But So Many Media Darlings Say It Ain’t So!

by Don Boudreaux on June 15, 2012

in Balance of Payments, Seen and Unseen, Trade

Here’s a letter to the Wall Street Journal:

In today’s report entitled “Foreign Investment Surges,” there’s a line that should be quoted on each of the gazillion occasions when grandstanding politicians such as Lindsey Graham, bloviating (and hypocritical) buffoons such as Donald Trump, proud yet utterly misinformed protectionists such as Ian Fletcher, and populist economists such as the ubiquitous Peter Morici bemoan the U.S. trade deficit as being a drag on the U.S. economy in general, and on job creation in particular: “The pickup in foreign direct investment in the U.S. has boosted stock prices and employment in the manufacturing sector, a cornerstone of the recovery.”

Because increased foreign investment in the U.S. requires that foreigners spend a smaller portion of their dollars on buying American exports, a rise in foreign direct investment in the U.S. necessarily increases the U.S. trade deficit (or reduces the U.S. trade surplus).  As your report makes clear, however, such foreign investment is a boon to the U.S. economy and is no drain on jobs here.

Alas, you can be sure that this fact will be ignored the next time – which I guarantee will be soon – some politician or pundit takes to the airwaves to “explain” that America’s trade deficit is a symptom and source of U.S. economic decline or of foreign-government perniciousness (or both).

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

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