Trade Deficits and Fiscal Responsibility

April 28, 2006

Don Boudreaux comments on the impact and causes of the “trade deficit” again today.

Why do foreigners willingly ship more goods and services to the United States than they demand in return? The answer is that foreigners find America to be an astonishingly attractive place to invest. … Some critics respond by pointing out that much foreign investment today is not made in the private sector where market forces can be relied upon to use that investment productively. Instead, much foreign investment is in U.S. Treasury Notes — in debt issued by Uncle Sam to finance his budget deficit. … What is troubling is Uncle Sam’s habit of recklessly spending well beyond his means. … It’s obnoxious, really. Congress and the president spend in ways that make drunken sailors seem like misers. To finance their gluttonous spending, they must borrow dollars. The Chinese oblige by lending them dollars. Then many of these same members of Congress and this president strut about pontificating on how shocked and worried they are that China lends so many of its dollars to them.

Why does anyone take these people seriously?

Why indeed, do we take Politicians seriously? It’s a good question that I haven’t found a reasonable answer for, except that people have faith in governments power to entitle them to the earnings and rewards that are the proper earnings and rewards of others. Most people are willing to co-opt the desires of others in a manner that benefits themselves, so long as the drains are widely dispersed and difficult to identify. So long as entitlement exists on such a grand scale as it does currently, there’s no way out of the political game. .


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