tag:blogger.com,1999:blog-4900303239154048192.post1960951819343477342..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Paul Krugman on Protectionism and Trade Balances: Wonkish and WrongUnknownnoreply@blogger.comBlogger9125tag:blogger.com,1999:blog-4900303239154048192.post-43381027330114162362016-12-28T20:18:30.414-05:002016-12-28T20:18:30.414-05:00Pk in the service of his grand model
Has telescope...Pk in the service of his grand model<br />Has telescoped the time line <br /><br />A sin of theorists <br />When trading regions collide <br />Goodly hunks of a nations raw humanity <br />can be devoured <br /> before the ineluctably magnificent workings of institution embedded markets <br /> Complete the full circle of outcomes<br /> from deficit to surplus ..... from surplus to deficit .....Owen Painehttps://www.blogger.com/profile/13675803406994867138noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-21741320298390517462016-12-28T16:32:56.880-05:002016-12-28T16:32:56.880-05:00Barkley, the gap between the net foreign earnings ...Barkley, the gap between the net foreign earnings flows and the imputed external net liability position of the US is a stock valuation problem and doesn't affect the flow identity. True, some of the dark money crowd like to apply an imputed flow of some secret investment sauce as a US export that "explains" our favorable net earnings. Of course, they have it exactly backwards: if it were not for the measured net earnings no one would be talking about our implicit export of capital allocation wisdom -- of which there is no evidence in our internal affairs, needless to say. (I think global portfolios are willing to include safe but low yield US financial assets to offset risks they incur elsewhere; we have a comparative advantage in generating those assets. And there are a lot of low yield securities held by east Asian and other CB's as post-1998 buffers.)<br /><br />In any case, I'm with Keynes on this. It's a monetary economy. We want to measure flows of money and monetary commitments whatever strange items they may be transacted for.Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-2903030531703810762016-12-28T15:23:44.383-05:002016-12-28T15:23:44.383-05:00Peter,
You are probably right that most of the...Peter,<br /> <br />You are probably right that most of the BOP gaps on capital and current account are stat error, although in many cases it is a simply illegal transactions. I mean, the three largest exports of Colombia are all illegal and thus contribute to a screaming gap between the measured levels of the two accounts.<br /><br />Another oddity is that the accumulated capital account balance may not be reflected in current account flows. This has been the case for some time with the US, where we are on the one hand a huge net debtor on the capital account, but continue to have a surplus on foreign income flows in the current account due to our people owning assets abroad having ones that pay a lot whereas foreigners have been willing to buy very low yielding very low returns. This has been going on for quite some time now.<br /><br />In his old Principles text, one of the better things that Samuelson die was at one point to have an econ history of the US from the BOP standpoint. So, prior to the Civil War we ran deficits on the current account while borrowing money from abroad (not all of which we paid back, such as to those British banks who financed the building of the Erie Canal). Then between the Civil War and WW I roughly (probably just up to before the war), we ran current account surpluses in our industrial expansion, but ran capital account deficits as we essentially paid off all those old debts. Then from WW I until somewhere in the 1960s or thereabouts, we still ran current account surpluses, but our capital account deficit was now us investing abroad.<br /><br />Since then we have been running current account deficits, especially dramatically so since the mid-1980s, while borrowing from abroad. But this whole time we have managed to maintain a positive net income flow from abroad. Weird and not much noticed by most Americans. If that were to flip around, things could get unpleasant.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-41102235636848502822016-12-28T14:57:09.012-05:002016-12-28T14:57:09.012-05:00The issue is not writing style. That would be hila...The issue is not writing style. That would be hilarious. The truth is, in this case, tragic and deadly. <br /><br />A previous example of Krugman reasoning from an identity to an empirical conclusion is what awoke me from my dogmatic slumber. <br /><br />https://www.thorntonhalldesign.com/philosophy/2014/5/8/change-your-mind-and-see-what-was-always-there<br /><br />The crucial point is this: you would be laughed at, hard, in a fourth year philosophy seminar for reasoning the way Krugman does. You would be called "stupid".<br /><br />What kind of empirical discipline gives a Nobel Prize to a laughably stupid philosophy undergraduate?<br /><br />"Of course no one believes..." Beware this clause. Economics makes thousands of claims about the world. When pressed to defend one, they place the clause in front of several others. When pressed to defend the several others, they place it before the one they just defended. Thornton Hallhttps://www.blogger.com/profile/11402495641975262697noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-25633016204340587982016-12-28T14:03:37.499-05:002016-12-28T14:03:37.499-05:00To put some numbers on my comment, I went back to ...To put some numbers on my comment, I went back to my Dec. 15 comment:I <br /><br />"Taking a look at this source and updating what Summers said for 2015, it seems net investment was only 5.5% of NNP. With the trade deficit running at about 3.75% of GDP, net national savings is still only 1.75% of NNP."<br /><br />The source is www.bea.gov. I'm hoping for an increase in investment demand. This should increase real GDP as we are not at full employment (that's my view and I'm sticking to it). If that means a larger current account deficit - so be it. What we do not need is an increase in interest rates which would not only lower investment but also lead to even more dollar appreciation and hence less net exports.ProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-46464851658067555922016-12-28T12:51:41.513-05:002016-12-28T12:51:41.513-05:00Again the issue may be writing style. The (1) whic...Again the issue may be writing style. The (1) which draws your objection:<br /><br />"The first-level effect is that, if the trade balance is fixed, a tariff will have to be offset by appreciation, restoring the pre-existing balance at a lower level of both imports and exports."