Edward Conard

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My Wall Street Journal Letter To The Editor: Risk-Averse Offshore Savings Proffered At Near-Zero Interest Rates Didn’t Fund Increased Business Investment

In their Feb. 21 op-ed “Trump’s Myth of the Trade Deficit,” Phil Gramm and Donald Boudreaux correctly note that when American demand for investment exceeds domestic savings, trade deficits create American jobs by funding otherwise unfunded domestic investment with offshore savings. But that hasn’t been the case for decades. Risk-averse offshore savings proffered at near-zero interest rates didn’t fund increased business investment. They funded a one-time increase in subprime consumption before the financial crisis and an enormous deficit-financed increase in handouts after the financial crisis.

We borrowed and gave away goods made by offshore workers who would have been unemployed when their savings exceeded investment. Even if we had insisted that Americans work to pay back their borrowed income, it wouldn’t have increased employment. It would have re-employed workers who lost their jobs when we bought goods made by offshore workers who lent us their savings rather than buying our goods—an identity that’s hard to recognize when lower wages equilibrate employment.

Read more here.

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