Flawed Thinking About the Imbalance of Trade

Today in his syndicated op-ed column, Walter E. Williams argues that there is no trade deficit.

Williams wrote:

"When I spend $100 at the grocery, my capital account (money) goes down by $100, but my goods account (groceries) increases by $100. My grocer’s goods account decreases by $100, while his capital account increases by $100."

But this is not true of consumer purchases in general, and much of what we Americans buy from abroad are consumer purchases.

With consumer purchases, when you spend $100 you get an item that is worth LESS than $100, that you cannot resell for the same amount that you paid for it, even if it is in excellent condition, because it is now used.    So your $100 buys consumer stuff you can immediately resell for $80-95.

When Sony -- to use Williams' example -- buys American stock or American real estate, they are getting an item that may well GAIN in value, not instantly depreciate. 

And so we are like the Indians who sold the Island of Manahatta for $20 in trinkets:  exchanging guns for glitter;  trading what is genuinely valuable away for junk that gives us brief pleasure but has little other value; or, to look at it another way, buying the contents of next year's Goodwill donation or garage sale. 

And so-- we constantly impoverish ourselves, getting the worse of each consumer purchase, because we have an consumption-based economy.   Williams may be a good bookkeeper, but he is not an economist.