America's Future

#77
#77
therealUT said:
As an individual, if you run an overall trade deficit, then you are bankrupt.

I assume that you, if you are an economy, "produce" something of value for another individual (that individual pays for it). Once that individual (whom you work for), pays you, you are running a trade surplus (again, if you are an economy).

Your analogy is highly flawed. "Countries" by and large trade products (whether those are manufactured, mined, or discovered). Nations rarely trade services; service industries are, for the most part, intranational for the purpose of this discussion.
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Yeah, if you are running an overall deficit, it is unsustainable. Good thing wealth is created here in the US.

In fact, the trade deficit has been blamed for a host of economic ills, from unemployment and deindustrialization to a rising gap between rich and poor.

The trade deficit is not the cause of bad things, but the result of good things in our economy. It reflects an economy ripe with investment opportunities and flush with consumer confidence.

In the politically sensitive sector of manufacturing, the trade deficit again proves to be a companion of better times. During years of rising deficits, manufacturing output grew an average of 4.5 percent a year. During years of shrinking deficits the average growth rate of manufacturing output fell to 1.4 percent--less than one-third the rate of growth during years of rising deficits.

A survey of the U.S. economy since 1973, when the era of floating exchange rates and free capital flows began, only confirms that rising trade deficits generally signal good times for the U.S. economy. In the 26 years surveyed, America's current account deficit as a percentage of GDP grew larger (or, in the parlance of the typical news report, "worsened") in 15 of them and shrank (or "improved") in 11.

By almost any measure, America's economy has performed better in years in which the trade deficit rose compared to years in which it shrank.
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A Rising Trade Deficit Signals Good Times for U.S. Economy | Daniel Griswold | Cato Institute: Daily Commentary
 
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#79
#79
IPorange said:
Alright. Go for it.
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It is *somewhat* practiced already. Removing the educational system standing in the way of complete adoption, however, will likely never occur.

Interestingly enough, John Hunter, one of the "founders" of modern surgery, started as an apprentice to his brother's anatomy school.

One of his students, a kid by the name of Edward* Jenner, went on to do some pretty interesting things himself...

Of course, non-formally educated John Hunter wasn't well respected, being a surgeon and not a physician, but he managed to work his way up to Surgeon General, and tend to the aristocracy of England.

Interesting fella.
 
#80
#80
nbakerld said:
Yeah, if you are running an overall deficit, it is unsustainable. Good thing wealth is created here in the US.



A Rising Trade Deficit Signals Good Times for U.S. Economy | Daniel Griswold | Cato Institute: Daily Commentary
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You can find the same arguments regarding budget deficits and leverage. Running any kind of deficits are tools that can be used, and should be used sparingly, but should never amount to the modus operandi. Consistently and systemically running trade deficits means that one is not producing enough to cover the needs of their own citizenry; therefore, the nation is dependent upon the production of other nations to provide for their needs. The larger the trade deficit, the less independent and more dependent upon basic needs.

The problem with both budget deficits and trade deficits is that the problems easily become systemic. It is easier to continue borrowing money than to cut programs and/or raise taxes. It is easier to persuade persons to choose service professions that might be more lucrative in the near term for the individual, than to push less lucrative production and refinement of basic goods and resources, when they can just be shipped in from other nations. As more and more people step away from production and America loses its competitive advantage, it becomes increasingly harder to regain the advantage.
 
#81
#81
#82
#82
therealUT said:
By the way, Griswold was spot on in signaling good times ahead:
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Just as I almost forget that you're the "reading comprehension guy", you remind me.

The trade deficit is not the cause of bad things, but the result of good things in our economy. It reflects an economy ripe with investment opportunities and flush with consumer confidence.
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He's saying it's the result of a healthy economy, not a sign of future health.
 
#83
#83
fl0at said:
It is *somewhat* practiced already. Removing the educational system standing in the way of complete adoption, however, will likely never occur.

Interestingly enough, John Hunter, one of the "founders" of modern surgery, started as an apprentice to his brother's anatomy school.

One of his students, a kid by the name of Edward* Jenner, went on to do some pretty interesting things himself...

Of course, non-formally educated John Hunter wasn't well respected, being a surgeon and not a physician, but he managed to work his way up to Surgeon General, and tend to the aristocracy of England.

