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

Posted By Don Boudreaux On June 15, 2012 @ 9:22 am In Balance of Payments,Seen and Unseen,Trade | Comments Disabled

Here’s a letter to the Wall Street Journal:

In today’s report entitled “Foreign Investment Surges [1],” there’s a line that should be quoted on each of the gazillion occasions when grandstanding politicians such as Lindsey Graham [2], bloviating (and hypocritical [3]) buffoons such as Donald Trump [4], proud yet utterly misinformed protectionists such as Ian Fletcher [5], and populist economists such as the ubiquitous Peter Morici bemoan the U.S. trade deficit as being a drag on the U.S. economy [6] 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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URLs in this post:

[1] Foreign Investment Surges: http://online.wsj.com/article/SB10001424052702303410404577466692621011900.html?mod=WSJ_hp_LEFTWhatsNewsCollection

[2] Lindsey Graham: http://www.nytimes.com/2012/05/02/business/economy/chinas-vanishing-trade-imbalance.html?ref=business

[3] hypocritical: http://cafehayek.com/2012/05/trumped.html

[4] Donald Trump: http://www.issues2000.org/2012/Donald_Trump_Free_Trade.htm

[5] Ian Fletcher: http://www.huffingtonpost.com/ian-fletcher/why-donald-trump-is-right_b_851305.html

[6] Peter Morici bemoan the U.S. trade deficit as being a drag on the U.S. economy: http://www.finfacts.ie/irishfinancenews/article_1024462.shtml

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