Feldstein on the Trade Deficit
29 July 2008
Editor, New York Sun
Dear Editor:
Usually sure-footed, Martin Feldstein stumbles when he argues that "America will need a trade surplus" in order to "repay" today's trade deficit ("Thinking About the Dollar," July 28). First, the only part of the trade deficit that must be repaid is the part that becomes debt, such as when foreigners buy Treasury notes. When foreigners buy dollar-denominated equity or real estate, or when they make greenfield investments in the U.S. or simply hold dollars, no debt is created. None of these investments require repayment.
Second, when it comes to repaying debt, the trade deficit is a red herring. It matters not if a creditor is an American or an Armenian: the debt must be repaid and, if repaid in dollars, those dollars will eventually be redeemed for American goods, services, or assets. (The last could put upward pressure on America's trade deficit.) Uncle Sam and many private Americans might well have financed excessive consumption with excessive debt, but, if so, the problem is the debt and not the nationalities of the creditors.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Public Choice 102
29 July 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
John Fund's review of Alvin Stephen Felzenberg's "The Leaders We Deserved" is superb (July 29). But it's not quite correct to say that "In November, we will definitively rank our two presidential candidates." This chestnut of conventional wisdom mistakenly presumes that each voter's ORDER of preference - for example, "I prefer Obama over McCain" - is the only relevant part of each voter's preferences. In fact, however, each voter also has INTENSITIES of preference - for example, "I prefer Obama enormously over McCain."
In November, each voter will be able to express his or her preference order, but not his or her preference intensity. This fact is important. Suppose John McCain wins with 51 percent of the vote. Would he truly be the most-preferred candidate if the great majority of persons who vote for him prefer him over Barack Obama only very slightly, while the great majority of persons who vote for Obama fiercely and deeply loathe the prospect of a McCain presidency?
Because the intensity with which each of us prefers one thing to another is as much a part of our preferences as is the ordering of those preferences, casting ballots in elections does less than we typically suppose to reveal the inherently elusive 'will of the people.'
Sincerely,
Donald J. Boudreaux
Chairman, Department f Economics
George Mason University
Higher Costs -- THAT'S the Ticket!
It's amusing that the same person often is convinced of the truth of BOTH of the following propositions: (1) free markets inherently discriminate against consumers and workers on the basis of skin color, genitalia, sexual preference, or other irrelevant characteristics; (2) markets encourage the blind, aggressive, and greedy pursuit of profit.
Don
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28 July 2008
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Convinced that a slowing economy disproportionately hurts women workers, Debra Ness asserts that "We need Congress to pass legislation mandating paid family and medical leave and paid sick days and to restore fair pay laws" (Letters, July 28). Rewording Ms. Ness's assertion to reveal its essence makes clear why her preferred policies are less likely than she thinks to help women: "We need Congress to pass legislation raising firms' cost of employing women."
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030
Peak Nonsense
27 July 2008
Editor, The New York Times Book Review
229 West 43rd St.
New York, NY 10036
To the Editor:
John T. Edge - reviewing Paul Roberts's apocalyptic book "The End of Food" - quotes Mr. Roberts's claim that today's "food system can only truly be understood as an economic system" ("Nothing to Eat," July 27). Indeed so. Unfortunately, though, Mr. Roberts is starving for economic understanding. Predicting that the age of abundant food is ending, he blames not only that timeworn (and mythical) scapegoat 'overpopulation,' but the devil du jour: Wal-Mart.
How does Wal-Mart hasten global hunger? By continuing "to drive down retail prices to unsustainably low levels." But when resources become scarcer - or when people working with those resources suspect their increasing scarcity - prices rise, not fall. Falling prices signal greater abundance. Whether Wal-Mart is a principal cause of this greater abundance of food or, more likely, a retailer especially skilled at bringing the advantages of greater abundance to its customers, the fact that Wal-Mart continues to lower the prices it charges for food is solid evidence that we can safely ignore Mr. Roberts's chicken-little-like assertions that we're running out of food.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Nanny County
26 July 2008
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
Marilyn Park believes that Montgomery County's new "nanny protection" statute is necessary to protect nannies in that jurisdiction from financial and physical abuse (Letters, July 26).
What a hellish place Montgomery County must be! A DC suburb populated by monsters! After all, if residents there were generally humane and enlightened, any nanny abused by her current employer could quit and find another employer who would treat her fairly. The few Scrooge-like households in the county would then be obliged by the forces of competition to treat their nannies decently. But if Ms. Park is correct, nannies enjoy no such ability - strongly suggesting that householders in that county are overwhelmingly brutal and benighted.
