≡ Menu

Super-Deficient Thinking

Here’s a letter the New York Times:


Oren Cass rightly applauds the value of work (“The Communal Power of a Real Job,” August 4). But his ignorance of economics runs so deeply that informed readers are justified in dismissing all that he writes.

Mr. Cass’s most egregious – although not lone – error occurs when he writes that “huge trade deficits represent supplies of foreign workers entering the United States market from afar with no commensurate rise in foreign demand for what American workers produce.”

First, contrary to Mr. Cass’s singular suggestion, trade deficits have nothing whatsoever to do with immigration. Instead, a country runs trade deficits when the value of goods and services imported by that country’s residents exceeds the value of goods and services that they export.

Second, U.S. trade deficits do not necessarily reduce foreign demand for what American workers produce. If Swedes invest $10M of their export earnings in the building of an Ikea store in Albany, the U.S. trade deficit thereby increases by $10M, but Ikea’s investment of these funds in America represents foreign demand for what is produced by American carpenters, welders, plumbers, electricians, truck drivers, and other workers used to construct the store.

More fundamentally, even to the extent that U.S. trade deficits do reduce foreign demand for what American workers produce, these deficits do not reduce overall demand for these outputs. If the Chinese lend $50M of their export earnings to the U.S. government – thus causing the U.S. trade deficit to be $50M more than otherwise – Washington’s spending of this $50M represents demand for American outputs no less than if the Chinese had instead spent this sum on American exports.

Unless and until Mr. Cass gets his economics straight, knowledgeable readers will ignore his entire message.

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