Maybe you should look up 'debt' and understand its actual definition in finance instead of mouthing off like a little kid who thinks she knows everything.
Posted on 01/07/2017 10:36:27 AM PST by expat_panama
in Adam Smith, Balance of Payments, Myths and Fallacies, Trade
This post follows closely an earlier post from today. (I likely have used in the past a very similar analogy as the one I use here. Nevertheless, it works and is worth repeating.)
Suppose that we take all Americans whose last names start with the letter “N” and do an accurate accounting of this group’s spending and saving during some period (say, 2016). Further suppose that our accounting reveals that these “N” Americans earned, collectively, in 2016 a total of $750 billion, and that of this $750 billion, these “N” Americans spent only $700 billion on consumption goods and services. The remaining $50 billion was saved by these “N” Americans and invested in the non-“N” part of the American economy. Some of this $50 billion was used to buy real estate from non-“N” Americans; some of it was used to build factories and retail stores in parts of America where no “N” Americans live; some of it was used to buy ownership shares of firms and of capital goods from non-“N” Americans; some of it was loaned to non-“N” Americans; and some of these dollars were simply held by these “N” people in their purses and wallets and piggybanks.) Non-“N” Americans did no similar investing in the “N” part of the American economy.
The “N” Americans, in 2016, ran a trade surplus with non-“N” Americans, and we non-“N” Americans ran a trade deficit with the “N” Americans! (Note that, inessential details aside, there is nothing at all implausible about this story. It very well might be the case that “N” Americans ran in 2016 a trade deficit with non-“N” Americans.)
Should we non-“N” Americans worry about our trade deficit with “N” Americans? Should we non-“N” Americans stop, or at least reduce, our trading with “N” Americans? Should we worry that “N” Americans are harming us non-“N” Americans by investing more in the non-“N” part of the American economy than non-“N” Americans are investing in the “N” part of the American economy? Should we conclude that “N” Americans are trading “unfairly” with non-“N” Americans?
Of course not. It would obviously be absurd to harbor any such worries or to draw any such conclusions. The “N” Americans’ net saving and investment not only do nothing to prevent us non-“N” Americans from saving and investing as much as we wish, but the “N” Americans’ saving and investing enrich us all – non-“N” and “N” alike – by making the economy of which we are all a part more productive.
And yet, when people fret about an American trade deficit, such worries and conclusions are drawn. But these worries and conclusions make no more sense than they would in the context of “N” and non-“N” Americans. Fretting over the trade balance is absurd. Again, Adam Smith nailed it:
Nothing, however, can be more absurd than this whole doctrine of the balance of trade.
....ridiculous analogy. Neither he nor the grocery store has any debt...
Neither does swapping Hong Kong real estate for Iphones, but it's still a 'trade deficit'.
Maybe you should look up 'debt' and understand its actual definition in finance instead of mouthing off like a little kid who thinks she knows everything.
Why do these anti-American globalists think other nations should have the jobs but America having them is a bad thing??
Why is it good for other nations to have these jobs but bad for America to have them??
You globalist idiots never answer that question.
...my call to offer up the numbers...
My bad, it's a tech/numbers thing.
The numbers are already on the graph but I forget that most people don't understand how to read the numbers from the graph. Here's a site that shows how.
If you want to see the same numbers that are on the graph in the form of a table (or download them in a spreadsheet) what some folks do is copy the 'fred.stlouisfed.org' into the browser (where the web address goes) and get this site. Then on the search line you can type in say "All Employees: Manufacturing" and you then see All Employees: Manufacturing. You then click on that and you begin to see the graph I posted but first you can click on the DOWNLOAD^ tag and you can get all the numbers either in CSV or Excel format.
Is that the kind of thing you wanted?
“Producing is completely different from manufacturing.”
Manufacturing is production, while not all production is manufacturing. Maybe you should study common sense before posting such idiotic drivel.
Seems Jones and I are trying to understand the same thing.
Like I described up in post 42, when I double my money with Chinese stocks (say, BABA from Feb. to Aug. of 2016) and then use the created wealth to buy Chinese gold, we have a trade deficit. The point is that if my starting w/ nothing and ending up rich is some kind of "debt", then it's the kind of debt that I hope to drown in every day of the week.
Agreed!
Look at a couple of examples
Let’s look at the situation where you import 100% of the goods and services needed by a country. Example: Haiti
Let’s look at the situation where you export significantly more than you import. Example: 1980s Japan
Clearly trade deficits matter. A lot of other things matter along with it, but to say they don’t matter is foolish.
“Perhaps you can tell us how many people you employ in your business.”
You go first.
That depends on the meaning of "lots".
A store that has really low waste in its perishables is probably not a nice place to shop. They'll be out of too much stuff, and their merchandise displays will look meager and uninviting.
“I seem to remember hearing the same thing back in the 1980s when it was Japan, not China, who was doing all this.”
They probably did. Was that good for you? Mitsubishi was only one Japanese company. What about the rest of the Japanese giants?
58 when I sold out. I’m now starting a new company from the ground up.
What other Japanese giants did you have in mind -- the auto companies that now build cars and light trucks all over the U.S.?
The fact that the trade balance with Mexico went from +1.3b to -60.7b from 1994 to 2015 is basically a meaningless factoid.
Lots = what one normally thinks of as lots
That's easy to say without thinking but the downside is that it means having said something that everyone else can see is simply not true. Here are the trade balance numbers on Haiti, and here are the numbers for the U.S.. Haiti has a smaller 'trade deficit' than the U.S. as a %GDP. In fact, at the end of 2015 Haiti even had a trade surplus.
I think you’ll find that if you look at the numbers for Haiti, the point stands. They import vastly more than they export,
Which was the point you did not get. It’s 3 or 4 to 1 imports over exports.
You are arguing that it doesn’t matter. You’re obviously wrong or Haiti would be prosperous.
“What other Japanese giants did you have in mind”
There must be at least a hundred Japanese multi-national corporate giants operating worldwide.
Trump just talked one into investing in the United States.
My mistake, I thought you were a sentient being.
This past reporting period they imported almost as much (%GDP) as the U.S., but during the one before they imported less htan they exported. While the U.S. has not had a trade surplus in over a quarter of a century, Haiti's had surpluses every other year for quite a long time.
More often than not trade surpluses seem to come w/ hard times although I honestly don't know which causes which; it doesn't matter. What we got is Haiti has a 'better' trade balance than the U.S. and imho it's far worse off.
This is silly beyond belief. I am not reading this. It is embarrassing to even post this BS.
Anyone who thinks like this should just go ahead and commit themselves.
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