- The Washington Times - Monday, June 9, 2008

Howard Richman argues “Balanced trade is the key” (Letters, Friday/Saturday) to America’s prosperity. He’s confused, as evidenced by his claim that America’s recent economic slowdown is linked to its trade deficit. The United States has run a trade deficit for each of the past 31 years, some of which (like the present) were periods of slow growth, but many of which were periods of high growth. Indeed, the evidence suggests that higher trade deficits are associated with higher, rather than lower, rates of economic growth.

This last point highlights another of Mr. Richman’s confusions. He thinks trade deficits mean less domestic investment. Not so. Every trade deficit (more accurately, current-account deficit) is offset exactly by a capital-account surplus - meaning net inflows of capital into the domestic economy. More capital generally means more growth.


Chairman, Department of Economics

George Mason University


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