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The Ignorance of the Professors: the Case of Ron Boudreaux

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Like most academics, professors of economics are not generally stupid people, IQ-wise.  But they do have a remarkable ability to lose sight of basic  realities. I’ve seen this over and over again.

I just had an extended e-mail exchange with one Ron Boudreaux, a professor of economics at George Mason University, about the trade deficit. Now I’m not going to offer any comment on it, and will just let the reader judge for himself who’s right in the back-and-forth below. (Feel free to post a comment or e-mail me if you think I was mistaken.)

*************

Dear Mr. Fletcher:

I received your e-mail today asking me, along with 4,999 other people, each to contribute $10 to help your  protectionist pro-monopoly organization, the Coalition for a Prosperous America, raise $50,000. Understandably, you attempt in that mass e-mail to persuade us to make net investments in your organization by assuring us that our investments will make the CPA more productive and, hence, better able to achieve its goals.

Yet among the promises you offer in your fund-raising pitch is that the CPA will work to “eliminate the trade deficit” – that is, to prevent non-Americans as a group from making net investments in America.

Query: if the CPA benefits when non-CPAers invest in the CPA, why do you think that America suffers when non-Americans invest in America? That is, can you explain why the productivity of you and your colleagues at the CPA will rise if I make a net investment in the CPA while the productivity of you, me, and other American workers will fall if someone from Toronto or Tokyo or Timbuktu makes a net investment in America?

You’ll receive my $10 upon my receipt of a satisfactory answer from you to my question.

Sincerely,

Donald J. Boudreaux
Professor of Economics and Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

*************

Don,

Your challenge was forwarded to me.

The reason trade-deficit-induced foreign investment in the  U.S. is bad is that it is not net new investment. It is merely the transfer of  existing American investments to foreign ownership to compensate foreigners for  shipping us more stuff than we ship them. And because ownership of assets is transferred, their net worth goes up and ours goes down: they are richer than they would have been, and we are poorer.

Furthermore, they will receive the future returns on those assets and we won’t.

There are important secondary effects, and some net/gross issues that may confuse you, but that’s the nub of it.

Best Regards,

Ian Fletcher, Senior Economist
Coalition for a Prosperous America

*************

Ian,

Nope.

When Ikea builds a store in the U.S. our net wealth doesn’t go down.

Don

*************

Don,

That’s not the issue.

When Swedish, rather than American, investors *own* an Ikea store in the U.S., Swedish investors are richer, by the size of the  investment, than they would have been, and American investors are correspondingly poorer.

Ian

*************

Ian,

That is simply untrue.

Don

*************

Don,

If you, rather than I, have a certain $100 bill, you’re richer than you would be if you didn’t have it, and I am poorer.

This isn’t even a matter of economics. It’s just accounting.

Ian

*************

Ian

Many thanks for your two replies to my e-mail of yesterday.

You write in your first e-mail that a U.S. trade deficit “is merely the transfer of existing American investments to foreign ownership to compensate foreigners for shipping us more stuff than we ship them.  And because ownership of assets is transferred,  their net worth goes up and ours goes down: they are richer than they would have been, and we are poorer.  Furthermore, they will receive the future returns on those assets and we won’t.” In a follow-up note you claim that when the Swedish furniture retailer  Ikea builds a store in America “Swedish, rather than American,  investors *own* an Ikea store in the U.S., Swedish investors are  richer, by the size of the investment, than they would have been, and American investors are correspondingly poorer.”

With respect, there are so many mistakes and misconceptions lurking in your replies that a response much longer than a routine e-mail note is required to address them all.  Yet although I* (and scholars far more knowledgeable and articulate than I am) have written extensively on this issue, I welcome the opportunity, in coming days, to do so again, because a faulty understanding (such as yours) of the trade deficit fuels calls (such as yours) for  protectionist policies whose adoption would make us less  prosperous, less peaceful, and less free.

But I can’t resist here just one quick query: when my Virginia neighbor Mr. Jones opens a successful retail shop in Virginia, does his success make me poorer?  If not, why am I made poorer when my global neighbor Mr. Ikea opens a successful retail shop in Virginia?

