Hi Answerguru,

  Macroeconomics presents many puzzles.  Could you briefly explain/
resolve the following statement?

"After many years of trade surpluses, the U.S. current account dropped into
persistent deficit beginning in the early 1980's."

Thanks!
Pearl

Dear Pearl:

You asked for an explanation of the statement, "After many years of
trade surpluses. the U.S. current account dropped into persistent
deficit beginning in the early 1980's."

To understand what this statement is saying, we will need to know the
meaning of a trade surplus and deficit. From what I remember of
economics, a trade SURPLUS is when a country EXPORTS MORE than it
IMPORTS. That is, a country sells more (in terms of dollar value) of
its own goods to other countries than it buys from other countries.
The "current account" is simply the net exports of the country
subtracted by the net imports of the country.

So, what the statement is saying is that prior to 1980, the United
States have had "many years" of selling more of its own goods than it
buys from others. Yet beginning in the early 1980's, it began buying
more goods from other countries than it sold.

Are trade deficits good or bad? That is a complicated question. It
really depends. If you would like read more about trade surpluses and
deficits, there is an excellent primer on trade deficits and surpluses
at the polyconomics.com website. I have linked to the article at hand
below:
http://www.polyconomics.com/searchbase/les10.html


Search Strategy:

    trade surplus deficit
    ://www.google.com/search?hl=en&q=trade+surpluses+deficits

    united states "current account"
    ://www.google.com/search?hl=en&q=++united+states+%22current+account%22&btnG=Google+Search


I hope this answers your question. If you need any additional
clarification, I would be more than happy to assist you further.

Best Regards,
blader-ga

Note: the currency tends to become weaker if you have a trade deficit,
unless capital inflows cover the deficit. In the US case, capital
flows more than cover the deficit. In fact, having near-zero
restrictions on inward capital flows (foerign direct investment and
institutional investment) in every country that tried it has been met
by constantly increasing capital flows, allowing the currency to rise,
imports to become cheaper and cheaper, and financing a trade deficit.

Of course, it can reverse, but only if all the countries from where
you import become inherently richer (and more expensive) so production
tasks move back into the country. In all probablility, if that trend
ever starts, the US would use robotics rather than manual labor to do
production, so it will not mean manufacturing jobs coming back. Jobs
in the future will be more in services including marketing, branding,
selling, financial services, travel, entertainment, journalism, etc.
Production has become inherently less valuable than the services and
branding around the product (e.g. shoes that Chinese companies
manufacture for $2 sell for $100 in the US).

I have a book available on Amazon which gives a clear picture of
macro-economics for a lay person, with a vision of the possible
future. It is not a traditional explanation, but prominent economists
have been unable to refute my theory. The book is called "Zen and the
Art of Funk Capitalism".

-kp