This is the Cato Daily Podcast for Friday, April 15th, 2011.

I'm Caleb Brown.

We're supposed to get upset when the trade deficit rises.

After all, its wealth leaving the United States, right?

And so the argument goes, a big trade deficit is a drag on growth.

Dan Griswold, director of the Cato Institute's Center for Trade Policy Studies, and author of the new paper, The Trade Balance Creed,

says those claims about growth and trade deficits have the facts almost exactly backwards.

It's almost like a creed that goes unquestioned. This was just in the Associated Press this week

when the new trade numbers came out. Growth slows when imports outpace exports

because more jobs go to foreign workers. Not

attributed or anything. It's just there. Rising trade deficits are bad for

growth or a drag for growth. In the Keynesian, it's a leakage of demand abroad. And what I've tried to do in this

new Cato paper is challenge that on two grounds, in theory and in practice. And in theory, it doesn't hold up because it's just not true that every

item we import is one less that we make we import lots of stuff that we don't even

make here

uh... imports tend to compliment u.s. of stuff that we don't even make here.

Imports tend to complement U.S. production.

Raw materials, intermediate inputs, machinery come in and actually make us more productive.

But even in the Keynesian framework, when we buy exports, those

dollars don't go abroad and then evaporate or end up in a cookie jar under somebody's

mattress. They flow back.

If they don't flow back to buy U.S. goods and services, well, we run a trade deficit,

...