This letter, though, being already too long on a holiday weekend, I close simply with a quotation from Adam Smith’s Wealth  of Nation —a quotation that proves nothing except that concerns such as yours are ancient, have proven false again and again, and have been  addressed by serious economists since the launch of our discipline:

“There is no commercial country in Europe of which the approaching ruin has not frequently been foretold by the pretended doctors of this system from an unfavourable balance of trade. After all the anxiety, however, which they have excited about this, after all the vain attempts of almost all trading nations to turn that balance in their own favour and against their neighbours, it does not appear that any one nation in Europe has been in any  respect impoverished by this cause.  Every town and country, on the contrary, in proportion as they have opened their ports to all  nations, instead of being ruined by this free trade, as the  principles of the commercial system would lead us to expect, have been enriched by it.”**

Sincerely,

Donald J. Boudreaux
Professor of Economics and Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* http://cafehayek.com/category/balance-of-payments

** Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (Indianapolis: Liberty Fund, 1981 [1776]), Vol. 1, pp. 496-497.  This quotation appears in Book IV, Chapter  3: http://tinyurl.com/cw4beec

*************

Don,

You are giving the right answer to the wrong question.

If a neighbor opens a store which he then owns, you are 100% correct that this act does not make you poorer.

But you are still poorer than you would be if *you* owned it.

Ian

*************

Ian,

What does this answer have to do with trade?  Of course I’d be richer if I consumed less and invested more.  But nothing that a  foreigner does prevents me from doing so. You seem to assume that there’s a fixed amount of capital in the world. That assumption is mistaken.

Don

*************

Don,

You write, “Of course I’d be richer if I consumed less and invested more.”

You are correct. Which is why consuming more than we produce, by  means of a trade deficit that must be financed by asset sales or  debt assumption, makes us poorer.

Ian

*************

Ian,

Your understanding of the trade deficit is faulty.  If Mr. Ikea builds a store in New Jersey, capital is created. No American goes into debt as a consequence of such a transaction.

Sometimes the trade deficit becomes debt, but it is not—contrary to your assumption—not necessarily or by its nature debt.

Don

*************

Don

Once again, you’re correct, but you’re answering the wrong question.

A trade deficit is, granted, not always financed by debt. But it *is* always financed by either debt or the transfer of existing  assets.

Foreigners must be given *something* of value to compensate  them for the fact that we export less to them than they do to us.

If this were not the case, they would be playing Santa Claus and giving us stuff for free.

Ian

*************

Ian,

No it isn’t.

A $1 increase in America’s trade deficit might be evidence that Americans’ debt to foreigners rose by $1. (Whether or not such an increase in debt to foreigners is a bad deal economically for Americans is a separate question: it might or it might not be.) But a $1 increase in America’s trade deficit might very easily not mean that Americans have gone into an extra dollar’s worth of debt to non-Americans.

It’s child’s play to give examples of how America’s trade deficit can rise without Americans’ debt rising or Americans’ asset holdings falling.  Here’s just one example: Valerie in Virginia buys $1 of shoelaces from Hans in Hamburg. Hans adds his $1 to $999,999 of his German friends’ dollars that his friends (and now he) use to open a restaurant in Miami.  America’s trade deficit rises as result of Valerie’s purchase of foreign-made shoelaces. Yet no American is any more deeply in debt as a result; this transaction hasn’t caused Americans’ debt to rise by as much as a single cent. And no American’s (or Americans’) asset holding are reduced by $1.

Don

*************

Don,

No, your example doesn’t work. Valerie has $1 less in assets now.

Furthermore, since no American gains an asset, Valerie’s asset decline of $1 entails a $1 asset decline for America as a whole.

Ian

*************

That was the end of the e-mail exchange.  As I said, I leave it to the reader to judge whose logic holds water.  I will merely note that if mine does, then our $500 billion a year trade deficit must be a big problem.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank, and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

39 Responses to “The Ignorance of the Professors: the Case of Ron Boudreaux”

  1. Will Wilkin says:

    why don’t my comments post?

  2. Will Wilkin says:

    Here is a better edit of my previous comment not posting anyway….

    Although Mr. Boudreaux is correct to say that investment in a country is good for that country, that is a tunnel-vision analysis. That is why Mr. Fletcher is more correct to say that, in the larger picture, if that investment is the result of foreigners acquiring surpluses of dollars through our trade deficits, it represents a transfer of assets and of much of the benefits of those investments. Nothing good about that.

    It is this transfer of wealth through trade deficits that, in the biggest view, is at the heart of America’s decline, and just because some of it returns as “investment” that does NOT fully compensate for that loss. Because in that larger sense, Mr. Fletcher is right, it is a transfer of wealth and control and returns on that re-invested wealth.