But, well, what does this fact imply about the wisdom of Montgomery County's democratically elected government?
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Cost of Gasoline
25 July 2008
The Editor, The Economist
25 St James's Street
London SW1A 1HG
United Kingdom
SIR:
You write that, in the United States, "petrol is more expensive than in the 1970s" ("Unhappy America," July 26). Doubtful.
While the inflation-adjusted dollar price at the pump for gasoline is indeed higher today than it was during the disco decade, consumers' expense of acquiring gasoline is probably now lower. The 1970s were notorious for long queues at filling stations. These queues meant that consumers back then paid not only with dollars at the pump, but also with hours spent waiting in line (not to mention suffering anxiety over the prospect of being unable to get gasoline at all).
The average price of a gallon of gasoline in 1979 was (in 1979 dollars) 90 cents. So if a worker in 1979, earning that year's average hourly wage of $6.19, spent one hour waiting in line to buy five gallons of gasoline - a standard maximum amount that filling stations would sell to customers during periods of shortage - he would have spent, waiting in queues, $1.24 worth of his time for every gallon he bought. The total cost per gallon to him would have been $2.14 ($0.90 in cash expense plus $1.24 in time expense). $2.14 in 1979 was worth about $6.36 of today's dollars. No matter how you slice it, the full price Americans paid for gasoline during the many shortages of the 1970s was higher than the simple money prices they paid at the pump.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Market Rally
25 July 2008
Editor, USA Today
Dear Editor:
Concerned that oil is nonrenewable, Tim O'Neill wants government to "Rally the nation to find a way to reduce dependence on oil" (Letters, July 26). This advice, alas, is at best redundant. The market itself is "rallying the nation" on this front. Oil's higher price reliably inspires consumers to use less of it and, simultaneously, prompts entrepreneurs to search for alternatives. And the higher this price rises, the stronger these inspirations become.
Any further "rallying" by government would not only be overkill, it would risk infecting a natural market process with the poison of politics.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Higher Minimum-Wage
24 July 2008
Editor, Washington Examiner
Dear Editor:
Your headline reads "Federal minimum wage rises to $6.55 today" (July 24). A more-accurate headline would have been "Government raises the cost of hiring low-skilled workers by 12 percent today."
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030
Yankee Common Sense Ain't What It Once Was
24 July 2008
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Mary Ellen Fahs writes: "I am currently vacationing in Maine. When I filled my three-quarter-empty tank with $45 worth of gas the other day, I could not help commenting: 'I guess we should feel lucky. In Europe, the price of gas is often $9 a gallon.'
"The tight-lipped Mainer quickly responded, 'Yeah, but they have free medical care!'" (Letters, July 24).
Yankee common-sense ain't what it used to be. Unless Europeans have found some means of getting their medical care supplied free of charge by non-Europeans or by a magical machine, Europeans pay for their 'free' medical with higher taxes.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Can't Have It Both Ways
23 July 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
John McCain credits the recent fall in oil prices to President Bush's announced support for more off-shore drilling and, hence, to the fact that the future supply of oil likely will be higher than previously thought. ("McCain Credits Bush For Drop in Oil Price," July 23). Sen. McCain also blames the preceding run-up in oil prices on unjustified speculation.
Sen. McCain can't have it both ways. Oil prices either chiefly reflect the underlying reality of supply and demand or they don't. If baseless speculation caused oil's price to rise to heights unjustified by supply and demand - if speculators are financial sorcerers who detach prices at will from underlying economic realities - how does a presidential announcement signaling higher future supplies cause lower prices? On the other hand, if a more promising prospect of greater off-shore drilling really is responsible for pushing oil prices downward, why would Sen. McCain ever have blamed high oil prices on evil speculators rather than on the underlying conditions of supply and demand?
Sincerely,
Donald J. Boudreaux
Chairman, Department f Economics
George Mason University
Depression
23 July 2008
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
Robert Samuelson rightly challenges the notion that America's economic woes of 2008 rival those of the 1930s ("A Depression? Hardly," July 23). Significant differences do indeed distinguish today's economy from that of the Great Depression. One important - and beneficial - difference, however, was left unmentioned by Mr. Samuelson: today's economy is far more globalized. In the 1930s, international trade accounted for between three to four percent of GDP. (Remember that the infamous Smoot-Hawley tariff was enacted in 1930.) Today, trade accounts for about 12 percent of GDP. And this figure is on the rise.
For the same reason that a diversified investor is on more solid ground than is an undiversified investor, the U.S. economy today - being more diversified in its sources of supplies, its sources of capital, and in its customer bases - is on more solid ground than it was during the Great Depression.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
