False Logic

Simply put, the lassie-faire idea that trade deficits don’t matter in the long run and that unrestricted-trade benefits all parties, proved unequivocally false, especially in the US. Economists, fearing for their jobs and reputations remain silent. Economists point to accounting that equates all trade deficits to investment and government revenue neglecting to mention that the investment and government revenue remains foreign owned. There is some and currently diminishing, DFI, direct foreign investment back into the US that benefits investment bankers politicians and multinationals, but provides little or no return of liquidity to the buy side of our consumer market – a half truth in support of a falsehood.  

In a global sense the accounting equation may be true but not for all nations. For some it’s colonialism, for the US especially, we subsidize other countries while ignoring our loss of jobs, loss of wealth and increased poverty. 

S+(m-x) = I+(G-T), where S - domestic savings, m - imports, x - exports, I - investments, G - government spending, T - treasury revenue 

The less we have to do with deficit trade, China or others, the less the drain and thus the greater the liquidity in our own markets. The improvement in job numbers and the wage numbers seen over the last two years, offer some objective proof that trade renegotiation is not the end of the world.

This imbedded fallacy in economic teaching, political correctness and near hysteria, however, threatens yet a further push to continue doing the same failed deficit trade. Conventional wisdom suggests the so-called trade war with China threatens the economy, and our companies who export, yet we seem to be seeing just the opposite. However, politicians continue to point out the profit in the banking, multinational and investment community that benefits from secondary DFI in America.

In reality, the trade war and or tariffs, provided they end the deficit, create a mega shift in liquidity, or call it flow of capital, away from China and others back into the buy side of our economy. This favorable macro shift in liquidity takes from the 1% and benefits the other 99% of us -- a transfer of wealth from capital markets to the buy side of the economy – a recapture of lost capital and a much-needed redistribution of wealth. 

That macro shift in capital created by blocking China’s aggressive asymmetric trade policies does more than just stopping the drain, it provides turnover of this added liquidity, which multiplies within our economy to drive a productivity multiple times greater than just the dollars saved – the multiple within the GDP. Furthermore, with increased confidence and energy that multiple should increase as well. With such a shift in liquidity comes rapid disruptive growth in manufacturing and technology; that’s the strength of America’s competitive economic power.

While political economists continue to support a half-truth in support of a false-one in a politically correct deductive reasoning, historical economists point out the failures in objective historical terms -- inductive reasoning. The same failure of the Industrial Revolution 200 years ago, resulted in massive poverty. Adam Smith expressed these same reservations. Thomas Paine and two generations of Toynbee’s described the same exploitation by an aristocracy and unregulated new industrial class plundering and hoarding an unsustainable concentration of wealth.

Aristotle named thirteen forms of false logic, this one included, in which a half-truth supports a false conclusion. When have you ever believed everything your teachers taught you?