Managing to Screw-Up Trade

by Don Boudreaux on October 26, 2010

in Balance of Payments, Myths and Fallacies, Trade

Here’s a letter to the New York Times:

You open a report today with this line: “The Obama administration on Friday urged the world’s biggest economies to set a numerical limit on their trade imbalances” (“U.S. Proposes Benchmark for Limiting Trade Imbalances,” Oct. 22).

Because the concern here obviously is with the U.S current-account deficit – and because a U.S. current-account deficit is simply another name for a U.S. capital-account surplus (that is, a net inflow of capital into the U.S.) – we can translate the opening line of your report to make it more meaningful: “The Obama administration on Friday urged the world’s biggest economies to set a numerical limit on the amounts that their citizens invest in the U.S. economy.”

I await the White House’s explanation for how limitations on investments in the American economy promote Americans’ economic well-being.

Sincerely,
Donald J. Boudreaux

John Cochrane, in today’s Wall Street Journal, offers a different but complementary criticism of this very, very bad White House proposal.

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