    Not to mention the fact that not all our exported wealth via trade deficits ever comes back to us even as “investments” representing transfer of ownership and returns on that wealth.

    But what I think is missing in the whole exchange is that all those imports mean the trade deficit money is making jobs and GDP and tax base in other countries instead of in our own. I think Ikea stores are a terrible example of the outcome of our trade deficits. A much more salient result is the off-shoring of 6 million manufacturing jobs since 2000, and the loss of 56,000 factories, and all the deterioration of our industrial ecosystem that represents. It weakens our wealth-producing as a nation now and for the future.

    Check out this article for more on that problem. It discusses the loss of our “industrial commons,” which is what I mean by industrial ecosystem. And that brings me to what I think is a major problem in economics as a discipline. It is so concerned with quantitative methods and quantitative thinking that qualitative decline is completely overlooked. And although our decline can indeed be measured quantitatively in loss of jobs and factories and GDP and tax base, it is most frightening for the qualitative meaning it has for our weakening industrial ecosystem, ie, the meltdown of our “industrial commons.”

    Anyone interested in this qualitative and biggest harm of trade deficits, and the free-trade policies behind it, will appreciate this article for describing those terrible qualitative effects off-shoring has on our ability to produce wealth in this country:

    http://hbswk.hbs.edu/item/6921.html

  3. Darin G. says:

    Will’s comments illustrate the narrowness of Don’s argumnet. Ian is correct that academics tend to focus on very literal arguments devoid of context. If a Chnese auto part sells for less in America than a American suto part of the same quality I am sure Don would argue Americans should buy that part and spend the money saved on something else and everyone will be better for the deal except the inefficient producer. Unfortunately, this example leaves out the role of subsidies, mandates, and other factors that make this situation more than an auto parts transaction Many economics professors that preach the merits of the free market ignore it’s non-existence.

  4. Frank Shannon says:

    Ian, Thanks for this exchange between two brainiacs. One knows what he is talking about and the other keeps answering the wrong question.

    This helps explain why (a conflict of visions/paradigms) so many highly regarded, smart folks in America can be so wrong on something pretty basic. What is scary is that some of these smart(?) folks are teaching our kids!

  5. William Ryan says:

    I think you don’t have to be a rocket scientist to be able to see the bigger picture of what is happening with trade issues today…We are not talking 1776 trade rules here ,this is modern day piracy of technology,currency,patents,jobs and money that needs to circulate in ones own economy as an economic generator of jobs and the creation of wealth. I’m just and the ordinary guy but just look around and you can see very easily the decline of manufacturing as a whole was a sell out for easy profits to China where that lost money is no longer circulating in our economy to create new wealth and jobs but is doing so in China’s economy now…You do not have to have a Harvard degree to see this…Last I want to thank Ian and Will for your great patience and moire correct views of what is happening to us and what we need to do about it. Awareness, correct education and legislation are key (KPI’s) points of interest that must be addressed to solve these massive problems. The Chinese have a super strong lobbyist groups with tons of money in Washington to promote their propaganda.We need to stay focused as Americans on the bigger picture or MUDA of the rapidly approaching $1T trade deficit most of which with China and all the consequences of that in lost wealth and jobs. For me this issue should be near the top of the list for items to be addressed in Washington this year…

  6. Lise says:

    Ask him why we can’t shut off the imports from China and why China is surging ahead as the top economy and we are in a big slump.

  7. Arthur Taylor says:

    Frank:

    It’s not an exchange between two brianiacs!!! Boudreaux, if that’s even his real name (although I’m certain those are his real eyes), is the loutish, inconsequential, over degreed imp who stands in front of the cameras at FOX and with all the authority his supposed credentials and ridiculous hair can muster, opines that our current economic malaise is as a result of “regulatory uncertainty.” He would be superior only amongst a peer group of fellow morons.

    He was the impetus for the joke about the economist who saves the day on the deserted isle by “assuming” a can opener.

    His last example about the Germans using Valerie’s dollar to help them open a restaurant in Miami is the nth degree of absurd. How do we know the Germans will do this? What certainty is there they will do this? Why would they not use Valerie’s dollar to instead help them purchase a new Porsche, which they can then use to give that cute little French girl, Valerina, a ride in.. as they bring her back to their castle in the Alps, which Valerie’s other American friends helped them pay for?

    The stupidity of thinking that trade deficits, made up of the world’s reserve currency, are going to somehow find their way back to America in the form of a restaurant in Miami Beach shows just how deluded Boudreaux is.

