Here’s a letter to the Baltimore Sun:
Where to begin to address the Everest of errors that is Peter Morici’s argument that the U.S. trade deficit plays a large role in keeping the U.S. unemployment rate high (“China currency bill: America fights back,” Oct. 11)?
One could note that Prof. Morici seems inexcusably unaware that, save for the relatively few dollars hoarded by foreigners, every dollar in the U.S. trade deficit in fact does return as demand for U.S. output. Dollars that foreigners don’t spend buying U.S. exports are dollars that foreigners invest in America. That each of these dollars – returning on the capital-account instead of on the current-account (and, therefore, creating a “trade deficit”) – returns as demand expressed through investments rather than as demand for U.S. exports is irrelevant, as least as far as effects on employment go. Even dollars that foreigners invest in U.S Treasuries are spent by Uncle Sam and, hence, become active demand that Prof. Morici inexplicably insists is destroyed.
Or one could look at relevant data, as economist Dan Griswold does. From a study published earlier this year, Mr. Griswold concludes that “since 1980, the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting. Stock market appreciation, manufacturing output, and job growth were all significantly more robust during periods of expanding imports and trade deficits.”
Donald J. Boudreaux
UPDATE: See also Frank Stephenson’s response to Morici’s truly dreadful op-ed.