On Oren Cass’s “Lopsided Exchange of Cheap Goods for Financial Assets”

By Don Boudreaux.

"Here’s my latest response to my aggressive, regular protectionist correspondent, Nolan McKinney:

Mr. McKinney:

Calling me “biased” in my criticism of Oren Cass’s recent attempt, in the Atlantic, to justify protectionism, you express special admiration for Cass “warning about the stupidity of our ‘lopsided exchange of cheap goods for financial assets.’”

As is often the case, Cass’s meaning is vague. He apparently hopes that by peppering his text with emotion-ladened words – here, “lopsided” and “cheap” – he’ll dissuade readers from thinking too hard about the substance of what he writes. Or, perhaps, even he doesn’t think too hard about the substance of what he writes.

For starters, what’s “lopsided” about the exchanges that Cass criticizes? All of these transactions being voluntary, each party values what he or she gets more highly than what he or she gives. Who is Oren Cass to sit in judgment of how other people spend their money? Furthermore, he sneaks in a presumption that’s absurd – namely, that the typical American who trades with foreigners more often than not reduces his or her net worth by turning over to foreigners assets worth more than the goods gotten in return. If this presumption were true the data would show that Americans’ real net worth has been steadily falling. But the data show otherwise. In 2019 (the last year before the gusher of pandemic and Biden-Harris spending), the average real net worth of an American household was 46 percent higher than it was 20 years earlier when China got Most Favored Nation trading status, and 118 percent higher than in 1987 (the earliest year for which I can get consistent data).*

One more point: If Cass is correct that we Americans receive from foreigners mostly only “cheap goods,” then in calling for protectionism he obviously wants us Americans to produce those same cheap goods. Yet because our comparative advantages prevent us from producing those “cheap goods” as cheaply as do foreigners, protectionism would result in us Americans producing those cheap goods expensively. How this economic outcome will improve our lives is a mystery understood only by the likes of Oren Cass and Donald Trump.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Data on total household net worth are here, and these nominal dollars were converted into real dollars using this deflator. The number of households is here."