    I hate the guy.

  8. Arthur Taylor says:

    Moreover, if the purchase actually took place and the restaurant was successful, what guarantee is there that the Germans would not send the profits, sans living expenses, back to Germany?

    Why should we be in favor of policies that allow foreign entities, to make their profits here, then use those profits to buy assets here, and then take the revenue streams generated by those assets and repatriate them permanently to their home country?

    And don’t get me started on the idea that these guys are going to use their profits to buy plant and machinery here and produce in the US. Why would they do that when they are already doing so well with their plant and machinery elsewhere? What they need from us is a market for their product and distribution. If the rules already allow them this access, then why would they change a thing?

    Frank, none of this was directed at you ;)

    • Adam Smith says no commercial nation in his day has ever been impoverished by a trade deficit. “Impoverished” is not what we are claiming. The U.S. has much manufacturing activity still. The question is whether or not the Gross Domestic Product of the U.S. has been reduced by 36 years of a trade deficit. It is obvious that transferring goods production outside the U.S. reduces production in the U.S. What happened 200 years ago is history, not current reality. What is happening now is the proper question. No past nation has had the resources (and wealth creating ability) of the U.S. so that they could sustain 36 years of a trade deficit.

      It is also obvious that money sent overseas to pay for our trade deficit increases net financial assets owned overseas and reduces those owned in the U.S. With balanced trade, these exchanges between nations balance out. With a trade deficit, the trade surplus country comes out with a net gain in financial assets.

      Whether or not these net gain in financial assets are reinvested in the U.S. is a separate issue. Foreigners do whatever they want with the additional assets they own. Historically, investments of these assets in the U.S. are scarce.

  9. Brian Riordan says:

    The trade deficit allows Chinese to buy American companies and Phyllis Schlafly points out that Chinese ownership of former American companies allows them to transfer American technology to China. China is also taking our technology through thousands of Chinese-owned companies which exist to steal American technology plus outright spying by Chinese employees and students. In addition, American companies are made to transfer technology to China in exchange for access to the Chinese market.
    Of course the professor probably sees no problem in Chinese growing in technological capacity while we sink into the third world mode of supplying raw materials rather than manufactured goods. Such professors are like weathermen in windowless studios who are oblivious to what is really happening in the outside world.

  10. Robert says:

    The exchange between Ian Fletcher and “the professor” is a perfect illustration of the many reasons this country is going down the tubes. These idiots teach future leaders. Leaders who never get a real job before they become “leaders” in DC.

  11. The Protectionist says:

    Ian is one of my economic heroes, but I think the problem is even worse than Ian I think suggests. Using Van Geldstone’s approach (free trade is built on radically flawed microeconomics), lets try the following idea. Say you import from Country “A” which as a 10 to 1 labor cost advantage. Say you import $1 million dollars of goods. This will displace (unemploy) not 1, but 10 million dollars worth of American labor. Now assume Country A turns around and builds something with its newly acquired 1 million in America. This only covers 10% of the economic black hole (unemployed Americans) it created with the imports. In other words, it’s not a “no new investment”, its a massive “negative” investment.

    • Ray921 says:

      Protectionist, you’re argument exaggerates a good point. The prices of raw materials, the costs of energy, capital equipment, and regulations and also a return on investment (profit) are also part of the price of a product in a non-distressed market — unless the product is purely a service performed by foreign labor as with off-shore services; if a million dollars is spent on imported goods
      from a country with a 10:1 labor cost advantage, and only only 30% of the price is labor, assuming the product would’ve been purchased from country A or us, we would have lost $300K worth of labor. Of course we’ve also lost profit and tax income in addition to employment.

      • The Protectionist says:

        Ray921

        Just to clarify, I tend to treat in my simple model all costs (engergy, raw materials, machines) as labor costs. I am an labor theory of value kind of guy. I completely reject neoclassical economics supply and demand based modeling. See rescuingeconomics.wordpress.com for a rough summary. Critiques of course are welcome. Trying to get this right in order to save the country.

        best regards

  12. The Protectionist says:

    Second item to consider…again Geldstone’s proposition…Adam Smith did not understand the source of England’s subsistence wages (source of Karl Marx’s rage), which Geldstone suggests was due to intensive British exports (no different than the economics of slave-wages with cotton exports in the pre-Civil War South). Smith was clueless in this regard. American protectionists rejected Smith for this very reason.

