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Article Artículo

Unemployment and the Trade Deficit: It Really Isn't That Complicated

For some reason, there seems to be a big market in efforts to confuse the public about the relationship between unemployment and the trade deficit. Robert Samuelson gives us yet another example in his column today.

"By now, it must be obvious that US trade deficits are connected loosely, if at all, with the unemployment rate, which is now 3.9 percent — the lowest since 2000. Meanwhile, the US trade deficit in 2017 was $566 billion.

"The explanation for the apparent paradox is the dollar’s role as the major international currency, used to conduct trade and investment among many (non-US) countries. The extra demand for dollars raises its exchange rate, making U.S. exports costlier and imports cheaper. The result is a structural U.S. trade deficit."

This one makes pretty much zero sense. First of all, pointing to the low unemployment rate coinciding with a large trade deficit as evidence there is no link between unemployment and a trade deficit makes as much sense as pointing to a very underweight person suffering from the late stage cancer as an argument against any link between being seriously overweight and bad health.

This isn not a serious argument. A trade deficit reduces demand in the economy. It means that some of our spending is creating demand in Europe or Mexico, rather than in the United States. Other things equal, that means less demand in the United States and higher unemployment.

We can offset this lost demand with additional demand in the United States. We can have large budget deficits, as we do now. And we can have bubbles as we did in the late 1990s with the stock bubble and in the last decade with the housing bubble. That is why we can have a large trade deficit and low unemployment. It really is not hard.

CEPR / May 28, 2018

Article Artículo

Elon Musk Wants Lots of Money for Running Tesla
Roger Lowenstein had a column in the Washington Post criticizing Elon Musk for his new contract as Tesla's CEO that could net him $50 billion. I see the story somewhat differently. Lowenstein essentially is blaming Musk for being incredibly greedy and not

CEPR / May 27, 2018