More Deficient Analysis
9 August 2006
Mr. Charles Osgood
The Osgood File
CBS Radio News
Dear Mr. Osgood:
Your report today on the trade deficit missed some important points. First, when the U.S. trade deficit increases, Americans do not necessarily go further into debt. If, for example, BMW sells cars to Americans and then uses the dollars it earns to build a factory in South Carolina, the U.S. trade deficit rises even though no debt is created by these transactions.
Second, as the example of the BMW factory in South Carolina highlights, the size of the capital stock isn't fixed. Much foreign investment in the U.S. creates productive capital goods that would not otherwise exist. So, you're mistaken to say that a rising U.S. trade deficit means that foreigners are "buying America." As has been true for much of our history since 1607, foreign investment in critical to MAKING America.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Mr. Charles Osgood
The Osgood File
CBS Radio News
Dear Mr. Osgood:
Your report today on the trade deficit missed some important points. First, when the U.S. trade deficit increases, Americans do not necessarily go further into debt. If, for example, BMW sells cars to Americans and then uses the dollars it earns to build a factory in South Carolina, the U.S. trade deficit rises even though no debt is created by these transactions.
Second, as the example of the BMW factory in South Carolina highlights, the size of the capital stock isn't fixed. Much foreign investment in the U.S. creates productive capital goods that would not otherwise exist. So, you're mistaken to say that a rising U.S. trade deficit means that foreigners are "buying America." As has been true for much of our history since 1607, foreign investment in critical to MAKING America.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Monday April 30, 2007 at 8:01am