Friday, 14 November 2008

High debt reflects irresponsible government spending

Donald J. Boudreaux writes another letter to the Editor of The Baltimore Sun.
Dear Editor:

Peter Morici alleges that Americans have engaged in "excessive borrowing to finance a huge trade deficit" ("First order of business," Nov. 12). This allegation reflects misunderstanding. First, a higher trade deficit does not necessarily mean higher borrowing. If Mr. Morici pays $25,000 cash for a new Camry and Toyota then squirrels those dollars away in a safe, the U.S. trade deficit rises by $25,000 but Americans' debt hasn't risen by a dime as a result.

Second, the largest portion of the U.S. trade deficit that today BECOMES debt consists of loans by foreigners to Uncle Sam. Contrary to Mr. Morici's claim, this rising American indebtedness does not reflect too much American freedom to trade; instead it reflects too much irresponsible spending by the same agency - Uncle Sam - that Mr. Morici mysteriously trusts to restrict our trade and fix the economy.
A simple but important point.

No comments: