GDP Is Wrong and Trade Deficits Are Good
Imagine that in 2016 one particular firm produced $347 billion worth of goods for the US economy. By using advanced technology, this firm was able operate using exactly zero labor. This hypothetical firm would have contributed $347 billion to our GDP. That's no small chunk of change.
Let's call this firm "China."
Oops. Now, because China is technically a country rather than a firm, its product is no longer contributing* to US GDP. Our GDP dropped by $347 billion just because we named something differently.
GDP is wrong.
What should we do about it? Should we start treating productive and efficient firms the way we now treat foreign countries who sell us cheap goods? Of course not. But it's exactly what Bill Gates would have us do. He wants to "tax the robots":
What this amounts to is a punishment for firms who use resources more efficiently. I'm pretty sure that's the opposite of what we want.
GDP is supposed to be a measure of "economic output." What we really want to know is how much stuff the economy is producing for the benefit of ordinary people. Instead of treating efficient firms as if they were foreign countries, why not treat foreign countries as if they were firms?
When we have a trade deficit, it means we're importing more stuff than we're exporting. We're getting more stuff than we're giving. The amount of our stuff that China produces is greater than the amount of our resources it uses up. Just as with any firm, shouldn't that count toward our economic output?
Trade deficits can be scary because whenever we get stuff, we send money in return. Back when gold was our money, this was a real problem. Our country could run out of gold. But United States dollar is a fiat currency. We can never run out because we can always print more.
As long as it works, why shouldn't we print money and use it to buy cheap stuff from China? If they respond by raising prices, then we can start producing things domestically. But if imports are cheap, there's no good reason for us not to take advantage.
Trade deficits can also be scary because they can mean fewer jobs and/or lower wages for Americans. But, as I outlined in my previous post, we need to get over our obsession with labor.
If you already read that post, you watched a video warning everybody that robots are coming to take all our jobs. But people have been predicting that kind of thing for centuries and it never seems to happen. Is this time really different?
Probably not. Neither robots nor China will ever take our jobs so long as economic policy continues to compensate for the efficiency they offer.
Note: The original version of this post said that China subtracted $347 billion from US GDP. This is incorrect. Its product merely fails to contribute to GDP. So we subtract $347 billion from the original GDP amount, not $694 billion.