Washington Times Letter: A U.S. Trade Deficit Means that Capital is Flowing INTO the U.S.

by Don Boudreaux on April 24, 2018

in Archived writings, Myths and Fallacies, Trade

In this May 15th, 2004, letter in the Washington Times I continued to defend free trade against Paul Craig Roberts’s attack on this policy.

Several wrongheaded assumptions underlie Paul Craig Roberts’ near-neurotic fear that the United States is becoming a Third World economy (“Economic bouquets … and barbs,” Commentary, Wednesday). Perhaps most wrongheaded is his assumption that the world’s stock of capital – machines, factories, research and development laboratories – is fixed. That Mr. Roberts makes this assumption is evidenced by his worry that capital invested abroad means less investment at home.

For America to become a Third World country, not only would capital have to flee the United States, but new investment here would have to dry up.

America’s record capital-account surplus suggests that such drying up isn’t happening. More fundamentally, as long as America retains the rule of law, stable money, secure private property rights and other institutions that investors find attractive, there is no reason to believe the U.S. economy will suffer a shortage of capital.

DONALD J. BOUDREAUX
Chairman, Department of Economics
George Mason University
Fairfax

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