Here’s a letter to the Wall Street Journal.
Editor:
Asked what capitalism will look like in 2075, Oren Cass recites his familiar and internally inconsistent catalog of economic fallacies (“What Will U.S. Capitalism Look Like in 50 Years? Seven Experts Weigh In,” September 21). Clearly referring to the U.S., he alleges, for example, that “the highest returns on investment come from offshoring,” thus causing capital to flee the U.S. Yet he also repeats his complaint that U.S. trade isn’t “balanced” – that is, that the U.S. consistently runs annual trade deficits.
Mr. Cass needs to take a course in basic economics. He’d learn that a country runs trade deficits whenever it receives net inflows of capital. Because capital does indeed flow to where risk-adjusted rates of returns are highest, the continuing net inflow of global capital to the U.S. – that is, America’s consistent run of trade deficits – disproves his claim that investors are fleeing the U.S. for other countries.
And he can’t salvage his case by asserting that the investments made in the U.S. are largely in ‘unproductive’ financial instruments: The U.S. receives far more inward foreign direct investment than does any other country.
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
