With the beginning of a new year, and with a bitter campaign season behind us, let's hope politicians and others who shape government policy finally start to focus on those issues that are truly important and relevant to the economic well-being of our country.
During the long and bruising 2004 election, we heard truckloads of rhetoric from candidates in both parties, most of it having to do with terrorism and cultural issues. Terrorism, without a doubt, should be an important issue to each and every one of us. Preventing another terrorist attack certainly is key to insuring a healthy U.S. economy.
The cultural issues, however, are another matter. The pollsters say that a large number of Americans based their vote in 2004 on moral issues or values. That's all very noble, but you might have a difficult time explaining how a particular stand on moral or cultural issues translates into sound economic policy.
One thing is for certain. The United States faces very serious and complex economic problems, and they'll be the inheritance of our children and grandchildren if they aren't addressed.
One such problem is our consistent trade deficit, as examined in a recent paper from Auburn University Agricultural Economist James Novak and his colleague from Oklahoma State University, Larry Sanders.
The trade deficit, say the economists, means that we're taking our dollars and sending them to China, Mexico, Japan and even Canada. Our consistent trade deficit means that we're not getting those dollars back.
“A simple way of explaining trade deficits is that we, as a nation, are cashing in and spending our wealth in other countries,” they say. “It would be similar to you cashing in your IRA's, taking a second mortgage on the house, and spending that money on a Swiss vacation.”
A nation's resources, along with its security, stability and strength of economy determine how wealthy a nation becomes, states the paper, and the United States has been blessed with all of these, resulting in a wealthy nation. “However, since 1976, we've been spending that wealth like there's no tomorrow,” say the economists.
This “splurge,” say Novak and Sanders, has finally reached a point where there's real concern about what's going to be left for our children. Since 1991, we've seen a steady climb in the balance of imports versus exports. In other words, we're buying more foreign goods than we're selling to foreign countries.
“In 1991, we owed foreign countries a little over $31 billion. By 2001, that was close to $363 billion. By 2003, it was $496.5 billion. The good news is that the run-up in deficit trade decreased from August to September. The bad news is that the deficit is still about $50 billion per month,” say the economists.
More bad news, they continue, is the report from USDA that agricultural commodities ran a trade deficit in June and August, the first time since 1986 this has occurred. “We imported more food than we exported. The question is, how can we afford to keep on giving $50 billion per month to foreign countries?”
The answer, of course, is that we can't — we cannot continue along this path and maintain our stability and safety. “Foreigners and citizens alike have been buying U.S. debt, propping up our currency and national accounts. Our penchant for innovation and being a safe and stable economy for investment have made that a pretty safe bet. Stability and safety, however, are dependent on a strong domestic economy,” contend Novak and Sanders.
If the current situation is to be reversed, then we need to “stop buying foreign goods, start selling U.S. goods and saving. Domestic goods might cost a few cents more but will help keep people employed in this country and add to the stability and strength of the U.S. economy,” states the paper.
It has long been suggested, state the economists, that we need to take a longer view, say 40 to 50 years, of where we're going. “Sustainability measures are available to examine the long-term impacts of our programs and policies. Policies must be examined and coordinated to make sure they do not work at cross-purposes. The current emphasis on special interest legislation must be tempered by the longer term realities facing a majority of the people of our country.”
In short, the current situation simply is not sustainable. Let's hope our political leaders recognize this before it's too late.