Interesting fella.
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I just don't think we live in an era where many businesses will want to spend years training their employees from scratch. Or being that responsible for them while doing so.
 
#85
#85
therealUT said:
He was also dead wrong.
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You should probably back that up a little more. He is an economist from (probably) the most recognizable economic think tank in the world. I'm gonna go with him unless you can produce something substantial to counter. Do you have anything substantial?
 
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#86
#86
nbakerld said:
Do you have anything substantial?
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I'll take Paul Krugman over Daniel Griswold, any day.
CSI: Trade Deficit, by Paul Krugman, Deficit Puzzle Commentary, NY Times:

Forensics are in. If you turn on the TV during prime time, you're likely to find yourself watching people sorting through clues from a crime scene, trying to figure out what really happened.

That's more or less what's going on right now among international finance experts. The crime in question is the U.S. trade deficit, which ... reached an amazing $805 billion last year. The mystery is how we've been able to run huge deficits ... with so few visible adverse consequences. And the future of the U.S. economy depends on which of two proposed solutions to the mystery is right.

Here's the puzzle: the trade deficit means that America is ... spending far more than it earns. ... To pay for the excess of imports over exports, the United States has ... borrowed more than $3 trillion just since 1999.

By rights, then, the investment income ... that Americans pay to foreigners should be a lot larger than the investment income foreigners pay to Americans. But according to official statistics, the United States still has a slightly positive balance on investment income.

How is this possible? The answer, almost certainly, is that there's something wrong with the numbers. ... But depending on ... what's wrong, the U.S. economy either has hidden strengths, or it's in even worse shape than it seems.

In one corner are economists who think the official statistics miss invisible U.S. exports ... of intangibles like knowledge and brand-name recognition, which allow U.S. companies to earn high rates of return on their foreign investments. Proponents ... claim that if we counted [this] ..."dark matter," much of the U.S. trade deficit would disappear. ... But ... U.S. companies operating abroad don't, in fact, seem to earn especially high rates of return.

Why, then, doesn't the United States seem to be paying a price for all its borrowing? Because according to the official data, foreign companies operating in the United States are remarkably unprofitable, earning an average return of only 2.2 percent a year.

There's something wrong with this picture. As Daniel Gros of the Center for European Policy Studies puts it, it's hard to believe that foreigners would continue investing in the United States "if they were really being constantly taken to the cleaners."

In a new paper, Mr. Gros argues — compellingly, in my view — that ... foreign companies are understating the profits of their U.S. subsidiaries, probably to avoid taxes, and that official data are ... failing to pick up foreign profits that are reinvested in U.S. operations.

If Mr. Gros is right, the true position of the U.S. economy isn't as bad as you think — it's worse. The true trade deficit ... isn't $800 billion — it's more than $900 billion. And America's foreign debt ... is at least $1 trillion bigger than the official numbers say.

Of course, optimists have a comeback: if things are really that bad, why are so many foreign investors still buying U.S. bonds? ... But I have two words for those who place their faith in the judgment of investors...: Nasdaq 5,000.

Right now, forensic analysis seems to say that the U.S. trade position is worse, not better, than it looks. And the answer to the question, "Why haven't we paid a price for our trade deficit?" is, just you wait.
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That was written in 2006; interesting that since 1999, when the Cato Institute said running a trade deficit is healthy, the trade deficit has increased dramatically, and that now in 2011, we have now seen that Krugman's "just you wait" is coming to fruition.
 
#87
#87
nbakerld said:
My household is a small economy. I run a gigantic trade deficit with the grocery store. I buy tons from them, and they buy nothing from me. Hasn't seemed to hurt me at all. Actually I am better off, even though I am dependent on another actor. I may be able to produce my own potatoes, but I am much better off depending on somebody else to do it for me.

How can trade deficits be so beneficial to you and me as individuals, but detrimental to a national economy? Why is a national economy any different with regard to trade deficits?

Hint: Trick question. It's not.
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Not the point of the post. He's right. If you do not gather or improve resources then you are not generating real wealth... UNLESS you have colonized places that are doing those things.

It isn't a trade deficit in one particular thing that costs you.

