One of Don’s greatest skills is his ability to eviscerate protectionist arguments. Here’s an example.
13 April 2011
Editor, MarketWatch.com
Dear Editor:
Rex Nutting says that America's trade deficit is turning the U.S. into "a banana
republic" ("We're Worrying About the Wrong Deficit," April 13).
Mr. Nutting is confused. He assumes that the capital that flows into the U.S.
(and, hence, that raises the U.S. trade deficit) promotes American prosperity
only if AMERICANS invest this capital wisely - as when, for example, Apple Inc.
borrows money from foreigners to fund its research and development in Cupertino.
But this assumption is mistaken. Funds invested wisely in America by foreigners
promote American prosperity no less than do funds invested wisely by Americans.
If Canada's Nortel builds a factory in Texas or if Sweden's Ikea opens a retail
store in Maryland, American economic prosperity is promoted every bit as much as
if Dell builds a factory in Texas or if Broyhill opens a retail store in
Maryland. And there's no reason to suppose that the $1.8 TRILLION in foreign
direct investment pumped into the American economy over the past ten years* is
invested unwisely.
More generally, countries do not become banana republics as a result of huge
amounts of foreign capital continually flowing inward across their borders.
Quite the opposite. Genuine banana-republic policies and economic cultures do
not attract full and steady streams of foreign investments; they repel them.
Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
