tag:blogger.com,1999:blog-4900303239154048192.post3877944583764594225..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Trade and Jobs and Fallacies of CompositionUnknownnoreply@blogger.comBlogger11125tag:blogger.com,1999:blog-4900303239154048192.post-65331105691072764672016-07-05T17:17:55.232-04:002016-07-05T17:17:55.232-04:00The posted comment and the resulting discussion, a...The posted comment and the resulting discussion, above, seem to deal with the effects of foreign trade imbalance. Why do these discussions not focus on the impetus for corporations to seek out localities around the globe as production sites? Why isn't the factors that result in foreign trade not the focus of attention? Does foreign trade actually occur as a result of the likely results of such trade? Do producers of products think about foreign trade balances when deciding where to locate their production facilities? It seems that some important factors in the foreign trade equation are being left out of the discussion. Jackhttps://www.blogger.com/profile/12971442888151627894noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-36161636904010209902016-07-05T16:14:17.576-04:002016-07-05T16:14:17.576-04:00I present to you my installation piece: "Nobe...I present to you my installation piece: "Nobel Prize winner can't use basic logic about subject he won Prize for and his colleagues demonstrate that correct application of logic leads to infinite correct answers when discipline lacks a systematic empirical check."<br /><br />Or: The Enlightenment is Out of GasThornton Hallhttps://www.blogger.com/profile/11402495641975262697noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-57202482263056160592016-07-05T11:58:13.267-04:002016-07-05T11:58:13.267-04:00Peter,
Only in a fixed exchange rate system. Not ...Peter,<br /><br />Only in a fixed exchange rate system. Not in a floating rate system. <br /><br />Trade deficits in the manner you describe *cannot exist* in a floating rate system. The balancing savings have to be taken *at the same time* or the import trade will run out of the right sort of money and not complete. <br /><br />So a 'collapse' in an export trade necessarily eliminates imports unless the export is immediately replaced with excess savings (as it usually is, because that's what the finance system gets paid to do). <br /><br />This may be directly or via a shift in the exchange rate forcing an exchange loss. <br /><br />BOP crisis do not happen in the way it is traditionally described. If there are no foreigners prepared to save in your currency, then the import transaction fails due to lack of the right sort of money. There's no 'payment' as such. It just never happened in the first place. <br /><br />But that also affects the exporter to your nation. Where are they then going to sell their stuff to keep their economy going?<br /><br />Which is why you end up either with exporters taking less in their currency and maintaining prices in yours (an exchange loss), or doing financial manipulation to make the trade happen via the banking system (from a hard peg to soft discounting).<br /><br />Essentially the 'trade balance' is a function of the accounting policy - drawing a hard political boundary around a currency zone that isn't limited to the political boundaries.<br /><br />That produces a viewpoint that warps understanding.<br /><br />See - Why economists fail at foreign trade:<br /><br />http://www.3spoken.co.uk/2015/11/why-economists-fail-at-foreign.htmlRandomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-29569768200491324932016-07-04T15:01:53.522-04:002016-07-04T15:01:53.522-04:00"Free Trade can nowise guarantee the maintena..."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 PAYMENT 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." Hobson,1902 https://archive.org/details/imperialismastu00goog And what did today’s experts think was going to happen? http://www.rweconomics.com/htm/WDCh_2.htm <br /><br />It just gets curiouser and curiouser.Anonymoushttps://www.blogger.com/profile/16011736382575746163noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-56691784225377439422016-07-04T14:48:48.636-04:002016-07-04T14:48:48.636-04:00Peter noted Zucman's contribution to the old D...Peter noted Zucman's contribution to the old Dark Matter debate. Here is the link of the paper I really need to catch up on:<br /><br />http://gabriel-zucman.eu/files/Zucman2013QJE.pdfProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-24244727064701338642016-07-04T14:47:13.381-04:002016-07-04T14:47:13.381-04:00"For a country to accumulate foreign debt as ..."For a country to accumulate foreign debt as it runs a persistent trade deficit is not, in itself, a bad thing. The United States followed this course throughout the nineteenth century and into the twentieth. But throughout that period we used that debt to import capital goods and foreign technology. We invested in public education and other public infrastructure that led to tremendous increases in productivity in agriculture and manufacturing. We built national railroad and telegraph systems and created steel, oil, gas, electrical, automobile, and aviation industries. Our trade policies protected our manufacturing industries as our economy grew more rapidly than our foreign debt, and as Europe squandered its resources in senseless conflicts, by the end of World War I the United States 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 forty 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, transportation, and other public infrastructure systems than other countries have invested. While we made huge advances in the electronics and computer industries over the last forty years, our trade policies have not protected our manufacturing industries, 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://www.rweconomics.com/htm/WDCh_2.htm Anonymoushttps://www.blogger.com/profile/16011736382575746163noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-33768208038678352992016-07-04T14:43:20.890-04:002016-07-04T14:43:20.890-04:00I was about to raise the net income from abroad pu...I was about to raise the net income from abroad puzzle