- Cafe Hayek - http://cafehayek.com -

Ptolemaic Economics

Posted By Don Boudreaux On September 29, 2011 @ 9:47 pm In Balance of Payments,Myths and Fallacies,Seen and Unseen,Trade | Comments Disabled

Here’s a letter to the New York Times:

C. Fred Bergsten claims that eliminating America’s trade deficit is a costless way to boost employment in America (“An Overlooked Way to Create Jobs [1],” Sept. 29).  He’s mistaken.  Among his several errors is his illegitimate assumption that all dollars that foreigners don’t spend on American exports remain idle, effectively withdrawn from circulation.

Consider two cases.  First, Americans buy $1 million worth of textile imports from the Chinese who then buy $1 million worth of pharmaceutical exports from Americans.  The result: balanced trade.

Second case: Americans buy $1 million worth of textile imports from the Chinese who then buy $1 million worth of land in Texas.  The American seller of the land immediately spends this $1 million on American-made pharmaceuticals.  (Perhaps the Texan is opening a pharmacy.)  The result: a $1 million U.S. trade deficit.

In both cases, Americans producers sell an additional $1 million worth of output as a consequence of Americans importing $1 million worth of goods.  So – although America runs a trade deficit only in the second case – the employment effects in both cases are identical.

Such an example, being entirely plausible, is sufficient to prove the absence of any necessary negative connection between trade deficits and employment [2].

Sincerely,
Donald J. Boudreaux

Be Sociable, Share!
  • [3]
  • [4]
  • [5]
  • [6]
  • [7]

Comments

comments


Article printed from Cafe Hayek: http://cafehayek.com

URL to article: http://cafehayek.com/2011/09/ptolemaic-economics.html

URLs in this post:

[1] An Overlooked Way to Create Jobs: http://www.nytimes.com/2011/09/29/opinion/an-overlooked-way-to-create-jobs.html?_r=1&ref=opinion

[2] the absence of any necessary negative connection between trade deficits and employment: http://www.cato.org/pub_display.php?pub_id=13197

[3]

  • : http://twitter.com/intent/tweet?text=Ptolemaic%20Economics%20-%20http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html%20

    [4]

  • : https://mail.google.com/mail/?view=cm&fs=1&to&su=Ptolemaic%20Economics&body=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&ui=2&tf=1&shva=1

    [5]

  • : http://www.stumbleupon.com/submit?url=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&title=Ptolemaic%20Economics

    [6]

  • : http://www.google.com/reader/link?url=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&title=Ptolemaic%20Economics&srcURL=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&srcTitle=Cafe+Hayek+where+orders+emerge

    [7] Image: http://www.blinklist.com/index.php?Action=Blink/addblink.php&Url=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&Title=Ptolemaic%20Economics

    [8]

  • : http://www.myspace.com/Modules/PostTo/Pages/?u=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&t=Ptolemaic%20Economics

    [9]

  • : http://reddit.com/submit?url=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&title=Ptolemaic%20Economics

    [10]

  • : http://news.ycombinator.com/submitlink?u=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html&t=Ptolemaic%20Economics

    [11]

  • : http://sphinn.com/index.php?c=post&m=submit&link=http%3A%2F%2Fcafehayek.com%2F2011%2F09%2Fptolemaic-economics.html

    [12] Tweet: https://twitter.com/share

  • Copyright © 2011 CafeHayek.com. All rights reserved.