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Comment by seanhunter | Hacker News Reader

The whole idea of balanced trade makes no sense at all.

Take New Zealand as an example. Last year the major import from NZ to the US was wine.

The major export from US to NZ was military hardware.

Now. Why should the dollar quantity of wine you buy from someone equal the dollar quantity of military hardware you sell them?

There really is no reason at all that the bilateral trade between countries should be balanced and therefore it's not reasonable to think that the aggregate trade with all countries should be balanced or that it would be more desirable if that were the case.

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Isn’t the bigger problem that the US has a population of 340 million, New Zealand has a population of 5 million?

But that's no excuse. Those goddam kiwis have to buy more fighter jets or we stop buying their wine.

You're right of course.

You misunderstood: balanced trade is about the sum across all countries, not necessarily between any two countries. There can be a trade imbalance between NZ and the US without an overall trade deficit in either country. The point is, that NZ might sell wine and buy fighter jets, but they have to sell enough wine to the rest of the world to pay for the fighter jets, then their trade is balanced. There’s no problem if they have an imbalance of trade with the US as long as it’s balanced overall.

I didn't misunderstand at all. There is no reason to expect bilateral trade to be balanced and thus there is no reason to expect the aggregate of a large number of bilateral trade relationships to be balanced.

"Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. " Adam Smith, "Wealth of Nations"

The problem with trade deficits is that you eventually run out of money. It’s basic math. In what universe can you just keep spending more than your earn?

Why do you run out of money in a trade deficit? Your entire economy isn’t just import and export. You have a domestic economy and a services economy as well. Perhaps you don’t think Adam Smith could do basic math.

Domestic production of things that (usually services) continues to grow the money supply

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