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Imbalanced Thinking

Here’s a letter that I sent yesterday to the San Francisco Examiner:

You mistakenly describe the U.S. trade deficit as an “imbalance” (“US trade deficit narrows unexpectedly in August; exports up, imports fall on lower oil demand,” Oct. 9).

Americans buy $100 worth of goods from foreigners; foreigners buy $70 worth of goods from Americans.  Foreigners either hold the remaining $30 or invest it in dollar-denominated assets.  Where’s the imbalance?

Would the U.S. economy be better off if foreigners spent the entire $100 buying American goods and services – and, hence, if foreigners refused to save and invest here?  If so, is the key to even greater American prosperity for Americans each to rush to the mall every payday and spend every cent of their paychecks?  If you see that prosperity would be compromised if dollar-earners holding U.S.-issued passports were so profligate, why do you suggest that prosperity would be promoted if dollar-earners holding non-U.S.-issued passports were equally profligate?

Donald J. Boudreaux