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Open Letter to Lael Brainard

Ms. Lael Brainard
Director, National Economic Council

Ms. Brainard:

In a May 16th speech you said that “China is using the same playbook it has before to power its own growth by investing in significant industrial overcapacity and flooding global markets with artificially cheap exports.”

With all due respect, you speak economic gobbledygook.

If Apple, Toyota, or Aunt Milly’s Pastry Shoppe ‘invests’ in overcapacity – that is, builds beyond what it can pay for with revenues earned on the additional sales – we recognize that these companies suffer losses while their customers enjoy windfall bargains. Such overbuilding weakens, not strengthens, these companies. So can you explain how overbuilding is a means for an entire economy “to power its own growth”? If one company’s operation with excess capacity causes that company’s profits and profitability to fall – as, of course, it must – by what voodoo does a government that compels many companies simultaneously to operate with excess capacity cause that economy’s profits and profitability to rise?

Because governments excel at pursuing foolhardy economic policies, there’s little doubt that Pres. Xi and his henchmen are arranging for firms throughout China to operate with excess capacity. But the victims of this forced overcapacity are, overwhelmingly, the Chinese people. We Americans are harmed by Beijing’s imprudence only insofar as this overbuilding will result in Chinese producers being rendered in the future less able to profitably export to America.

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

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