Boudreaux thinks you’re dumb enough to fall for the ‘Lufthansa Heist’ explanation…since the pieces of paper come back on an airplane, it’s win-win.
October 23, 2012 § Leave a comment
“No economic fallacy is as widespread as the public’s sense that the economy suffers when citizens buy goods and services from foreigners. What the non-economist sees is Americans spending dollars abroad rather than in the USA. The non-economist then concludes that American jobs are “destroyed.”
The good economist corrects this misperception by explaining that all dollars earned by foreigners who sell to Americans inevitably return to America. Foreigners use these dollars to buy American exports or to invest in America’s economy.
All dollars that Americans spend on imports return to America no less certainly than if Americans had not bought imports at all. And as compared to a situation in which government obstructs Americans’ trade with foreigners, these dollars return with greater positive effect on the U.S. economy. The reason is that trade allows Americans to buy from abroad those products that foreigners offer to sell to us at prices lower than it would cost us to make those things ourselves.”
Economists have long understood and celebrated the win-win benefits of trade.”
“The Lufthansa heist was a robbery at John F. Kennedy International Airport on December 11, 1978. An estimated $5 million in cash ($17.8 million today)…millions of dollars in untraceable money: American currency flown in once a month from monetary exchanges for Servicemen and tourists in West Germany. After arriving via Lufthansa, the currency was then stored in a vault at Kennedy Airport.”
Meanwhile, back on Earth:
“…The fact that we import goods from other countries is not a problem per se. Standard economic theory teaches that if the U.S. imports some goods and exports others, the country overall will be richer than in the absence of trade, because the value of what we gain in imports is higher to us than the value of what we sell as exports. But in the current U.S. situation, our oil imports aren’t balanced by other exports. Last year the U.S. spent $568 billion more on imported goods and services than we sold to other countries, with petroleum imports accounting for more than 80% of the total current account deficit.
When we import more than we export, we have to pay for the difference either by selling off some of our assets or by borrowing more from foreigners. Notwithstanding, running a current account deficit could still be a way to make the country richer. If we use the imported goods and borrowed funds to invest in productive capital and useful infrastructure, we should have plenty of future resources to pay back all that we borrowed, with more left over for ourselves. In such a case, a big current account deficit could still be a win-win situation.
But what if we’re not investing, and are just using the imports and foreign borrowing to enjoy a temporarily higher standard of living, leaving it to the future to pay the bills? That, too, could be economically optimal if what we most value as a nation is having more consumption spending right now.
But I’m not convinced that’s the future that most Americans want.
One can express the magnitude of historical U.S. oil imports in current dollar terms by supposing that each dollar of imported oil since 1973 had ultimately been paid for by selling U.S. Treasury debt to the oil exporters. I took the dollar value of oil imports each year since 1973 and calculated the value if that sum had been invested in Treasury securities which were rolled over up to the present day. That calculation leads to a cumulative wealth transfer since 1973 from the U.S. to oil-producing countries of some $10.3 trillion when valued in 2011 dollars. That comes to almost $33,000 from every person in America or $131,000 for a family of four. And much of that transfer has gone to support causes and regimes that are in fundamental opposition to America’s goals and values.