Let's say the economy you speak of only consists of you and the grocery store. You grow potatoes and they buy them from you. You produce $1,000 worth of potatoes but need to buy $1,300 worth of groceries to survive. You have to borrow then borrow more. In our gov't's case you can also devalue your currency in an attempt to narrow that deficit.

Eventually, you default.
 
#88
#88
Krugman's stuff agrees with some of the major points by the "End of America" video guy. The US having control over the world's reserve currency can print the money to cover the deficit... but not forever.
 
#89
#89
therealUT said:
I'll take Paul Krugman over Daniel Griswold, any day.

That was written in 2006; interesting that since 1999, when the Cato Institute said running a trade deficit is healthy, the trade deficit has increased dramatically, and that now in 2011, we have now seen that Krugman's "just you wait" is coming to fruition.
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That's not what Griswold said.

I honestly don't know anything about Griswold, but I know CATO's rep and I know Krugman's rep. There's a reason Krugman won't debate Austrians. Krugman is a big government Keynesian who exaggerates the perils of trade deficits and income gaps so the real culprits (regulation, the Federal reserve, Croney capitalism, etc) of this economic downturn get off scott free. Yes deficits are unsustainable over time, but we have a lot more to be concerned about than manufacturing jobs.

Many Austrians have tried to get Krugman to debate business cycle theory. He’s too busy and too sophisticated to debate an Austrian, of course. Until now.

Economist Robert Murphy has come up with a clever way to make this happen. Through a website called The Point, people can pledge an amount of money to make the debate happen. Not one cent is charged to them until it does happen. The money will go to a charity for the hungry in New York. So if it hits, say, $100,000, Krugman will have to explain why getting $100,000 to New York’s hungry isn’t worth one hour of his time.
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We'll see if this ever happens.

Why Paul Krugman WILL Debate an Austrian LewRockwell.com Blog
 
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#90
#90
sjt18 said:
Not the point of the post. He's right. If you do not gather or improve resources then you are not generating real wealth... UNLESS you have colonized places that are doing those things.

It isn't a trade deficit in one particular thing that costs you.

Let's say the economy you speak of only consists of you and the grocery store. You grow potatoes and they buy them from you. You produce $1,000 worth of potatoes but need to buy $1,300 worth of groceries to survive. You have to borrow then borrow more. In our gov't's case you can also devalue your currency in an attempt to narrow that deficit.

Eventually, you default.
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You are right. I realize now I was talking past him. Trade deficits with individual countries are not bad in the least bit. If trading gold, an overall trade deficit over time is not sustainable (which I've been admitting). If they are sitting on our American dollars and never choose to spend them here, that's no sweat off my sack, we can just print off more money. If they do spend the money it will eventually make it's way back to the US through purchasing goods and services.

At the core of our discussion is his point that manufacturing jobs are more important than service sector jobs. That's how we started talking about trade deficits. As Griswold pointed out, domestic manufacturing has a positive relationship with trade deficits.
 
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#91
#91
OK, here is an excellent article in layman's terms about how and why the perils of trade deficits are exaggerated. Article is by economist Walter Williams of George Mason University (my favorite economist, just coincidence that this came atop my google search).

Acting on behalf of various interest groups, politicians fret over trade deficits but is it something that ordinary Americans ought to worry about? What politicians and inept people in the news media, whose duty is to inform, never bring up is that in the international trade arena, there are two accounts. One is called the current account, which consists of goods and services exchanged between Americans and foreigners. That's the account where we have a large trade deficit. Americans buy more goods and services from foreigners than they buy from us.

There's another account called the capital account. It consists of foreign direct investment in the U.S. such as the purchase or construction of machinery, buildings or even whole manufacturing plants plus foreign purchases of stocks, bonds and currencies. For example, Toyota might sell me a Lexus, manufactured in Tahara, Japan for $70,000 but not purchase any American goods such as wheat, cotton or steel. That means there is a $70,000 trade deficit with the Japanese. What will the Toyota seller do with the $70,000? It would be wonderful if Toyota and other foreign producers just treasured dollars and simply stored them. We'd be on easy street having a few Americans printing up dollars whilst the rest of the world sends us cars, computers, coffee and other goods in exchange for them.

