George Mason University’s Donald J. Boudreaux is one of many economists worth following simply for his skill at articulating the profession’s completely brain-dead and actually harmful conventional wisdom about trade – and I’m pleased to report that he’s just done it again. Almost as revealing, his latest missive on why trade expansion of any type is always good, and all limits imposed on this expansion always bad, was highlighted this morning on the influential RealClearMarkets.com website. That is, it was deemed to contain unusually penetrating and newsworthy insights.
Timely maybe, since two major presidential candidates this year – Republican Donald Trump and Democrat Bernie Sanders – have been major trade policy critics, too. But the only news in Boudreaux’s latest post is how clueless so much of the nation’s economic policy establishment remains about the consequences of trade absolutism despite a financial crisis that taught exactly the opposite lesson with a vengeance.
According to Boudreaux, there’s not only nothing wrong with running even chronic, massive trade deficits. They bring crucial and widely unappreciated benefits. In his words, “If the goods and services available to the American people are greater as a result of international trade, then Americans are wealthier, not poorer, regardless of whether there is a ‘deficit’ or a ‘surplus’ in the international balance of trade.”
More specifically, “If the Chinese become zealous devotees of a religion whose doctrine requires that they serve Americans by shipping to Americans goods and services free of charge, then Americans are made better off….If the Chinese monetary authority buys US dollars with newly created yuan in order to (of necessity temporarily) make Chinese exports artificially inexpensive for Americans to buy, then Americans are made better off (although Chinese citizens, other than those involved in the export trade, are made unjustifiably worse off).”
I’ve been hearing these arguments for more than 20 years, and in fact recall vividly a session in Washington, D.C. in which the late William Odom, head of the National Security Agency under President Ronald Reagan, upbraided critics of U.S.-Japan trade policy who were ungrateful to Tokyo for supplying Americans with all those great products in exchange for IOUs (i.e., the Treasury debt needed to buy those imports – since the U.S. trade deficit meant that Americans weren’t earning enough to pay for them with their incomes).
Another way of expressing Odom’s idea is that it’s more important for Americans to be able to access stuff in financially irresponsible ways than to be able to buy them with their wages, salaries, and other earnings – and never mind the debt buildup required.
Yet Odom and others like him – and they were legion – at least had the excuse of speaking and writing before a terrifying financial crisis that nearly melted down the entire world economy, and whose after-effects are still being felt in the form of an historically weak recovery following an excruciating recession. Yet despite this near-catastrophe and its painful aftermath, Boudreaux is still preaching that consuming and spending – and the still-dangerous debt accumulation needed to support this activity – matter more than ensuring the wherewithal vital for consuming and spending responsibly. I’m still trying to figure out his excuse, and that of RealClearMarkets.com.