  13. Burl Finkelstein says:

    Debates with most clasical thinking economists usually becomes arguing with the pig. You only annoy the pig and nothing is changed after the excange. It is unfortunate such people teach our leadership about economics and trade.

  14. Robert Boyle says:

    I agree with Burl Finkelstein. Need to focus on persuading policy makers, not economics professors, whose chances for tenure depend upon adherence to the prevailing economic theory. Otherwise you find yourself in that proverbial pearls before swine scenario.

  15. Greg Autry says:

    The ability of academics to find complexity in simple problems as well as to accept over simple models for incredibly complex systems never ceases to amaze me. This conversation is as good an example of the former as our national economic policy is of the latter.

    As to the concern about who we need to persuade, the sad fact is that most policy makers, their advisors and our CEOs have been educated in elite universities where they are indoctrinated with this ivory tower view of economics – simultaneously over-complexified and over-simplified. Trust me I watch this happen daily and I see the results when I wander the halls in DC.

    In particular, politicos and business leaders emerge from college macroeconomics with a near religious reverence for comparative advantage and the day after they collect their JD or MBA they are DONE LEARNING. Armed with this economics of faith and a mind closed to new ideas, they are truly unable to digest any argument that appears to contradict the simplified understanding they have of that theory. It’s simply too late to save them.

    Therefore we MUST strike the root of this problem and change the perceptions in our schools, particularly the business schools where offshoring and all that goes with it is lesson #1.

    • Joe Brooks says:

      “Therefore we MUST strike the root of this problem and change the perceptions in our schools, particularly the business schools where offshoring and all that goes with it is lesson #1.”

      I certainly agree with this statement. While attending the “Death By China” event at WSU, I met several WSU Economics students. I was able to speak with one young man, a 4th year Economics major, at length. He had no knowledge of the Report on Manufactures, the American System, the true history of US International Trade and was uneducated to the point of not knowing what a VAT is.

      This led me to investigate what the local HS is teaching our kids. The same thing, “free trade” with no mention of any US trade history with a few exceptions and 2 massive lies.

      The lies being that US economic policy has always been based on Adam Smith’s Wealth of Nations [we fought a war over this issue] and the Smoot-Hawley tariff started the Great Depression.

      I have had some success on the local level, restoring the truth. However, this is the school system that spent a week analyzing the Report on Manufactures 50 years ago.

      In the last few weeks, I have begun reading the Economics texts used by WSU and SCC, some actual trade history, but all protectionism is refuted thru bogus analysis and a glaring theme; no economic policy makers should consider the effects of “free trade” on your country or countrymen, if people become unemployed, destitute, desperate for work, etc.: Tough. If “free trade” economics leads to the destruction of your nation’s prosperity; that’s great.

      These books are teaching Economists to be Sociopaths.

      My degree is in Engineering and I am not taken as seriously by School officials as an Economist. Perhaps Mr Fletcher and Mr Autry could pen a pamphlet along the lines of “The Conservative Case Against Free Trade”, to be distributed as an alternate view to the very biased texts used in publicly funded schools?

      I included “The Report on Manufactures”, Henry Clay’s speech “On Defense of the American System”, a great Lincoln Note, McKinley and TR quotes and some Ronald Reagan. The school is actually using these.

      The Public School officials seemed most affected by my argument that the future generations will never be able to work their way out of the “free trade” mess, if they have not been given the knowledge that will allow them to do so.

      • Will Wilkin says:

        I heartily agree with Mr. Brooks, that an ideologically-driven sysematic miseducation passes for the study of economics in America today. Much of it could be traced to the towering reputatiuon of Milton Friedman and the University of Chicago, which is a story many decades old now. Part of the explanation is the invisible hand market ideology is elegant and easily understood (simplistic) and seemingly comprehensive and consistent. It is also ahistorical and a ruse, conveniently marketed to students and the public at large whenever it is necessary to explain why our jobs and retirements and social security must be cut, a ruthless free market ideology that covers up the near-limitless socialism enjoyed by the too-big-t-fail banks that require $trillions in bailouts so they can continue paying out $billions in bonuses as they foreclose on the homes and jobs of millions of Americans who have done wrong except tried to work for an honest living.

