Charles Murdock laments the half-trillion-dollar foreign trade deficit. He predicts that the purchasing power of the dollar will fall and that foreign goods will become more expensive.
But a falling dollar will make foreign goods more expensive and domestic goods more competitive, thus automatically correcting the imbalance that he is concerned about.
He concludes by saying that free-trade policies and the resulting U.S. trade deficit “[do] little to raise the standard of living–by our standards–for ordinary people, as opposed to management, in either China or the U.S.” But this prediction of wreck and ruin has been made for years. Each year there is a trade deficit and each year the American standard of living continues to rise. Murdock’s anecdotal evidence of a declining American standard of living is trumped by the difficulty of finding a parking space on Sunday at a suburban shopping mall. Yes, the American standard of living has risen through many successive years of trade deficits–not in spite of them, but because of them. The foreign investment of $3 trillion that concerns him is actually a reflection of just how attractive it is to invest and create jobs in America.
Murdock’s ideas have long been discredited by modern econometrics. In Chicago, home to the University of Chicago and Nobel Laureate Milton Friedman, why would the Tribune devote space to this kind of backward-looking, wrongheaded assessment?
