The Pseudo-economics of Protectionism

Posted Sat, Dec 1 2007 11:45 AM by zsignal

Lately it seems that it has become fashionable on both the Left and Right to bemoan the evils of the trade deficit; however, this penchant for protectionism is founded upon a general lack of knowledge when it comes to economics.

Let's examine a few false assertions often put forth by what I like to call "pseudo-economists."

Pseudo-economic Assertion 1: A trade deficit is always bad.
This is bogus. When the average person thinks of a trade deficit, they think it simply means "we buy from them than they do from us." However, this thinking ignores flows of foreign investment capital. This capital is the flip side of trade deficits. People seem to think that when a foreign good is purchased, the money is then stuffed under a mattress. Money spent on imports often quickly returns to buy assets here in the U.S.--stocks, bonds, real estate, factories. This inflow of capital buys new machinery, builds new factories, funds new research, creating jobs.

Pseudo-economic Assertion 2: A trade deficit destroys jobs.
This simple assertion ignores jobs created as a result of a trade deficit and ignores historical data--that imports and domestic output tend to rise together according to domestic demand.

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Comments

# re: The Pseudo-economics of Protectionism

Saturday, December 01, 2007 9:15 PM by MCLA

Foreigners buying-up assets, especially large corporations or critical infrastructure, threatens national sovereignty. They can blackmail the nation by threatening to pull out their investments,  Thus the Govt should tightly control capital flows into the country.

How about that one? :)

# re: The Pseudo-economics of Protectionism

Sunday, December 02, 2007 2:17 PM by kdnc

The Pseudo-politics of Trade Deficits/Free Trade

Lately it has become fashionable for those who claim to be astute economists to bemoan the evils of political views from both the left and the right. However, this penchant for the ascendancy of economic principles is founded upon a general lack of knowledge when it comes to politics.

I will stop the parody here because I believe most will have seen my point by now and it is this; writers like you make a fundamental mistake by leaving a discussion of political forces out when speaking about economics. No astute economist can leave politics out of his discussion of economics and no astute politician can leave economics out of his discussion of politics. This is a fundamental principle of Austrian economics.

In response to your “two points” (they are really just one since Assertion 1 would logically include Assertion 2 as well as many others like it) let me say that any reasonable “pseudo-economist,” or “pseudo-politician” for that matter, will understand trade deficits to be “bad” to the extent to which they set the stage for political forces that are destructive to the liberty of the free market and consequently the individual.

# re: The Pseudo-economics of Protectionism

Monday, December 03, 2007 4:24 PM by Nelson

<blockquote>Foreigners buying-up assets, especially large corporations or critical infrastructure, threatens national sovereignty. They can blackmail the nation by threatening to pull out their investments,  Thus the Govt should tightly control capital flows into the country.

How about that one? :)</blockquote>

I know it "feels" bad to have foreigners own our companies. But so what? If they "pull out their investments", someone else will own them.