<br /><br />Of course no one believes the trade balance is fixed. Rather it is determined by all sorts of things such as the difference between national savings and investment. With national savings being even lower than investment now, unless we have an increase in national savings or a fall in investment (neither of which I'm advocating), then the standard model does say trade protection will lead to currency appreciation. I think this is the point Krugman (and Mankiw) are trying to make. Focusing on identities is a bit of a distraction but there is a coherent model behind all of this. Not saying the standard model is the right one but Team Trump has no model. ProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-80469430207160446462016-12-28T03:03:33.510-05:002016-12-28T03:03:33.510-05:00Krugman says: “The standard story then runs as fol...Krugman says: “The standard story then runs as follows: the capital account is determined by international differences in savings and investment opportunities, with capital inflows to countries that offer good returns. The real exchange rate then adjusts to ensure that the trade balance offsets these desired capital flows”, <br /><br />I’m not at all sure how this is supposed to work when countries like China (as opposed to individuals) purchase dollars with their currencies and purchase US government and agency bonds with the dollars in order to keep their exchange rates low. There’s a risk of capital loss in terms of their currency if and when exchange rates adjust, but this is not necessarily a deterrent when the accumulated foreign assets are held by the country's central bank or government. It is the central bank or government that will take the loss rather than those who earn their incomes in the exporting industries or otherwise benefit from the lower exchange rate.<br /><br />Hobson’s analysis of this kind of situation seems more reasonable to me:<br /><br />"It is here enough to repeat that Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China, provided it can find there a cheaper or more efficient supply of labour, or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations which have driven their economic suckers into China. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or, as is more probable, by substituting her own, might flood their markets with her cheaper manufactures, and refusing their imports in exchange might TAKE HER PAYMENTS IN LIENS UPON THEIR CAPITAL, REVERSING THE EARLIER PROCESS OF INVESTMENT UNTIL SHE GRADUALLY OBTAINED FINANCIAL CONTROL OVER HER QUONDAM PATRONS AND CIVILISERS. This is no idle speculation. If China in very truth possesses those industrial and business capacities with which she is commonly accredited, and the Western Powers are able to have their will in developing her upon Western lines, it seems extremely likely that this reaction will result." John Atkinson Hobson, Imperialism, A Study, 1902. <br /><br />For a country to accumulate foreign debt as it runs a persistent trade deficit is not, in itself, a bad thing. We followed this course in the 19th century and into the 20th, but we used that debt to import capital goods and foreign technology and to invest in public education and infrastructure that led to increases in productivity. We built railroad and telegraph systems and created steel, oil, gas, electrical, automobile, and aviation industries. Our trade policies protected manufacturing as our economy grew more rapidly than our foreign debt, and as Europe squandered its resources in senseless conflicts, by the end of WW I the US had become a net creditor nation and the economic powerhouse of the world.<br /><br />This is not the course we have followed over the past 40 years. We have exported rather than imported capital goods and technology, and, in return, we borrowed to import consumer goods. We invested less rather than more in our public education and infrastructure than other countries. We made huge advances in electronics and computers, but our trade policies have not protected manufacturing, and we have outsourced the manufacturing and technological components of these industries to foreign lands. As a result, our economy is not growing more rapidly than our foreign debt, and it is the United States that is squandering its resources in senseless conflicts: http://rwEconomics.com/htm/WDCh_2.htm and http://rwEconomics.com/htm/WDCh3e.htm<br />Anonymoushttps://www.blogger.com/profile/16011736382575746163noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-21138245135899153822016-12-27T23:07:58.326-05:002016-12-27T23:07:58.326-05:00Barkley, the BOP discrepancies are almost certainl...Barkley, the BOP discrepancies are almost certainly measurement error, in part due to tax and regulatory avoidance. We can probably trust the COFER data on foreign exchange holdings (for reporting countries), and they don't suggest much buffering via changes in the reserve account.<br /><br />And also, yes, any theory that implies a known relationship between macro variables and forex rates is *very* counter-empirical. And Krugman knows this! I don't get it.Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-19917025358438604252016-12-27T22:17:30.042-05:002016-12-27T22:17:30.042-05:00You are right, Peter, thta international econ is b...You are right, Peter, thta international econ is both micro and macro. Also it is common to see nations go for long periods of time running either chronic current account surpluses or deficits. It also happens to be the case that the current account does not always offset the capital account and vice versa, even though they are theoretically supposed to. But go look at data. In most countries they do not, although they do tend somewhat to be on opposite sides of being in surplus and deficit. There is a lot of noise in the data, a lot.<br /><br />Anyway, bottom line is taht I am not sure what the outcome of a Trump tariff would be. What I do know is that foreign exchange rates are the hardest of all macro variables to actually forecast, so, who knows? Forex rates do the darnedest things.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.com