but Barkley raised it for me. This puzzle was dubbed "Dark Matter" over a decade ago. China has the opposite situation - something I recently called Dark Anti-Matter. Over a decade ago in my Angrybear days, I noted the two competing hypothesis of what is going on - the Dark Matter claimed that we are exporting a lot of intellectual property income versus transfer pricing manipulating the GNP accounts. I recall a rather biting critique of this stuff from Willem Buiter. <br /><br />But let's say the original Dark Matter thesis were correct. We are deriving a lot of income that is income of the owners of intellectual property but are running deficits in actually making things. I suspect the distributional implications write themselves. ProGrowthLiberalhttps://www.blogger.com/profile/17138489390594441753noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-13654825176377013632016-07-04T13:30:35.099-04:002016-07-04T13:30:35.099-04:00I don't think we can close the loop here witho...I don't think we can close the loop here without taking note of the role of financial investment in manufacturing. The ability to manufacture rests on sunk-cost investments in organization, including factories and systems and infrastructure and networks and so on: there are potentially huge economic rents associated with successful development of manufacturing capability.<br /><br />Yes, the U.S. was financing its trade deficit and housing bubble by selling financial securities to China, and . . . China was financing its investment in export-oriented manufacturing capacity.<br /><br />Can we not take notice? <br /><br />Autor's story -- of imports depressing domestic U.S. manufacturing employment -- is only half of a story, in which financial investment in manufacturing capacity in China is made less risky and more profitable, while the financial signals to U.S. manufacturing is in favor of disinvestment and abandonment. All driven by a housing bubble that encourages U.S. workers to try to maintain their consumption despite declining labor income with home equity loans.<br /><br />Krugman is making a technical point about the proper analysis of macroeconomic effects of microeconomic developments, without acknowledging the financial dynamics. He's talking rather vaguely about monetary and fiscal response and Fed policy, without acknowledging relevant details of actual policy: the largest bubble in the history of the world, for example, or Bernanke's "savings glut" and U.S. tolerance of China's management of the exchange rate.<br /><br />If we didn't like Krugman, one might almost suspect him of having reprehensible motives. But, it is conventional in economics to adopt frameworks such as the one Krugman uses here, which leave out everything that matters. So, if the financialization and globalization that made New York prosper was destroying Detroit and Akron in an exacerbation of de-industrialization, why shouldn't we obscure that with talk of smoothly substituting service jobs?Bruce Wilderhttps://www.blogger.com/profile/09631065564839959376noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-57244828204266757752016-07-04T12:38:21.618-04:002016-07-04T12:38:21.618-04:00Barkley,
You are overstating "overstate.&quo...Barkley,<br /><br />You are overstating "overstate."Sandwichmanhttps://www.blogger.com/profile/11159060882083015637noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-56742311752195728572016-07-04T08:50:06.577-04:002016-07-04T08:50:06.577-04:00As you can tell, Barkley, I greatly simplified for...As you can tell, Barkley, I greatly simplified for purposes of blogability. I thought my biggest bit of corner-cutting was jumping from bilateral to multilateral, but right up there is simply ignoring the other components of the current account. Yeah, I left out investment income as well as remittances etc. If I were unscrupulous I might invoke ceteris paribus, but I'll refrain. Incidentally, the statistical discrepancy is getting a lot of attention thanks in part to Gabriel Zucman's analysis of dark flows. People are looking into whether or not incorporating these flows would alter what we think we know about differential rates of return.Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-85912709583239912132016-07-04T07:51:51.641-04:002016-07-04T07:51:51.641-04:00Peter,
Your broad story is correct, but you way o...Peter,<br /><br />Your broad story is correct, but you way overstate it. It is simply not correct that any trade deficit must be financed by borrowing. The usual story is that the capital account and the current account must balance, but there are other items in the current account than just the trade balance, with the US generally running a surplus on income that is pretty substantial, despite our international net debtor situation. This is because our assets abroad earn much higher returns than the stuff foreigners hold here. Anyway, right now that income surplus finances about a third of our trade deficit.<br /><br />OK, so we run pretty substantial current account deficits that must be covered somehow. But in fact they are not covered by a fully offsetting capital account balance. Thus in the second quarter of 2015, selected randomly, nothing special about it I know of, the current account deficit was $ 109.7 billion while the capital account surplus was merely $ 59.7 billion. Technically an offset can be direct government transfers known as "gold flows," but those do not happen these days. Instead, the $60 billion gap is "statistical discrepancy," probably a measure of some balance in the flows of goods and money in the illegal or broader underground unreported sector, but also simply bad reporting of either or both numbers in the accounts. <br /><br />So broadly you are correct that when our trade deficits rose with China so did borrowing money from China, with their purchases of long term US govt bonds helping to hold down those interest rates, which indeed helped aggravate our housing bubble. But you should be careful about absolute declarations suggesting in particular that trade balances are offset by capital flows.rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.com