Tourists and Investors as Scapegoats; H. Hazlitt

President Johnson blandly ig nores all this and puts the blame on the American people. The worst culprits are the businessmen who invest abroad and the citizens who travel abroad. So he has an nounced mandatory limits and penalties on both. These restric tions may possibly make the bal ance-of-payments statistics look less ominous for a few months. But in the long run they are not only condemned to failure but will deeply injure both the dollar and our economy. Let's begin with foreign invest ments. Four-and-a-half years ago the government put a "temporary" penalty tax on foreign portfolio investments and asked for "vol untary" restraints on foreign bank loans and direct investments. N ow it has decided that these di rect investments are one of the chief causes of the balance-of-pay ments deficit and it has cracked down on them. The truth is that our private investments abroad are one of the chief sources of strength in our balance of payments. So far as direct investment is concerned, the annual repatriation to the United States of income from 205 206 THE FREEMAN April past investments has exceeded an nual new investment outlays in every year since 1945. Currently we are receiving $4 billion in in come from this source, compared with an outflow of new capital of only some $2.5 to $3 billion.

We received in 1967 from total private investments - including bank loans and foreign securities - about $6.5 billion in income compared with an outgo of $4.5 billion in new investments. This means a net balance-of-payments surplus of about $2 billion. If we now constrict or cut off the flow of new investment abroad, we will do so only at the cost of constricting our future invest ment income from abroad. But this is only part of the cost. We will undermine our own long range competitive strength abroad. We will withhold the capital that allows foreign countries to im prove their living standards. And we will fail to develop the exports that grow directly out of our di rect investments abroad. The .new program is riddled with contradictions. The govern ment will first forbid its citizens to invest their money in countries where it is used productively to earn a. return and strengthen our balance of payments. And then it will tax these same citizens and give away their funds as "aid" to irresponsible governments of "underdeveloped" countries. These handouts, as experience shows, are wasted on harebrained social istic schemes and, in any case, produce no offsetting earnings to help our payments balance.

The new investment curbs, fi nally, discriminate among foreign countries and so are certain to breed resentment and retaliation. The proposed curbs on tourists are folly compounded. If, as Mr. Johnson says, the citizens who travel abroad are "damaging their country," aren't the citizens dam aging it still more who spend American dollars on Scotch, French wines and perfumes, Ital ian couturiers, imported diamonds, jewelry, furs, and cars? What's so outstandingly wicked about travel? Why not, in con sistency, forbid the importation of all luxuries and put tough quotas on the import of coffee and cocoa? And why is it treason to travel to Belgium but still patri otic to go to Brazil ? There is only one basic cure for the weakness of the dollar. That is to stop the reckless Federal spending; stop the budget deficits; stop grinding out more paper dol lars. The new penalties and de crees .only divert attention from the need for this basic remedy. ~ Copyright 1968, Los Angeles Times. Reprinted with its permission. .