If the Chinese Would Only Eat Stock Certificates

When the National Review makes the case for free trade, I have been know to applaud. The argument put forth by John Tamny, however, does not warrant applause:

Buffett’s comments merit special attention in that it is precisely because the U.S. is moving away from low-value sharecropper jobs that the current-account deficit is so high….When Americans send dollars overseas to import low-margin products such as paper clips, t-shirts, and CD players, the current-account deficit rises. What the Buffetts of the world apparently miss is the great economic success story that allows us to be such prolific consumers to begin with. That story has to do with the dynamism of U.S. companies and their focus on what they do best, and how these companies send overseas the low-value work that hogs limited resources and crowds out innovation at home. The above is the flipside of the outsourcing controversy. It has to do with the messianic devotion of U.S. companies to wringing as much efficiency as possible out of their limited resources. Importantly – as evidenced by the fact that foreign purchases of U.S. stocks more than doubled in January to $16.5 billion – this drive for profits attracts capital. As for the current-account deficit, our export of shares in U.S. innovators such as Google, prominent “outsourcers” like Eastman Kodak, and low-margin product importers such as Wal-Mart does not factor into current-account/trade-deficit calculations.

Trade accounting does not count sales of stock certificates because these represent financial IOUs more than flows of goods. One could, however, argue that an investment-led boom such as we had in the late 1990’s was the driving force between current account deficits over five years ago. The average investment to GDP ratio over the 2001 to 2004 was relatively low so the current account deficit reflected a very low national savings ratio. But maybe I should watch the Food Channel to see which type of rice to serve with my Wal-Mart stock certificates.