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The Irrelevance of Investor Nationality

From the same August 14th Washington Post report that wallowed in gross confusion over the trade deficit:

At some point, economists think, foreigners will not want to continue investing ever-greater amounts of money in U.S. stocks, bonds and other assets.

This concern is peculiar. To see why, suppose that Americans start investing a greater portion of their dollar earnings into dollar-denominated stocks, bonds, and other assets – building more factories, planting more vineyards, training more workers, funding more R&D, and on and on and on. The long-term results of this greater investment are good, for these investments raise worker productivity and increase both the variety and output of goods and services. Our standard of living will increase.

But there’s a downside! Americans might not want (as the Washington Post reporter would say) “to continue investing ever-greater amounts of money in U.S. stocks, bonds and other assets.”

It’s true. Investors whose passports are issued by the government of the United States can – for a wide-variety of reasons ranging from animal spirits to perceived changes in government policies – suddenly reduce the amount of dollars they invest in American assets. Such a reduction in investment would indeed bring down the future productivity of the economy, leading to a lower-than-otherwise material standard of living (assuming that non-Americans don’t take up the investment slack).

The point is this: if market-driven investment is a good thing (as it surely is), then, yes, it’s a trivial fact that a reduction in the amount of this good thing is undesirable.

But it makes no difference who is doing the investing; hence, it makes no difference who stops doing the investing.

If a new factory is built in my town that pays attractive wages, what difference does it – should it – make to me if the dollars used to build that factory are supplied by Americans or by non-Americans? Answer: none.

Investment is investment. Its worthiness has nothing to do with the nationality, language, religious beliefs, sex, sexual inclinations, age, hair color, or shoe size of those doing the investing. What matters is the extent to which investments are driven by market forces – by interest rates and prices that best ensure that the investments actually end up satisfying the maximum possible number of genuine human wants. The nationality of investors is irrelevant.