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Open Letter to Jeremy Warner

Mr Jeremy Warner
London Daily Telegraph

Dear Mr Warner:

Your criticisms of Paul Krugman’s recent embrace of protectionism are eloquent (“Paul Krugman, the Nobel prize winner who threatens the world,” March 19).

But I pick one nit: you write as if the alleged trade imbalances between the U.S. and China are real.  They are not.  The Chinese sell Americans goods; we pay with dollars; the Chinese then use many of these dollars to buy IOUs issued by Uncle Sam.  Although the result is a measured U.S. current-account deficit with China, there’s no more any economically meaningful “imbalance” in such a result than there would be if, say, Texans lent a lot more of their dollars to Uncle Sam.

Talk of imbalances in trade diverts attention from the real problem: Uncle Sam’s gargantuan debt.  That fast-accumulating debt is a huge problem.  It is caused, though, not by trade with China but, rather, by Washington’s lack of fiscal discipline.  Unless you believe that protectionism (and only protectionism) would induce Congress to be more fiscally disciplined, you should avoid all talk of imbalances in trade and instead talk of imbalances in political institutions that encourage politicians to give disproportionate weight to the demands of current voters and to ignore the resulting ill-consequences that will curse future generations.

Donald J. Boudreaux