- Cafe Hayek - https://cafehayek.com -

Abundance is a Blessing, Not a Curse

Tweet [1]

Here’s a letter to the Washington Post:

Editor:

Robert Samuelson is correct both that Pres. Trump’s understanding of trade deficits is completely flawed and that the U.S. dollar’s role as the major world currency is among the reasons why the U.S. consistently runs trade deficits (“Trump’s no-win trade war [2],” August 13). Yet Mr. Samuelson himself inadvertently fuels a common misunderstanding of U.S. trade deficits – and of trade generally – by favorably quoting C. Fred Bergsten’s claim that we Americans “disadvantage ourselves by running the world’s key currency.”

In fact, the U.S. dollar’s role as the major world currency is a huge advantage for Americans and not a disadvantage. Because non-Americans choose to use dollars as a world currency, they give to us lots of steel, chemicals, automobiles, home appliances, wine, and other valuable goods in exchange for pieces of paper smeared with green ink. And producing these pieces of paper is very inexpensive. To produce a $100 bill costs 12.5 cents [3]. So when we receive $100 worth of real goods in exchange for a one-hundred dollar bill that remains in circulation abroad, we profit by 79,900 percent!

That is, for the paltry 12.5 cents worth of real resources that we use up to produce each C-note that circulates indefinitely as global currency, we receive in exchange a bundle of real goods, services, and resources the value of which is 800 times greater than is the value of the resources that we spent to produce that note. The only deal even better for us Americans would be for foreigners to send to us all that they produce and demand from us in return absolutely nothing.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Comments