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Saturday, February 11, 2017

Arguments, Facts and Honesty

I happened to hear a bit of the Larry Kudlow radio show today.  Kudlow's guest was an economist from the Cato Institute who Kudlow described as both his mentor and an eminent authority on the economy.  They started discussing the American trade deficit and its impact on our economy.  At that point, the eminent economist announced that the trade deficit had gone into a trade surplus when services as well as goods were considered and also that these surpluses  corresponded to times of recession.  That sounded strange to me, so I checked it out when I got home.  The reality is that the so called eminent economist was wrong.  According to the official figures of the Census Bureau, during the last forty years, the USA has always had a trade deficit even when services were included.  When we had the severe recession in 2008-9, the worst during that period, we had a huge trade deficit.  Since the "expert" from the Cato Institute must know this data, I have to wonder why he was misstating it.

Next Kudlow commented on the trade deficit.  He pointed out that imports are subtracted in coming up with the gross domestic product, and that is why some people think that the level of imports is a key statistic.  That too was way off base.  Kudlow knows that GDP is a measure of domestic production.  Imports are produced in other countries, so they don't add to GDP.  He also knows that the reason that imports are subtracted in the calculation is that the calculation starts by including consumption.  Consumption is the total amount of goods and services that the American public consumes; that includes both domestically produced items as well as imports.  In other words, the imports are first included as part of consumption and then taken out again to get the actual GDP.  It's just math.  It's not meaningful in the way Kudlow suggested.

These are two guys who are supposed to know a great deal about economics and the US economy.  It was surprising to see them get this so wrong.

1 comment:

fastcarken said...

Trump Organization could have chose Kudlow to be an advisor or part of the team.
They did their homework, Kudlow is of NO USE to this administration.