Oh Dear! Foreigners Continue to Invest Here!

by Don Boudreaux on August 28, 2004

in Trade

Here’s a letter that I wrote today to the New York Times in response to another reader’s letter on the so-called “twin deficits.”

Perhaps our posterity will look back upon the current fears over the trade deficit with the same puzzlement that we today look back upon past fears of miscegenation, rock ‘n’ roll, and microwave ovens.
…….

28 August 2004

Editor, The New York Times
229 West 43rd St.
New York, NY 10036-3959

Dear Editor:

Reader Robert Lauer calls the U.S. budget deficit and trade deficit “twin 500-pound gorillas” (Letters, August 28th). He’s right to worry about the budget deficit, which reflects the administration’s and Congress’s recklessness. But the trade deficit is no cause for concern. It reflects foreigners’ preference to invest in American assets rather than to cash out all of their dollar holdings immediately for goods and services. This fact means not only that more investment than otherwise takes place in the U.S., but also that more foreigners have real reasons to wish the American economy well.

Your newspaper would help to end this needless fretting by referring not to the “trade deficit” but to the “capital-account surplus.” The two are the same thing, except that the former sounds oh so very ominous.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030

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