Dean Baker has an excellent column on fixing the budget deficit.

I believe, however, that he needs to address the balance-of-payments problem, as well. Other nations—China being the most obvious—are maintaining their employment level by running positive balance-of-payments levels. This has also vastly enriched American corporations, who, with the assistance of low foreign wages and a high dollar, are able to manufacture goods overseas cheaply and sell them to Americans extremely profitably. That policy, however, is destroying our middle class and impoverishing almost all of us not in the top 1%.

Baker has written about the overpriced dollar and the so-called “free trade agreements” as part of the problem, but I haven’t read any discussion about how it relates to the domestic budget deficit. If the current account (balance-of-payments) were perfectly balanced, that is, if we were selling goods overseas equal in value to the ones we purchase from overseas, we would have literally millions of additional jobs in this country, many of them in manufacturing, where wages tend to be decent.

With millions more employed, tax revenues would increase and the budget deficit would not seem so overwhelming.

The foreign trade deficit may seem abstract next to the budget deficit, but its effect on Americans is far greater. One of the reasons that stimulative measures have limited value is the tendency of so much of the stimulus to go overseas, since so much of what we buy comes from overseas.

The only reason that the current account deficit hasn’t already been fixed, I suspect, is due to the fact that corporations and individuals who are profiting the most from the current arrangement possess the political power to squelch any ameliorative actions in Congress or the executive branch. Wall Street depends upon a strong dollar to draw investments from overseas. Virtually all major manufacturers have moved their manufacturing facilities overseas, a process that began in the ‘70s, and accelerated when the Reagan administration actively encouraged offshoring.

Michael Moore, in his latest book, “Here Comes Trouble: Stories from My Life” tells of a meeting of manufacturing executives he attended in Acupulco, while posing as a small auto parts maker from Michigan. With the not-so-tacit blessings of Reagan’s Department of Commerce, he heard them planning to move their factories wholesale overseas to avoid paying decent wages and to escape environmental regulation. The executives were assured that the exportation of manufacturing and the jobs they represented had the full support of the Reagan administration.

That process has continued with a vengeance under NAFTA and other trade agreements that make it profitable to export jobs, rather than goods. No president or Congress has attempted to change any of this, which makes me believe that they are actually comfortable with it. Obama has made little noise about the current account deficit. The Republicans seem to have a pathological obsession with the budget deficit, the reduction of which would bring about a sharp recession (as it did in 1937 under Roosevelt), which would, of course, make the deficit even worse.

It’s hard to be hopeful in the middle of such craziness.