It doesn't work out that way. In our example, instead of purchasing American goods with the $70,000, Toyota might put the money toward building a Toyota plant, as it has already done, in Huntsville, Ala., that employs nearly 800 Americans. As a result of that current account deficit of $70,000, we have a capital account surplus (net inflow of capital into the U.S.) of $70,000.

Here's my question to you: Have Americans been made worse off because of the $70,000 current account trade deficit? I'd answer no. Of course, Congress could do something to reduce the trade deficit. They could impose tariffs and quotas to restrict the number of Lexus cars being exported to the U.S. or the White House could, as was done during the Reagan administration, intimidate Japan into "voluntary export restraints." Again, would Americans be better off? By the way, there are other ways for capital inflows, or investment in the U.S., to occur. With the dollars foreigners earn selling us goods, they purchase U.S. stocks, bonds and real estate. As a people, we should be proud to be a nation in which millions of people around the world want to buy into.
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Worry Over Trade Deficits by Walter E. Williams
 
#92
#92
nbakerld said:
You are right. I realize now I was talking past him. Trade deficits with individual countries are not bad in the least bit. If trading gold, an overall trade deficit over time is not sustainable (which I've been admitting). If they are sitting on our American dollars and never choose to spend them here, that's no sweat off my sack, we can just print off more money. If they do spend the money it will eventually make it's way back to the US through purchasing goods and services.

At the core of our discussion is his point that manufacturing jobs are more important than service sector jobs. That's how we started talking about trade deficits. As Griswold pointed out, domestic manufacturing has a positive relationship with trade deficits.
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I would argue that there's an equillibrium and ours is tilted too far away from manufacturing. I am less concerned personally about any particular trade deficit than I am that we consume more than we produce. We are borrowing money effectively to let people who produce nothing or more than there production to continue to consume at an unsustainable rate. If Krugman and Keynesians generally were not wrong then there should be no problem or trade deficit.

I would also agree to the point that manufacturing and resource gathering jobs are more important than service jobs. Wealth must be created before it can be distributed. Service jobs however are far more valuable than jobs that do no more than transfer wealth or consume it without generating a real product... basically the reason I do not believe any economy can survive a large welfare state or big gov't generally.
 
#93
#93
China is becoming more and more expensive while American goods are becoming cheaper. The combo of a excellent quality and a good price along with some sort of "economic stiff arm" (tax cut, policy chg, etc) America can propel itself forward and solidify us as a manufacturing power for decades
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#95
#95
VolsNSkinsFan said:
China is becoming more and more expensive while American goods are becoming cheaper. The combo of a excellent quality and a good price along with some sort of "economic stiff arm" (tax cut, policy chg, etc) America can propel itself forward and solidify us as a manufacturing power for decades
Posted via VolNation Mobile
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Our opportunity to be in that particular position was stifled by the left and in particular labor unions in the earliest days of the Technology Revolution (70's/80's). They would not allow automation that would reduce union jobs. Predictably, those jobs and many, many more were lost because those innovations were blocked.
 
#96
#96
sjt18 said:
Our opportunity to be in that particular position was stifled by the left and in particular labor unions in the earliest days of the Technology Revolution (70's/80's). They would not allow automation that would reduce union jobs. Predictably, those jobs and many, many more were lost because those innovations were blocked.
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doesnt mean we are down for the count. We build things that the world needs. People pay up for quality (to a point) and if we can keep costs down and the quaility up, then we can compete with Chinas low cost and low quailty goods. As China becomes more and more expensive then an equilibrium can be reached
 
#99
#99
VolsNSkinsFan said:
African and India dont have the infrastructure to produce the quality of goods we can produce. They dont even have running water, electricity or toilets
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The denizens of Hyderabad, Chennai, Bangalore, Mumbai, Goa, Delhi, and Kochi would love to have that argument with you.
 
#100
#100
India tops list of nations lacking toilets - Economic Times

India has topped the list of top ten nations that lacks sanitary facilities
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Water supply and sanitation in India - Wikipedia, the free encyclopedia

None of the 35 Indian cities with a population of more than one million distribute water for more than a few hours per day
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Coal shortage causes India’s electricity generation to slump

The country’s electricity generation has taken a severe hit from the acute coal shortage, falling 22% in April.
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