"Economic nationalism" is becoming one of the buzz phrases of 1988. Reporters are using it to describe the policies advocated by presidential candidate Richard Gephardt. Democratic strategists hope it can give the party's image a tough, patriotic coating and help make up for the Republican advantage on defense.

Any nation's economic policies ought to be based on its own self-interest. The question is whether the policies associated with "economic nationalism" serve America's interests. The phrase refers primarily to proposals for restrictions on trade or imports of foreign goods. There is increasing alarm, though, about a related matter: imports of foreign money. "Foreign money is changing the face of America, the lives of Americans, and the nature of our political processes," write Martin Tolchin and Susan Tolchin in their new book, "Buying Into America."

"Foreign" basically means Japanese. The recent sales of CBS Records to Sony and Firestone Tire Company to Japan's Bridgestone -- and the way Japanese banks have been snapping up downtown real estate -- lead people to wonder whether we're selling our patrimony. Felix Rohatyn predicts: "Sooner or later we may find it necessary to establish a legal mechanism to review such potential acquisitions from the point of view of the national interest."

Growing foreign investment in the United States is part of a worldwide breaking down of international barriers in finance and business. American investment in foreign countries is growing at the same time. In fact, the United States still leads the world in direct foreign investment (buying whole companies, factories and so on, as opposed to stocks and bonds). According to The Economist, America's new DFI was $25 billion in 1986. Japan came in third, behind Britain, at $14.5 billion. The biggest foreign investors here are Britain and Canada, not Japan.

America's prosperity derives in part from our bounty of natural resources and also, of course, from our virtuous national character. But more than anything else, probably, it derives from having an internally unrestricted, continent-wide marketplace. There's no reason to suppose that living in a world economy won't make us more prosperous still.

Nevertheless, foreign investment here is increasing faster than American investment abroad, and Japanese investment here is increasing fastest of all. That's simply a function of our trade deficit. We're consuming more than we're producing, and giving people dollars instead. Those dollars are foreign investment in the United States, even if they're just left in bank accounts.

As long as we're shoveling out the dollars, though, it's better for us to have them invested in hard assets than in pieces of paper and electronic blips. A $500 million blip can be withdrawn instantaneously. A downtown office building is not so easily liquidated. Hard assets give our foreign creditors a vested interest in our economy.

It would be better, of course, if we were consuming less and producing more. Given that we aren't, though, foreign investment has been our salvation. In the late 1970s and early 1980s I used to write editorials, like everyone else, warning that huge federal deficits were bound to cause renewed inflation and imminent catastrophe. It hasn't happened -- yet -- because foreigners have staked us. Maybe in retrospect we'll wish they hadn't, but the last few years at least have been happier than they otherwise would have been.

Naturally, people only invest with the intention of eventually pocketing the profits. The growth of net foreign investment in the United States (over what we've invested abroad) means that some day we'll be sending more money abroad, and we'll be poorer for it. The less borrowing we do today, the less paying we'll do tomorrow. But restricting foreigners' right to invest here gets the problem backward. The problem is our needing the money, not their willingness to supply it.

"We currently have a review mechanism for foreign acquisitions of companies with defense-related activities," writes Rohatyn. Why not extend it to other vital areas? "For instance, should we allow Sony to acquire control of Time Inc. instead of CBS Records?" Answer: yes. Once you expand such controls beyond the purest defense considerations, almost any company can come up with a "vital national interest" reason to block almost any foreign takeover. It's not as if we have nothing to learn from Sony.

"The American Challenge,", Jean-Jacques Servan-Schrieber's paranoid classic of the 1960s, made many of the same arguments about U.S. investment in Europe that are heard today about Japanese investment in the United States. The alarmists are not numb to the irony. However, the Tolchins write, "The oil crisis of 1973 intervened to diminish America's industrial power." In fact, the oil crisis hurt energy-poor Europe a lot more than America. What intervened was the realization that American investment was good for Europe, not bad.

"Economic nationalism" sounds very grand and self-assertive. In fact, it's small-minded and defeatist.