17 April 2007

Editor, The Atlantic

To the Editor:

The usually astute Clive Crook misunderstands the U.S. trade deficit ("When the Buck Stops," May). First, it is untrue that the trade deficit "has to be financed by borrowing." If, for example, Toyota sells a Camry to an American and uses the sales proceeds to buy more land for expansion of its factory in Kentucky, America's trade deficit rises without any American borrowing a cent. The trade deficit is not synonymous with debt.

Second, much of what we offer to foreigners in exchange for their goods and services is our combination of relatively low taxes, secure property rights, skilled workers, culture of entrepreneurship, and - as economist John Makin points out - our "sometimes bewildering yet attractive array of wealth-storage facilities." America enjoys a comparative advantage as a haven for investment.

Sincerely, Donald J. Boudreaux





Speak your mind

2 Comments so far

  1. giovanni zibordi on April 17, 2007 5:18 pm

    Is the bulk of the 4 trillion cumulated US deficit made of land purchases ? If you “count” is made of mortgage bonds, corporate bonds and treasury (about 30% and 50% of the total), few stocks, few direct investments.

    Germany and Scandinavia have pretty good rule of law, productivty, security and, according to the WSJ today, even lower corporate taxation, yet they run a 250 billion $ surplus against the US 800 $ deficit. Same for Japan, Korea, Singapore, Hong Kong…

    Could have this to do with the fact the the US spende abouto 100% more per capita for healthcare, basic and advanced education, law enformencent and military, legal matters, home improvment ?

    I lived both in Europe and LA and NY and boy!.. it would be nice to have those magnificent hospitals, wonderful campuses, large and nice homes, so strong a police and coutrs, so much eating out.

    Over here we simply not spend that much. Since my son is born in NY and has a US passport and I love America I hope you can keep going like this, but there sure is a whole lot of borrowing going on.

  2. rajat hooja on April 23, 2007 1:03 pm

    Considering the huge amounts America has “borrowed” it is the lenders should be worrying and not the other way rounds.

    Also right now America’s ability to attract talent from the rest of the world is unmatched. Talented people in the third world do not dream about moving to Germany or Scandanavia, it is America they dream about.

    Unitill and unless this changes and lets say people start dreaming about moving to China, not much to worry about.

    rajat hooja


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