Trade and Investment
20 October 2007
Editor, The Washington Times
To the Editor:
Incessantly repeating that "U.S. growth, meanwhile, has been weighed down by soaring deficits with China" does nothing to render true this false bit of conventional wisdom ("China won't adjust currency," October 20). Indeed, it is false on too many levels to list here.
Most fundamentally, the flipside of a rising U.S. trade deficit is a rising U.S. capital-account surplus - meaning, a hefty inflow of capital into America. More capital means lower real rates of interest. Lower real rates of interest mean more investment. More investment raises worker productivity. Rising worker productivity raises real wages. And rising real wages enable Americans to enjoy higher and higher standards of living.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, The Washington Times
To the Editor:
Incessantly repeating that "U.S. growth, meanwhile, has been weighed down by soaring deficits with China" does nothing to render true this false bit of conventional wisdom ("China won't adjust currency," October 20). Indeed, it is false on too many levels to list here.
Most fundamentally, the flipside of a rising U.S. trade deficit is a rising U.S. capital-account surplus - meaning, a hefty inflow of capital into America. More capital means lower real rates of interest. Lower real rates of interest mean more investment. More investment raises worker productivity. Rising worker productivity raises real wages. And rising real wages enable Americans to enjoy higher and higher standards of living.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Tuesday April 15, 2008 at 1:08pm