Imagine I walk across the street and buy a loaf of bread from a baker. I hand money and wanted bread, so I am happy. The baker had bread and wanted money, so he is happy. The world has become a better place with more people having had their more urgent needs satisfied.
This explanation should be identical if the street happens to be, say the U.S.-Canadian border. Alas, it is not. Suddenly macro-economists in both governments either rejoice or grieve, for a trade deficit and a trade surplus of $2.99 has been created.
Of course, this is macro-economic nonsense. It stems from a collection of fallacies, starting with they fallacy that countries trade. They don’t. A country is a collection of people held together at gun point and forced (also at gun point) to pay taxes to the same group of criminals. Countries don’t trade, individuals do.
ECONOMISTS are constantly urging governments to adopt policies that would reduce global imbalances—which, in crude terms, means that China should slash its current-account surplus and America its deficit. Yet they ignore the biggest imbalance of all: the current-account surplus that planet Earth appears to run with extraterrestrials. In theory, countries’ current-account balances should all sum to zero because one country’s export is another’s import. However, if you add up all countries’ reported current-account transactions (exports minus imports of goods and services, net investment income, workers’ remittances and other transfers), the world exported $331 billion more than it imported in 2010, according to the IMF’s World Economic Outlook. The fund forecasts that the global current-account surplus will rise to almost $700 billion by 2014.
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