USD & White House

In Sunday’s Daily, we featured a guest post by distinguished free market economics professor, Mark Perry, Ph.D.

Professor Perry shared his view of Republican presidential contender Donald Trump. He explained how Trump holds some faulty economic positions when it comes to international trade.

The essay struck a vein…

In today’s special Daily, we share several of our readers’ views. Don’t miss our response at the bottom…


From Linda H.: I can’t begin to express how disappointed I was to open my Palm Beach Daily Sunday and find it was political.

Yes, I know how to delete it. But I want you to know my feelings.

I’ve been with PBRG from the very beginning. It was a sigh of relief to find a service—so great, so wonderful, and so helpful—that didn’t blast “doom and gloom” and political slants.

You can tell me this Trump issue was educational on some investing front—but I’m not buying it. So sad. Just had to say that. Thanks for “listening.”

From Bob S.: With thinking like yours going around, it’s no wonder this country’s balance of trade is so screwed up.

The more we buy, the more our money goes to other countries: a “minus.” The more we export, the more money comes into our country: a “plus.”

Subtract a small plus from a huge minus, and you’re still negative. You’ll eventually have no money left to buy those imports. We must make them ourselves and spend our paychecks to buy them.

Then, the money stays here—in our country—circulating and helping our citizens. Common Sense 101.

From Scott A.: Mr. Perry’s thoughts—mixed with Friedman’s—make sense. Most people believe a trade deficit is a negative thing. They think if we export more products, more jobs will be needed to produce those products, and more people will be working. The union-friendly crowd supports this theory.

This is why people believe a trade deficit is bad. But this idea only looks at one side… when there are two sides to every coin.

From Carl H.: Perry and Friedman are both shortsighted. The U.S. isn’t getting more imports for the same amount of exports… it’s getting more imports while creating more debt.

That’s like households that buy “stuff” on credit every month. Their debt goes up until they finally go bankrupt. The U.S. is addicted to “stuff” and debt, thinking it’s so smart. But eventually, we’ll have to pay our debts—or make our creditors angry with us when we can no longer pay them back.

Rather than sell our resources—and import the finished products with borrowed money—why not buy resources, make goods, and sell them at profits? Trump makes a good point.

From Paul W.: I found Professor Perry’s explanation of trade balance interesting, but incomplete. It doesn’t address the issue of debt.

If the cost of our imports equals the cost of our exports—plus the cost of the debt we incur bringing them in—it’s the same sort of debt-fueled prosperity we can’t afford long term.

I dismiss Trump’s characterization of the trade balance as theft. But I don’t dismiss the massive theft of intellectual property that’s occurred. That alone should make us think twice about sending goods to our military enemies (or those who may become enemies, based on conflicting core values).

From John S.: I strongly disagree with Professor Perry’s argument. I’m not a professor or an academic. He’s incorrect, as are many economists who deal with theories… not the world as it exists. They’ve also been proven wrong. (Economist John Maynard Keynes comes to mind.)

In order to consume imports, people need full-time jobs to pay for them. If the monetary value of our exports is larger than that of imports, we have a trade surplus. That flowing into the economy will produce more jobs, as production must meet the demand of greater consumption.

Economics is a theory. It conforms to a perfect market, not to the imperfect market that exists in this world.

This isn’t a criticism of Professor Perry’s theory, but an alternative view. Trump just put it in simple terms people can understand.


From Owen D.: Perry and Friedman have it “Bass-Ackward.” Donald Trump is totally correct. If you follow the money—and see which country gains the most jobs and dollars from exports—you’ll get it right.

Was this article published as a joke? Or do your editors just not have any common sense? I hope you’ll quickly print a correction.

Reeves’ Comment: Thank you, everyone, for your thoughtful letters. I can’t speak for Professors Perry or Friedman… but I’d like to clarify some points of contention here…

There are several issues at play in this economic discussion: imports, exports, debt, credit, inflation, currency exchange rates, prosperity, politics, etc.

Each is important, but they’re all jumbled together in most of the responses we received. The result is a confusing hodgepodge. And confusion is a telltale sign a premise is suspect.

So, let’s try to back this out to first principles…

  Most people who disagree with free market capitalism approach the issue from the producer’s perspective.

The argument goes something like this:

Production plays an important role in the economy because production means high employment (we need people to produce things).

High employment means workers have money to spend, save, and invest. Their income sloshes through society, and the economy grows. Voila! New businesses spring up to support increased demand, and a virtuous circle creates a rising economic tide. It lifts all boats.

In this system, anything that lowers employment is a great evil. If Chinese workers can produce the same products as Americans—at cheaper prices—then our industries need “protection”—in the form of taxes on imports—from their foreign competitors.

Our people must stay employed—at any cost. If they don’t, our system of “prosperity” breaks down.

  On the surface, the idea seems plausible and compelling.

But there’s an important logical fallacy here…

Focusing on the producer means focusing on high employment. But high employment is not the foundation of prosperity…

We could draft every unemployed American into ditch-digging squads tomorrow. We’d have 100% employment. But digging and refilling holes doesn’t produce anything…

Increasing productivity—getting more output for every input—is the font of genuine wealth creation. Not employment for employment’s sake.

Of course we want jobs, but we want jobs that afford the highest productivity.

  Now, let’s look at things from the consumer’s perspective…

Not everyone in society produces—like the unemployed, the disabled, retirees—but we all consume. It’s a great equalizer across humanity.

When you focus economic policies on the producer, you exclude large swaths of society. But when you focus on the consumer, you focus on everyone.

Unlike the producer, the consumer always benefits from lower prices. Lower prices mean he can acquire goods and services for less outlay. He’ll have a larger amount of disposable funds left over. He can save, spend, or invest these remaining funds (or donate them). But either way, more disposable income equates to a higher standard of living.

Say the consumer buys cheaper Chinese-made products. It’s true some domestic industries won’t be able to compete with foreign competitors. They’ll go out of business.

But entrepreneurs—using the excess capital afforded by all the cheap prices—will invest and create new domestic industries. These industries will leverage the competitive advantages America does have… and provide high-productivity jobs.

  For example, the U.S. can’t compete with China on “flip-flop” shoe production. But China still can’t compete with America’s technological innovation.

So, Americans may not manufacture as many physical goods as they did in the past… but that doesn’t mean the U.S. no longer has productive domestic industries.

We’ve just witnessed—over time—a progression from a less mature to a more mature economy in America.

To be certain, the U.S. faces major economic headwinds. Our lack of saving, our debt addiction, our fiscal imbalances, our monetary policy—all of these pose grave threats to sustained American prosperity.

But importing more goods… for less money… from overseas… isn’t one of them.

Bottom line: If you still don’t buy the ideas of Professors Perry and Friedman, consider this quote by 18th century French economist Frédéric Bastiat in The Law:

Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.

Then, pay particular attention to minutes 19 through 30 in the Milton Friedman video below: