, which is being squeezed in an increasingly dangerous world?"

Okay, so we went from an economy in which 1 in 10 were over age 65 50 years ago to one in which the share is 1 in 7 today, and it will be 1 in 4 in 2060. We went from 1 in 10 to 1 in 7 with no obvious problem. Why are we supposed to think something horrible happens if we go to 1 in 4 in another forty five years? Why would we think there is something problematic about a trend that has been present for centuries?

In terms of the crowding out fears, again we suffer from too little demand, not too much. Economics really is not very hard unless people are determined not to understand it.