Don Boudreaux On Why The Trade Deficit Is Not Necessarily Bad For The Economy

See Bad Reporting at Cafe Hayek. This is another one of his greate letters:

"You report that “A widening [trade] deficit is bad for the U.S. economy. When imports outpace exports, more jobs go to overseas workers than to U.S. workers” (“Trade deficit widens to $40.6 billion,” Feb. 13).

Untrue. Another name for a trade deficit is a “capital-account surplus.” Save for rare instances of dollars being hoarded or used as circulating media abroad, every dollar of a U.S. trade deficit is a dollar of foreign investment in America.

Suppose that in 2011 Richmonders buy $1 billion worth of goods and services from Charlottesvillians, but Charlottevillians buy no goods and services from Richmonders. Further suppose that Charlottesvillians use this billion dollars to invest in Richmond – such as building retail outlets in Richmond; buying stock in Richmond-based corporations; buying bonds issued by Richmond’s government to fund road improvements. Richmond will have a $1 billion trade deficit with Charlottesville. But are Richmonders harmed? Do the investments made by Charlottesvillians in Richmond fail to expand Richmond’s economy, fail to increase its capital stock, and fail to increase economic opportunity in that city? Does Richmond lose jobs as a result? Of course not.

And so it goes especially at the national level. Because nearly every dollar of the U.S. trade deficit represents foreign investment in America, only economically illiterate reporters assert that a U.S. trade deficit, as such, “is bad for the U.S. economy.”"

Better to Feel Good Than to Do Good: Nancy Pelosi's Compost Edition

This was posted at Division of Labor by E. Frank Stephenson.

"It turns out that the [U.S. House] composting program [started under Speaker Pelosi] not only cost the House an estimated $475,000 a year (according to the House inspector general) but actually increased energy consumption in the form of "additional energy for the pulping process and the increased hauling distance to the composting facility," according to a news release from [California Rep.] Lungren."

Here is their source. Stick a fork in it, we're done: Former Speaker Nancy Pelosi's Green the Capitol initiative is over at the House's Longworth cafeteria. From the LA Times

The Growing Gender MD Pay Gap CAN Be Explained

That is a post by Mark Perry over at Carpe Diem. He summarizes a new study and here is his conclusion:

"In other words, the trend of male MDs earning more than female MDs is pretty easily explained: female (male) physicians put a higher (lower) priority on flexibility in work hours and family-friendly attributes of their employment arrangements, and are willing to accept lower (higher) financial compensation in return for greater (lower) non-monetary compensation. That is, it's possible that male and female physicians are not true counterparts in the labor market for MDs, and it therefore could be expected that average starting salaries would reflect the significant gender differences in workplace priorities."

How Great Entrepreneurs Think And Are They Heroes?

There was an article about how they think at Inc. It is about the research by Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business.

Candace Allen Smith has written about how entrepreneurs are like heroes. She gave a talk on this at the Dallas Fed in 1997. Here is the link:

http://www.dallasfed.org/research/ei/ei9701.html

I think that got reprinted in the Freeman. She also had a similar, award winning article in the Journal of Private Enterprise in 1996.

Walter Williams also wrote about entrepreneurs as heroes

http://www.hillsdale.edu/news/imprimis/archive/issue.asp?year=2005&month=03

So did Johan Norberg

http://www.cato.org/pubs/catosletter/catosletterv5n1.pdf

I have also written a couple of articles on the subject

The Calling of the Entrepreneur

The Creative-Destroyers: Are Entrepreneurs Mythological Heroes? (Presented at the annual meetings of the Western Economic Association, July 1992)

In one of his books, Israel Kirzner said something like "entreprneurs discover opportunities for economic proft by leading a life of purposeful action."

Lawrence Summers explained his vision for an entrepreneurial future last year at the White House blog.

http://www.whitehouse.gov/blog/A-Vision-for-Innovation-Growth-and-Quality-Jobs/

"An important aspect of any economic expansion is the role innovation plays as an engine of economic growth. In this regard, the most important economist of the twenty-first century might actually turn out to be not Smith or Keynes, but Joseph Schumpeter."

Cato's Shapiro On The Consitutionality Of The Health Care Law

See The Law and Politics of Health Reform from the NY Times. This is a letter to the editor. Here it is:

"Laurence H. Tribe is a great scholar, but his analysis of the individual mandate’s constitutionality is flawed.

First, this is indeed a “novel” issue for the Supreme Court: Never before has the federal government asserted the power to require people to engage in economic activity under the guise of regulating commerce.

Second, those challenging the law do not question Congress’s power to regulate the “multitrillion-dollar health insurance industry,” but rather distinguish such regulation from a command for individuals to purchase that industry’s products.

Third, the difference between activity and inactivity is anything but “illusory”; if Congress can regulate mere decisions, then it can tell me, for example, that I shouldn’t spend time writing letters to the editor.

And finally, imagining that Justice Antonin Scalia would support the government here because he previously ratified prohibitions on the production and consumption of marijuana is to remove the very activity-inactivity distinction that he recognized in that earlier opinion.

Ilya Shapiro
Washington, Feb. 8, 2011

The writer is senior fellow in constitutional studies at the Cato Institute and editor in chief of the Cato Supreme Court Review."

Mankiw Critiques Obama's State Of The Union Address (Or Other Countries Are Our Partners, Not Our Competitors)

Harvard economics professor Greg Mankiw has a good column today in the NY Times called Emerging Markets as Partners, Not Rivals. He thinks Obama does not understand that if other nations do well, it will help our future. They will have more to trade to us. Excerpts:

"Achieving economic prosperity is not like winning a game, and guiding an economy is not like managing a sports team."

"Unlike a sports contest, which by necessity has a winner and a loser, a voluntary economic transaction between consenting consumers and producers typically benefits both parties."

"Listening to the president, you might think that competition from China and other rapidly growing nations was one of the larger threats facing the United States."

"Other nations are best viewed not as our competitors but as our trading partners."

"During the address, Mr. Obama lamented the fact that many foreign students attended colleges and universities in the United States and then returned to their countries of origin. “As soon as they obtain advanced degrees, we send them back home to compete against us,” he said. “It makes no sense.”

The president is right that we should encourage a greater number of highly educated foreigners to migrate here."

"But if these foreign students decide to return home, as many do, we shouldn’t worry that they are competing against us.

Instead, we should view higher education in the United States as one of our most successful export industries."

"When the foreign students head home, they take the human capital acquired here to become productive members of their own communities. They spread up-to-date knowledge, so it can foster prosperity everywhere."

"Nothing could be better for the United States than these thousands of American-trained ambassadors who have seen at first hand the benefits of a free and open society."

Exports To China Rise Without Help From Government

From Carpe Diem by economist Mark Perry. Excerpts:

"Obama says he wants to double exports in the next five years to create U.S. jobs. According to data released today by the BEA (available here), U.S. exports to China surged to $10.12 billion in December, a new monthly record, and more than double the $4.6 billion in February 2009, less than two years ago. In fact, exports to China have more than tripled since January 2006, slightly less than five years ago. And this apparently happened without any special help from Obama or Bush, it most likely happened because China's economy is booming."

"...exports to China have actually grown much faster (+19% per year) than imports from China (13.8% per year)." (since the year 2000)