[...] Laffer defends the trade deficits as resulting from the vastly superior investment returns available in America. His argument is that a capital account surplus necessitated a current account deficit. Talk about putting the cart before the horse. According to Lafferese, foreigners sell products to Americans to earn dollars, so that they can "invest" in America to achieve superior returns. This ridiculous logic overlooks the fact that much of these earnings are simply invested in low yielding government and corporate bonds, with a significant portion being purchased by foreign governments. If as Laffer maintains, investment returns in the U.S. really are far superior to those available else where, why are foreign central banks doing so much of the "investing?" Where is all the private capital seeking those alleged superior returns?
Lastly, when asked if a six hundred billion dollar trade deficit was a good thing, wouldn't a one trillion dollar deficit be even better, Laffer's round about response was basically, yes, the bigger the better.