Here’s a letter that appears in today’s Wall Street Journal:
Prof. Meltzer spells out four persuasive reasons why government spending does not bring economic recovery. To those we might add a fifth. The hoped-for result of stimulus is increased consumer spending. A lot of that spending is for cars, flat-screen television sets and the like, largely imported. The economy we stimulate may not be ours.
S. Paul Posner
This letter is a short yet revealing monument to one of the seemingly indestructible fallacies that fuel protectionism – namely, that when domestic consumers buy imports, the foreign sellers of those imports have no further connection with the domestic economy. It’s the “demand leaks out” fallacy. My rough guess is that 95 of every 100 proponents of restricting domestic consumers’ freedom to buy unimpeded from foreign suppliers believes this fallacy.
The fact that Mr. Posner’s concern is based squarely on a fallacy can be made clear with one simple question: why do non-Americans accept U.S. dollars in exchange for the goods and services that they sell to Americans? What do non-Americans do with the dollars they earn on their exports to America?
Is it really the case that non-Americans are overwhelmingly likely – or are more likely than are Americans producers who sell to other Americans – to hoard dollars? That is, is it very likely that foreigners spend much of their scarce labor, capital, and resources producing valuable things for strangers in the U.S. chiefly for the purpose of accumulating small monochrome portraits of dead American statesmen (or the electronic or digitized versions thereof)?
And – to extend the questioning beyond the specific fallacy that infects Mr. Posner’s letter – is it really true that Americans would be harmed if non-Americans were indeed insistent upon supplying us with valuable goods and services in exchange for nothing, now or in the future, other than small monochrome portraits of dead American statesmen (or the electronic or digitized versions thereof)?
People whose sight-lines of the economy are too narrow to see that dollars spent on imports nearly always return as demand for U.S. exports or as dollars invested in the U.S. – or people who mistake money for wealth, and who (unwittingly) believe that the chief economic problem facing humanity is superabundance of goods, services, and resources – are protectionisms’ legions, from its foot soldiers to its generals.
It is an army armed intellectually only with pathetic little pop-guns, but too often armed on receiving docks at nations’ ports with the force of the state deployed to impose its stupid notions on peaceful people.