Thursday, January 04, 2007

Boudreau's Letter to Lou Dobbs, a Mercantile Warrior

Don Boudreau sends a timely and, as usual, a punchy letter to Lou Dobbs, the Editor of the Christian Science Monitor, who berates America for ‘being in debt’ to foreigners. Boudreau is having none of this and exposes the weakness of the old Mercantile line that so-called trade deficits are injurious of a country’s economic health.

Under the heading, “America's trade deficit is evidence of its economic vigor and promise, not a cause for concern”, Boudreau clearly states the economics of trade and links his views to Adam Smith, who argued much the same, and in similar tones, about those who believed a country should (must) always have a trade surplus, otherwise it was doomed.

A short extract from Don Boudreau's letter in the Cafe Hayek Blog to Lou Dobbs follows:

“Dear Mr. Dobbs.

Remember: A trade deficit is not synonymous with debt.

I'm writing this letter on a new Sony computer that I bought with cash. I owe Sony nothing. If Sony holds the dollars it earned from this sale, or if it uses these dollars to buy stock in General Electric or land in Arizona - that is, as long as Sony invests its dollars in America in ways other than lending it to Americans - the US trade deficit rises without raising Americans' indebtedness.

Americans go more deeply into debt to foreigners only when Americans borrow money from foreigners. Uncle Sam, of course, borrows a lot of money, from both Americans and from non-Americans. I share your concern about the reckless spending and borrowing practiced by politicians in Washington.

Foreigners, however, are not to blame for this recklessness. Indeed, I'm grateful that foreigners stand ready to help us pay the cost of our overblown government. Fortunately, Washington's spending binges are not serious enough to cripple America's entrepreneurial economy. If they were, foreigners would refuse to invest here.

If you're still skeptical that America's trade deficit is no cause for concern, perhaps you'll be persuaded by Adam Smith, who wrote that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."

Smith correctly understood that with free trade, the economy becomes larger than any one nation - a fact that brings more human creativity, more savings, more capital, more specialization, more opportunity, more competition, and a higher standard of living to all those who can freely trade.

Donald J. Boudreaux
Chairman, Department of Economics, George Mason University.”

The big problem for Smith and for economists today, is to convince legislators, including vulgar politicians, and media commentators that trade is beneficial and that lack of trade, worse, deliberately inhibiting trade, is destructive of wealth in all countries, including the country initiating Mercantile madness.

Congratulations to Don Boudreau for standing firm with the brute force of the facts about how economies work. I hope Lou Dobbs reflects on where his current preferences for policy lead him.


Blogger Gabriel Mihalache said...

The full version is available here: Middle-class woes? A letter to Lou Dobbs.

2:36 pm  
Blogger Gavin Kennedy said...

Thank you for your helpful comment.

9:10 am  

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