        Back to Mr. Brooks’ excellent suggestion that academic economists write an academic correction to this phony ideology. The one point I would add for consideration is this is not a conservative or liberal correction we need, just an AMERICAN correction. Rather than polarize it with partisan or ideological labels, why not just appeal to economic patriotism in the sense that all Americans (excepting the 1% who have instead staked their future with that of multinational corporations with zero loyalty to the USA) have a common fate and a common interest in restoring American manufacturing and American prosperity. It is the American system you invoke, right Mr. Brooks? Personally I do not identify with liberal or conservative nor with either major political party,. I only care about the country my son and my grandchildren will inherit. It would be nice if they knew the real history of how America grew to become a prosperous country, although this has been being sold out to the multinationals and Wall Street since long before they were born.

  16. Thomas Crumm says:

    Ian,

    An admirable stand! From what I know about economics there is usually a shift somewhere in the discussion that begins with, “On the other hand….”.

    The logic of an imported shoelace purchase funding a restaurant in Miami is solid. The outcome of purchasing a few small imported vehicles is proof. During the 60s and 70s imported goods began providing large amounts of revenue to rebuild the Japanese and German economies. (The rebuilding followed the fixed exchange rate plan laid out in the Bretton Woods Agreement.) By the 80s automotive imports in America had become the largest contributor to rebuilding Japan and was filling the unemployment lines across the Midwest.

    The 80s brought a wave of Japanese auto companies eager to erect transplant operations in Middle America. The transplants served to ease negative sentiments toward Japan. They provided import buyers with an argument that their vehicle was “made in America.” The guilt for what was happening to America’s industrial sector subsided. The fact that only 15 to 20 percent of the value of an automobile was being added by American workers in a transplant operation, never made it into an economist’s article. The flow of revenue into Japan’s Central Bank kept increasing. The American dollars accumulated from export sales were exchanged for yen by the Central Bank. The Central Bank served to pay off the Japanese component suppliers, equipment and tooling suppliers, engineering teams, corporate management, and shareholders. What was left over from the favorable exchange rate was used to fund the rebuilding of Japan’s economy and build more transplant operations in America. Some of the excesses may even have been used to fund a restaurant or two in Miami.

    Declines in market share in the 80s cut a huge swath through Detroit’s industrial community. American business leaders began thinking about joining the Asians rather than compete with them. The exchange rates they couldn’t control would hopefully give them equal footing. It is “exchange rates” and not “lower wage rates” that still give a nation an advantage.

    China’s leadership made its move in the 90s. They welcomed American businesses, but insisted on joint venture partners. They also began a practice of displacing foreign business owners when no longer needed. China’s Central Bank accumulated the excess currency from foreign sales and tightened its grip on global economics. American voters seem unable to understand what is happening. Burl Finkelstein is right, it is sad that America’s education system does not teach the basics of macro economics. The fall of a nation can begin with the purchase of a pair of imported shoelaces.

    Thomas Crumm
    Author – What Is Good for General Motors? – Solving America’s Industrial Conundrum

  17. Arthur Taylor says:

    I laughed out loud when I read Joe Brooks’ statement: “These books are teaching Economists to be Sociopaths.” Absolutely perfect!

    I believe, without question, that the path to winning this debate goes straight through the Economics departments in higher education because THEY TEACH THEORY AS INDISPUTABLE FACT. When you begin to attack these academics with empirical evidence that their theory/system has not raised US standards of living. That the past dozen years under codified free market/free trade policies have produced average growth of less than two percent of GDP (3.5% is necessary just to maintain parity with population growth). And that CPI analysis shows very few of the huge gains from cheap imports being passed along to the consumer. When you begin to attack these university level lecturers with facts, they can only respond vigorously with theory.

    The best way of bringing a change in US policy is to go into the universities and set up events that teach students the fallacy US polices are predicated on and the long term folly current US policies are bringing upon this nation. I’ve been watching this debate for twenty years and nothing is going to change until, at the university level, you kick the living guts out of free trade/free market theory and give students a lesson in the American School of Economics a la Alexander Hamilton and George Washington.

    • Mr. Taylor. Have you ever tried to “go into the Universities and sent up events”. I have. Professors at two very well respected private schools near Columbus, OH turned me down. I could not find an economics professor in the Economics Dept at Ohio State University that specialized in international trade activity.

      I would love to have an opportunity to interact with Economics students. But only when invited by Professors.

      I have exchanged E-Mails with two professors that support free trade but we agreed to disagree after a limited exchange.

      My belief is that economics professors should be converted to support for balanced trade as the first step in changing public opinion. So, I strongly support Mr. Taylor’s perspective. Where is the appropriate forum?

