Monday, June 02, 2008

The Curious Merchantilist

I sent the following letter to TIME today attacking this column by "The Curious Capitalist" Justin Fox:
What’s curious about “capitalist” Justin Fox in “A Port that Exports” (June 9, 2008) is the mercantilist message that exports and imports should balance. He does this by confusing a good business model in the shipping industry, that it is more profitable to ship in both directions rather than just one, with what is a good model for the economy. America runs a trade deficit because foreigners use the money they earn selling their goods to invest in American assets. These makes it cheaper for Americans to borrow to pay for college, purchase a home, build offices, and a host of other activities that make our country richer. In short, the trade deficit represents foreigners trying to get rich by making Americans even richer.

Economists have written billions of pages for over 230 years attacking merchantilist theory. I tried to do it in a few words, but obviously much more could have been written. By the way, Fox's last article "How the Next President Can Fix the Economy" was a tour de force in manipulating statistics, bad economics, and normative dribble.

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