Trade is not causing poverty and low productivity is not causing trade deficits

See Yanis Varoufakis Is Mistaken Both In Fact and In Theory by Don Boudreaux.

"UnHerd usually publishes good stuff. But this piece by Varoufakis is a joke.

Editor, UnHerd

Editor:

Yanis Varoufakis is right to be skeptical of Trump’s proposed tariffs, yet nearly everything else in his essay is wrong (“Can Donald Trump’s tariffs fix America? He’ll have to ditch the financiers first,” Nov. 12). Here are two examples.

First, contrary to Varoufakis’s assertion, it’s untrue that very many Americans live in or near dire poverty – that they can “barely afford a house or even the bare necessities.” America’s official poverty line is that of one of the richest nations in history, so even if a large percentage of Americans were today hovering near or below this threshold, those Americans are rich both in comparison to nearly all human beings (including Americans) who lived earlier and to very many people today outside of America whose incomes put them well above their countries’ official poverty lines.

More fundamentally, many of the official numbers used to concoct the tale that most Americans have suffered economic stagnation now for a half-century are deeply flawed. To get the facts straight, I urge your readers – and Varoufakis – to consult works by Phil Gramm, Robert Ekelund, and John Early, by Michael Strain, and by Scott Winship and Jeremy Horpedahl, among others.

Second – as the accompanying graph shows – GDP per hour worked in America remains above that in Germany and Japan, which is strong evidence against Varoufakis’s claim that starting in the 1960s and ‘70s factory productivity in America “fell behind those of Germany and Japan, causing the US trade balance to slip into the red.” And not only do American workers produce more output per hour than do workers in Germany and Japan, Americans work more hours than do the Germans and Japanese.* Therefore, Varoufakis’s suggestion that we Americans for a half-century now have produced so little that we’re compelled to import is ludicrous.

Indeed, America’s nearly half-century long string of annual trade deficits, far from being caused by low productivity in the U.S., is largely a consequence of high productivity in the U.S. After all, capital flows to where it reaps the highest returns, and returns are higher in high-productivity countries than in low-productivity countries. In addition, these investment inflows – which create the accounting artifact called “trade deficits” – equip American workers with more and better tools to work with and thus ensure that the productivity of America’s economy is higher than it would be otherwise."