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Shameless Self-Promotion

My latest column at AIER is on what Richard Epstein accurately calls Elizabeth Warren’s “surreptitious socialism.” A slice:

Sen. Warren is also disturbingly naïve about the reality of legal processes. Nowhere is this naïvete more evident than in her silence on just what are the “stakeholder interests” she wants corporations to consider. It’s easy to say “stakeholder interests.” But unlike one’s status as a shareholder, which is clear and objective, one’s status as a stakeholder is hazy and subjective.

Because in a modern economy the actions of each economic entity ripple out to affect countless other entities and persons in many and varied ways, it is nearly impossible to find individuals who are not at least potentially affected by even the most mundane action of a business firm. The resulting imprecision in identifying stakeholders means that an individual who is regarded by Bureaucrat Bob and Judge Jones as a stakeholder (and hence statutorily entitled to have her interests served by private companies) is all too likely to be regarded by Bureaucrat Betty and Judge Smith as not a stakeholder.

And so it is fair to ask: other than workers, who, exactly, are the stakeholders Sen. Warren has in mind? Do they include all citizens of the state in which a corporation is headquartered? Do they include the children and grandchildren of companies’ employees? Do they include each company’s competitors? Sen. Warren doesn’t say.

And in this essay at MarketWatch – my first there – I attempt to debunk the most popular myths about imports and trade deficits. A slice:

As with imports and jobs, the empirical record on trade deficits and jobs refutes the contention that trade deficits reduce overall employment. Overall employment in the U.S. is unaffected by U.S. trade deficits.

The reason trade deficits don’t reduce overall employment is that, in fact, trade deficits are not really deficits at all. Every cent that does not return to the U.S. as demand for American exports returns instead as investment in America. In economists’ lingo: the trade deficit (or, to be precise, the current-account deficit) is matched by a capital-account surplus of equal size.

And of course investments in the U.S. by non-Americans create jobs here no less than do investments in the U.S. by Americans. If we applaud our neighbor next door for reducing his consumption in order to invest in a new furniture store in our town, we should applaud our neighbors in Sweden for reducing their consumption in order to invest in a new Ikea store in our town.

To recognize that a U.S. trade deficit is simply another name for “U.S. capital-account surplus” is to recognize that a trade deficit is almost certainly nothing to lament. Why should we be upset if foreigners continue to think highly enough of our economy to want to invest here?

Nor is a trade deficit anything to fear. Because increased receipts of investment funds — in capital — promotes economic growth in places where these investments occur, a rising U.S. trade deficit means that the U.S. economy is getting an even larger infusion of capital from abroad. We Americans should applaud this fact rather than snarl, boo, and hiss at it.


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