 Hi there, my name is Don Boudreau. I'm a professor of economics at George Mason University and a senior fellow at George Mason's Mercatus Center and I'm here today to talk about Adam Smith and his views on trade and the economy. So let's get started. There is no concept in all of economics and all of public policy that is responsible for more mischief than international trade accounting. The most famous element of which is the so-called trade deficit. But mercantilism began, actually when it began it wasn't quite as senseless as it became because when it began it began as basically a way of viewing what happens to the royal household as trade affects it. So countries back in the 15th, 16th, 17th century, countries were pretty much in many cases tied up with royalty. And so the country was considered to be the monarch's domain. And so it's the monarch's household, big extensive household. And so you want to have accounting for how much did the household earn? How much did the household have to spend to get what it earned? A country, however, or what Hayek called a great society, not to be confused with LBJ's great society. A country is not a household. A country doesn't have a budget. The government has a budget. The United States doesn't have a budget. The United States doesn't have income. But we have all these concepts that maybe it appears if we do. So we have national income accounting, the nation's income. This is whatever the value of national income accounting, and maybe some to it, it can be very misleading because it gives the impression that the income that Americans earn as Americans is very much like the income that the Smith household earns or the Jones household earns is just much bigger. And this is a category error. The United States is not one big gigantic household. It's not one big gigantic firm, but it's often spoken of that way. International trade account makes the fallacies even drives a fallacious notion home even further, unfortunately. So to answer the question directly, we would lose nothing, nothing by getting rid of international trade accounting. We'd lose nothing by stopping the gathering of data on what's called the current account or on its sister, the capital of financial account. I would like nothing better for these accounts just to be done away with. They serve no purpose except to stir up frenzy and unnecessary anxiety. If I could right now, with the stroke of a pen, get rid of international trade accounting, I would do it. It serves no purpose. The numbers as far as I can tell are meaningless, they're economically meaningless, but they are very effective, very useful if you're a demagogue wanting to drum up support for your protectionist policy. So the United States trying to trade deficits sounds bad. Most people don't know what trade deficits are. When I teach trade to my undergraduates, I asked them when I get to this part of the course. You've all heard of the trade deficit. How many of you would be brave enough to stand up publicly and define it? And every now and then a student is brave enough, raises his or her hand. And most students get it wrong. Sometimes they get it kind of right. They say, oh, the trade deficit is when we import more than we export. And that's a pretty good start. But when you inquire, so why would we import more than we export? Why would foreigners want to sell us more than we are selling to them? Why would foreigners want to ship more goods to us than we're shipping to them? Are they just generous? Do they love us? Do foreigners feel sorry for Americans? And they think we Americans aren't rich enough so they have to send us goods and services free? And of course, that's a ridiculous thing. Or do foreigners or foreigners so fond of dead American statesmen that they just can't get enough little monochrome portraits of them? Of George Washington, Alexander Hamilton, who's very popular now, of Andrew Jackson, Benjamin Franklin. Do they just want to accumulate these pieces of paper? Of course not. Foreigners went to the extent that they don't spend their dollars buying our exports, which is to say to the extent that foreigners contribute to an American trade deficit. That means foreigners are investing here. They're choosing to invest in the United States. And what's wrong with that? That seems to be pretty good. You can tell stories, of course. You can always tell theoretical stories about how a trade deficit might be a symptom of something going wrong in the American economy. Of course. But when you look at the actual reasons why the United States runs a trade deficit, you look at the actual consequences of America running a trade deficit. And what you find is that America runs a trade deficit because, at least compared to other countries, the United States continues to be an especially attractive place to invest. I applaud it when my neighbor across the street saves more and invests. That means that I'm living in an economy with more capital and worker productivity rising. We're getting new goods and services made possible by that investment. If I applaud when my neighbor across the street does it, why should I not applaud when my neighbor across the Great Lakes in Canada does it? Or my neighbor across the ocean, the Atlantic Ocean in Europe does it? Or my neighbor across the Pacific Ocean in China does it? That's capital coming into the United States. It makes us richer. It makes us much more prosperous than we would otherwise be. So I just don't get the fear of the trade deficit, but I've lived long enough to know that it is a source of fear, fear born of deep misunderstanding and that politicians never hesitate to demagogue the issue to drum up support for their protectionist policies.