Here is a letter from the director of the American Lifestyle Center at the Claremont Institute. (Thanks to Scott Lincicom for alerting me to David Goldman’s article.)
David Goldman’s “Restoring American Manufacturing: A Practical Guide” published on February 21 is an economic misunderstanding and a factual error.
In particular, Mr. Goldman attributed the US trade deficit to the sales Americans spend on imports. This practice, according to Mr. Goldman, spells economic failure for Americans.
Indeed, the people of one country may recklessly increase their consumption today – thereby ensuring poverty tomorrow – by selling their wealth to the people of other countries for imports. And such carelessness causes the country to incur trade deficits. But contrary to Mr. Goldman’s assumption, trade deficits can be caused by other, very different economic forces – beneficial and non-dangerous forces. Such is the US trade deficit.
America’s trade deficits are caused by foreigners investing some of the dollars they earn in the sale of foreign trade to Americans instead of spending it immediately on the purchase of American exports. Since neither the world nor any country has a fixed amount of capital, such foreign investment can expand America’s capital stock (partially offsetting our irresponsible government’s cuts this fiscal year). If this expansion of capital stock is actually happening, we Americans will be richer, not poorer. Increased savings and investment in the US by non-Americans makes us richer through savings and investment by Americans.
If America’s trade deficits (as Mr. Goldman assumes) were caused by Americans carelessly selling their assets to foreigners, instead of foreigners carefully taking advantage of productive investment opportunities in America, we Americans would be much poorer right now. after all, In the last year America ran a trade surplus, the Oval Office was occupied by Gerald Ford.. But instead, our net worth has risen since then.
In the year In 1987 (the first year for which I can find consistent data) the total The net US households were worth $38.31 trillion in 2022. Today (2022), the total net worth of American households is $139.87 trillion. So, over the past 35 years, inflation-adjusted American households have grown by 265 percent. On a per-family basis over the same years, inflation-adjusted household wealth increased by nearly 150 percent, from $428,143 to $1,066,053.* Also, real median household income is at least 19 percent higher today., which is definitely an underestimate. (See Gramm, Ekelund, and an earlier book cited below).
What about American businesses? In the year In 2022 dollars, US nonfinancial corporations will grow from $11.049 trillion in 1987 to $30.895 trillion in 2022.** This represents a 180 percent increase.
Overall, as detailed in the informative book 2022 by Phil Gramm, Robert Ekelund, and John Earley (The Myth of American Inequality), Americans — and especially ordinary and poor Americans — have experienced economic growth in recent decades.
The data completely debunk Mr. Goldman’s myth about America’s business and trade deficits.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
* Figures on net worth are derived from family name. This is the St. Louis Fed page; These nominal figures are adjusted for inflation. Personal consumption expenditure price index. Data on the number of US households comes from Statista.
** Figures on non-financial corporate net worth are derived. This is the St. Louis Fed page; These nominal figures are adjusted for inflation. Personal consumption expenditure price index.
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