IF SCARCE RESOURCES MATTERED THE MIDDLE EAST WOULDN'T BE BACKWARDS:

Trade deficit shows U.S. economic strength (Thomas Bray, 7/10/05, The Detroit News)

"The more important difference from Japan's investment," Krugman hastened to add, "is that China, unlike Japan, really does seem to be emerging as America's strategic rival and a competitor for scarce resources - which makes last week's other big Chinese offer (China also made a bid for Maytag) more than just a business proposition."

But that's the sort of badly dated analysis you might have heard more than a century ago, when Germany, England and France were racing to lock up colonial possessions on the theory that victory would go to the empire with the most "scarce resources." As an economic historian like Krugman ought to know, the race doesn't go to the country with the most resources.

The race goes to the country with the best system for unlocking the unlimited resource of its citizens' ingenuity. And that's still, by all accounts, the United States.

But aren't U.S. trade deficits a cause for concern in themselves, a sign of growing financial weakness and vulnerability? Well, they certainly might be - if the U.S. economy weren't growing at a solid pace and unemployment weren't down nearly everywhere except Michigan.

The trade deficit mainly exists because most of the rest of the world finds safety in the dollar. They ship us goods; we ship them scraps of paper called dollars. Who's the loser here?

Krugman?

Posted by Orrin Judd at July 10, 2005 11:07 PM