would stay weak (it didn’t), then their profits on US assets,nsuch as dividends and rents, would also be devalued whennconverted back into German marks or Japanese yen. Thenurge to invest in this country has persisted regardless of thenexchange rate, because it reflects fundamentally improvedninvestment opportunities in the US.nIf a foreigner wants to invest in the United States, he mustnfirst acquire dollars. He can do that by selling either goods ornassets from his own country to people who have dollars—noverwhelmingly, Americans. We don’t want the assets ofnmost other countries as much as we want ours, so they havento offer goods instead. Suppose a Swedish exporter sells usnsome vodka, and ends up with a million dollars. He then hasnonly two choices: he can either buy US goods or US assets,nsuch as stocks and bonds, or he can trade the dollars fornanother currency—but then whoever bought the dollarsnstill has to buy American goods or assets. If many foreignnexporters choose to hold American assets rather than goods,nthe result is an American capital surplus and matchingncurrent account (trade) deficit. It doesn’t last forever,nthough, because the imported factories and machines eventuallynproduce more goods, and that increased productionncapacity replaces imports and expands exports.nWhat would happen if foreign exporters refused to acceptnAmerican assets in payment for their exports? Then theynwould have to either buy more goods from us, sell less, orngive us their goods for free. Either way, the trade deficitnwould vanish. This is what people mean when they say thenUS has been “mortgaging the future.” They mean foreignersnwill eventually buy more US goods by selling their USnstocks and bonds. But we needn’t waste much time with anynargument that begins by worrying that foreigners are buyingntoo few US goods and then ends by worrying that foreignersnwill later buy too many US goods.nAny homeowner who has a mortgage is also “mortgagingnthe future” if we only look at the debt and ignore the valuenof the house. Such primitive single-entry bookkeeping is thensource of most anxieties about debt, whether foreign orndomestic. In fact, US asset values have grown far morenrapidly than debt. According to a recent study by DavidnBradford, net worth of households (assets minus debts)nincreased by $2.2 trillion from 1980 to 1987, measured innconstant 1982 dollars.nPeople in countries with a “capital deficit” (which is thenother side of their current account surplus) are choosingnto invest in the US rather than in their own countries. Thisnis not merely financial capital. It means more offices,nairports, and factories being built here rather than abroad.nSuch capital outflows make future production weaker in thentrade-surplus countries and stronger in the United States. Bynnot reinvesting Taiwanese savings within Taiwan, for example,nthat country has been exporting its seed corn. Countriesnthat do that too long, including West Germany, are having annational “going out of business” sale.nIf foreigners prefer to invest their savings in the US,nrather than in their own countries, that means they expect,nand help create, better opportunities for profitable productionninside the US.nIn a world where capital is free to move from one countrynto another with the speed of electronic communications, thenwhole 16th-century mercantilist idea that current accountsnshould be “balanced” makes no sense. To have zero currentnaccount deficits means zero capital flows, which is literallynimpossible. Things that are impossible should not be held upnas ideal. Adam Smith explained it well in 1776. “Nothingncan be more absurd,” he wrote, “than this whole doctrine ofnthe balance of trade, upon which, not only [trade] restraints,nbut almost all the other regulations of commerce arenfounded.”nNew York City has been running trade deficits with thenrest of the United States for many decades. New York Citynimports all its food from places like Iowa and California,nimports all its cars from places like Michigan, and producesnalmost nothing for export to other states. About all they havenleft are those much-maligned “service jobs” — on WallnStreet and Madison Avenue. Economists and journalistsnwho write about the alleged inferiority of service sector jobsnare, of course, part of that same service sector. Few of themnreally want to work on assembly lines or in sweat shops.nA group called Citizens Against Foreign Control ofnAmerica wants to slap a 20 percent tariff on all imports.nThat is, US consumers would pay a 20 percent tax so thatnmanufacturers located here (including foreign-based companies,nsuch as Nesfle, Bayer, and Shell) could safely hikenprices by 20 percent without fear of foreign competition. Ifnsuch a protectionist policy were announced, foreign companiesnwould rush to build and buy even more plants inside thenUS tariff wall. To do that, they would have to importnmachinery and parts, because we can’t build a new Toyotanor Sony from scratch. The trade deficit would increase innthe short run, even aside from the certainty of retaliation.nWith the cost of production and cost of living 20 percentnhigher than elsewhere, thanks to tariffs, the US economynwould soon slip into chronic decay.nIf investment is good — and it is — thennmore investment is even better, regardlessnwho clips the coupons.nBefore we get so generous with bailouts for sleepy old bignbusinesses, we at least ought to ask what it means to describena company as “American.” Ford is a giant producer ofnvehicles all over the globe. Ford imports the Scorpio fromnGermany, the Tracer from Mexico, and the Capri fromnAustralia. But Ford (like Chrysler, CM, and Honda America)nis also starting to export thousands of US vehicles,nparticularly to Europe. Are we to call Ford an Americanncompany merely because its headquarters happens to be innDearborn? Half of IBM’s employees are overseas, so is IBMnonly half American? On the other hand, Honda is becomingnmainly a US-based auto producer, even in the area ofnengine production, and is exporting US cars to Japan,nTaiwan, and Europe. If American investors buy 51 percentnof the shares in American Honda, which they are free to do,nin what sense should Honda not be considered as “American”nas, say, IBM or Ford?nnnJANUARY 1990/23n