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Wednesday, April 8, 2009

Cheers for Free Trade

Since yesterday's post referenced the Wall Street Journal, I thought I'd be journalistically balanced by referencing the Boston Globe. (Plus, this may be my last chance to link to a Globe article).

This piece by Edward Glaeser, is an excellent analysis on how the US and global economies will eventually recover from our current economic slump. He rightly asserts that free trade, the rule of law, and personal property rights will be essential in moving us forward from here.

I like this quote:

"America's future prosperity depends on engagement with the world that is now lending us so much. American entrepreneurs have and will make fortunes by finding opportunities in the dynamic, developing economies. Indian software makes American companies more efficient. Chinese clothing makes American lifestyles more affordable. Tariffs are meant to protect workers in America's declining industries, but it would be far better for those workers to move from the industries of the past to the businesses of the future."

I'm fairly confident that cooler heads will prevail and our government won't turn radically, or even moderately, protectionist. We know for a fact that Larry Summers, Christina Rhomer, Austan Goolsbee, Tim Geithner, Ben Bernanke, etc.. are all avowed free traders, and they make up the core of President Obama's economic team.

I do have a bit of an issue with Dr. Glaeser's characterization of "fiscal restraint". I am most certainly not a fan of government waste, profligate spending or general bureaucratic mismanagement. However, I am not convinced that comparing nominal national debt to gross domestic product (Dr. Glaeser calls it "debt-to-income ratio") is really the best way to understand federal government borrowing.

I prefer to look at debt as a percentage of assets, and I am not overly concerned with the amount of debt that the US government has, when compared to its assets (the largest land owner in the US is ... Uncle Sam.) Of course I would prefer less debt, but when debt is financed at rates that could easily be below the actual inflation rate over the next several decades, and that debt is not collateralized, I am generally less concerned than many others. I could very well be wrong, so we'll have to wait and see how things play out.