      The economics profession is wedded to mathematical models. The models I have seen assume balanced trade as a simplification device. This allows their models closure. But it throws the baby out with the bathwater. Nobody argues that simplification should lead to ignoring the crucial issue.

      • Joe Brooks says:

        Ray, agreed. My brother, who spent many years dealing with “Academics” in the soft disciplines tried to prepare me for what I witnessed at the WSU Death By China event.

        I worked with Engineers and Computer Science majors, I was not prepared for an all out “academic” ability to deny facts. And that is what I witnessed by 2 out of the 3 Economics Professors on the discussion panel that was presented after the film.

        This is why I immediately began exploring the High School curriculum; I was hoping for more open minds and it is a fairly straight forward argument that teaching the history of US trade, manufacturing, education and American System policies is a duty of the school.

  18. Arthur Taylor says:

    It is actually quite easy. You rent a lecture hall, advertise the event and present a powerpoint. You follow that with a series of two to three lectures. I’ve done this with regards to Walmart and have had great success. You have to send in a team consisting of an economist and a businessman, and it would help if you went in under the umbrella of an organization like CPA or USBIC.

    Furthermore, you have to remember you’re not there to debate with the professors in the economics department- They’ve already proven, as per a dozen years of less than 2% GDP growth in a country ruled by their policies of choice, that they are unable to objectively analyze the results of their theories in practice and call for adjustments due to real world conditions. In essence, they’re gutless, or they’re morons, or their egos are unable to accept reality. So why would you want to debate them? That or they are bought and paid for by some organization like the Koch brothers as is the case at my alma mater, Utah State University.

    Right now on college campuses, the entitled generation is beginning to realize the dearth of opportunities that await them. Any proper telling of the trade story or of the fallacy of free market economics is going to be listened to. Once that is done the students will take care of the professors themselves.

    I mean seriously, GDP growth under full fledged free trade / free market policies is almost half of what it was in the 70′s, 80′s and 90′s prior to, or in the midst of, adopting these policies. It is very easy to argue that America would have been much better off to maintain it’s limited tariff structure and to have stayed its past course.

    • Will Wilkin says:

      All points above by Arthur Taylor are sound. The only thing I would add is it might be helpful to find a student organization, particularly one of undergraduate or graduate students of economics, to host the event. Many colleges have a student government or other body that has member organizations like the “economics club” and that student organization can usually get a hall on campus for free, a certain number of announcement fliers for free, and even put their members to work posting the fliers all over campus, like in dormitories and academic hall bulletin boards, not to mention mobilizing their members, the very students we most want to reach, to attend.

      I would be glad to collaborate with anyone in CT who wants to put together such an event at one of the many colleges in our state. I’m swamped with work and projects so won’t attempt it alone, but would love to find others in CT to do something like this, and more, for example introduce a “Buy American” bill in Hartford to require taxpayer monies spent to make preference for American-made materials in all projects and purchases. I realize states can’t fix our trade policies but at least they can send signals to Washington that national policy is totally F***** Up!

    • I can’t get over the feeling that somebody has to debate with the economics professors. They are theoretically committed to seeking the truth. They stand in the way of public acceptance of Balanced Trade as better than Free Trade.

      • Arthur Taylor says:

        The professors won’t debate. Trust me, that is the last thing they want to do, as it means they will have to stand in front of an audience and have their theories ripped to pieces by an overwhelming onslaught of empirical evidence and data that will make them look like the fools they are.

        Two years ago, I issued an open challenge to the Utah State Economics Department to debate Ian Fletcher and myself and they remained mute.

        It would be great though to point out what sociopaths they are, in willing the deindustrialization of America along with the destruction of the American middle class in order that they may further an ideology who’s true aim is to transfer the equity of America to the plutocracy that controls our nation

        • Will Wilkin says:

          Arthur is 100% correct. But the next generation, ie, the students, have not yet been corrupted, or, perhaps more to the psychological heart of the matter, the next generation has not committed themselves to any particular theory or ideology, at least not permanently through many published papers they can’t admit are absolutely wrong. And so they are worth engaging.

          In fact, as a student of history rather than economics, I was trained to criticize, to discern what is wrong with the evidence and reasoning of the great books that it is our job to refute and excede. Not that I ever became the scholar, I am an electrician, but that spirit of criticism is what we must appeal to, it is what is so badly needed in our world today, where the politicians and the think tanks have been bought by the plutocrats, another thing I agree with Arthur on.

  19. Tom T. says:

    (admittedly from Wiki)

    “As of May 2011 the largest single holder of U.S. government debt was China, with 26 percent of all foreign-held U.S. Treasury securities (8% of total U.S. public debt).[76] China’s holdings of government debt, as a percentage of all foreign-held government debt, have decreased a bit between 2010 and 2011, but are up significantly since 2000 (when China held just 6 percent of all foreign-held U.S. Treasury securities).[77]”

    Give a man a fish and feed him. Teach a man to fish and feed him for life. Sell a man all your fishing gear and be ready to have to pay for fish the rest of your life.

    I think the President needs to coin the platinum 1 trillion dollar coin (or a few of them) and redeem all of the debt we owe China, then tell them the money can only be used to buy U.S. “fish”— no more fishing gear until our economy can fish again.

    Tom T.

  20. Mo says:

    When it comes to foreign investment, Ian is right most of it’s just the transfer of US capital assets to pay for increased imports due to inflation. The example the professor gives happens to a degree but most foreign investment today is the taking over of US assets and then shipping the capital away. This is why the Bureau of Economic Analysis (BEA) no longer distinguishes between FDI to create new businesses and FDI that just takes over exisitng US assets. If it did distinguish between the two most FDI would show the acquisition of exisitng US assets.

  21. Joe Brooks says:

    Really good points and highly critical of head in the sand Academics.

    She may not realize it, but she is advocating a return to the American System.

    http://www.c-spanvideo.org/program/Shareh

  22. Dr Bob Goldschmidt says:

    I am not concerned about assets since the Federal Reserve just reacted to the 2008 crisis by creating $9 trillion of assets and guarantees out of thin air. What I am concerned about is the financial health of the American worker whose purchasing power has stagnated since 1972 while productivity has more than doubled due to IT-based automation.

    Outsourcing and offshoring have also been accelerated by the technological development of containerized freight and global fiber-optic communications. But even these jobs will soon be destroyed by automation as indicated by Foxconn’s recent announcement that they will purchase one million robots.

    We see the effects of this exponential technological change here in the US with tens of millions of unemployed and underemployed along with record corporate profits. This is clearly not sustainable and we will soon find ourselves coming apart at the seams economically and politically unless we find a method to address this glut of labor. Sustaining demand through rapidly rising private or government credit cannot go on indefinitely.

    There are only a few humane choices we can make — put masses of people on extended unemployment/welfare, make the government the employer of last resort or induce businesses to raise their payrolls — I far prefer the latter. This can be accomplished in two ways — much stronger unions or an excess profits tax tied to payrolls. For example, one could tax the reported income of a corporation which exceeds an industry-specific fraction of its US payroll at 100%. Such a solution would only work if implemented while there are still corporate profits left to tax. Time is short.

    • Tom T. says:

      I couldn’t agree with you more, Bob. There are many ways to solve these problems of a broken economy but first the structural problems must be recognized.

      It does no good for a population to be “on the public dole” so robots or the foreign worker equivalent is used by corporations to maximize profits while they undermine the economy for the average person.

      The underlying structural problems are the incentives our politicians have created to maximize profits while destroying the public welfare. We need change from the broken paradigm into one that actually works. It is unfortunate that our political system is so entrenched with mammon of the elite instead of the public. It makes real solutions seem so distant.

      Tom T.

  23. Francine says:

    The professor would see the bigger issue if his paycheck were directly affected by it.

  24. ErikD says:

    The professor’s final example was of the a marginal trade deficit resulting not in debt but in an investment in an American business. Hans the German may not own a note or a bond, but he does own a claim on American economic output. In a way this arrangement could perpetuate the imbalance, given that in all likelihood Hans will eventually extract some or all of his American generated profits to spend elsewhere (say, in Germany). At least the coupon payments on fixed debt degrade with inflation – Hans’ trendy restaurant is sure to keep up with the times.

    • Tom T. says:

      One of the things I have noticed in the past few years is that we have had all these Japanese restaurants pop up in our small towns, ErikD. I think you have exactly hit on the reason.

      On another note, although Ian’s argument was on trade with foreigners, the same economic argument is posed with those who invest instead of spend all of their earnings. In our own economy the question is whether we will allow those people to adjust the rules of the capitalist game to their benefit and against the benefit of those who provide the labor (Dr. G’s argument). In the international trade, the question is whether we allow foreigners to gain control of our country even as they have people who are politically or economically depressed and the majority of the fruits of the economy are concentrated to the top (communist party).

      Tom T.

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