U.S. trade deficit reaches record high

The Centre Daily Times ^ | Wed, Dec. 14, 2005 | MARTIN CRUTSINGER -- Associated Press

[A. Pole]

Services do not create wealth. They are an example of wealth transference.

In some cases no but in some case yes. For example does the trasport of fuel to the homes create wealth? Does the getting this fuel from the ground create wealth (it is vertical transport)? Does the production of syntetic fuel create wealth? I would say in each case it does. Does the manufacturing the artificial teeth create wealth? Yes. Does the fixing the natural teeth so they do not need to be replaced, create wealth? Yes.

What is wealth? Isn't it some accumulation of value? If so, the services if they increase or preserve the value they produces wealth too. Also I think it is hard to draw the line between manufacturing and services.

[Last Dakotan]

Let me rephrase: are you speaking narrowly, or generally?

You will have to give me some context for your question.

[Bogie]

China lets it's currency float, or trade has to be changed in an artificial way by the industrialized nations of the world.

[raybbr]

It is my life's work both in terms of education and experience. I'm not sure how to answer such a question.

The rude one thinks that the dismantling of manufacturing that has been going on for years now can be reversed in a short time.

It took my father working for a company almost 4 years to move a steel mill from here to Chile. That was existing equipment. When places are shut down here the equipment is dismantled and sent somewhere else, usually overseas, or it is busted up for scrap to be sold to the Chinese.

To build a new mill might take a decade due to the shift in resources that has take place.

[Last Dakotan]

To build a new mill might take a decade due to the shift in resources that has take place.

Assuming everybody else is not trying to build a steel mill at the same time. About a quarter of the raw steel used in this country is imported.

[1rudeboy]

My reply #24 went right over your head, huh?

[raybbr]

My reply #24 went right over your head, huh?

What does that have to do with my post?

[Willie Green]

In some cases no but in some case yes.

No, services do not create wealth. Never. They are an example of wealth transference.

What is wealth? Isn't it some accumulation of value?

WEALTH: The net ownership of material possessions and productive resources. In other words, the difference between physical and financial assets that you own and the liabilities that you owe. Wealth includes all of the tangible consumer stuff that you possess, like cars, houses, clothes, jewelry, etc.; any financial assets, like stocks, bonds, bank accounts, that you lay claim to; and your ownership of resources, including labor, capital, and natural resources. Of course, you must deduct any debts you owe.

VALUE ADDED: The increase in the value of a good at each stage of the production process. The value that's being increased is specifically the ability of a good to satisfy wants and needs either directly as a consumption good or indirectly as a capital good. A good that provides greater satisfaction has greater value. In essence, the whole purpose of production is to transform raw materials and natural resources that have relatively little value into goods and services that have greater value.

SERVICE: An activity that provides direct satisfaction of wants and needs without the production of a tangible product or good. Examples include information, entertainment, and education. This term good should be contrasted with the term good, which involves the satisfaction of wants and needs with tangible items. You're likely to see the plural combination of these two into a single phrase, "goods and services," to indicate the wide assortment of economic production from the economy's scarce resources.

Wealth is created only by engaging in value-added activities. By the same token, Service sector activities do not create wealth, they merely transfer, redistribute and eventually dissipate wealth as consumption. Thus, as value-added activities move offshore and the U.S. labor force shifts to the Service Sector, wealth is dissipated, not created. And the U.S. standard of living declines as a result.

[A. Pole]

I sympathise with your position as you know but it is my opinion that it is not possible to draw a clear line between services and manufacturing. Also I do not think that wealth or value are easy to define.

I will ask you two sets of questions.

1:
Is transportation creating wealth? When you transport product from the producer to the customer does it add value? For example if the wild mushrooms are picked in the forest and brought to the store near you is it a service or production?

2:
When your dentist fixes your teeth is it producing some value/wealth? When the dentist is not around and you the artificial teeth have to replace what you had before, is it more productive?

[Willie Green]

Is transportation creating wealth? When you transport product from the producer to the customer does it add value?

No. Transportation is a service that adds cost, not value. As such, transportation should be minimized.

For example if the wild mushrooms are picked in the forest and brought to the store near you is it a service or production?

You have described two distinct activities.

1. Harvesting the mushrooms is production.
   It has added value by creating a marketable good.
2. Transporting the mushrooms to the store is a service.
   It adds cost, not value.
   The mushrooms are exactly the same as when they were picked.
   They're merely in a different location, nothing has been created.

When your dentist fixes your teeth is it producing some value/wealth?

The dentist has performed a service, but no wealth has been created.
You may be healthier, but not wealthier.
Your wealth has been transfered to the dentist in return for his service.

[A. Pole]

Harvesting the mushrooms is production. It has added value by creating a marketable good. Transporting the mushrooms to the store is a service.

In what point the harvesting ends and transporting being? When you move mushrooms up from the ground is harvesting, but when you move horizontally is transporting?

BTW, mushrooms become marketable only when they reach the market or at least the road. So maybe harvesting ends and servicing when you cross the border of the forest?

"When your dentist fixes your teeth is it producing some value/wealth?"

The dentist has performed a service, but no wealth has been created.

But if he ruins your teeth and you get artificial ones you get wealthier, since you carry a manufactured product in your mouth?

Willy, I expect from you more than from free-marketeers who stick to the rigid formulas :)

[remember]

Incidentally, during the Great Depression of the 1930's, the United States had an export surpluse - a "favorable" balance of trade - in every year of that disasterous decade ...

That might have some significance if not for the fact that the United States had an export surplus in all 77 years from 1894 through 1970. In addition, the six SMALLEST export surpluses in the 60 years from 1911 through 1970 all occurred during that "disasterous decade". Finally, the United States has had an export deficit in all 29 years from 1976 through 2004. Hence, when you look at all the data, this suggested connection between export surpluses and the Great Depression utterly vanishes. At most, you can say that trade surpluses do not prevent depressions.

In any case, the following graph shows the trade deficit, including our most recent record, in all its glory:

The actual numbers and sources can be seen at http://home.att.net/~rdavis2/gstrade.html,

[A Longer Name]

Willie, you are a fan of public transportation, right? So you want people to buy train tickets instead of cars. But cars are goods and train tickets are services. Car manufacture will plummet; train manufacture will increase somewhat but not nearly enough to offset that. You proposal destroys wealth!

[Willie Green]

Willy, I expect from you more than from free-marketeers who stick to the rigid formulas :)

Please amend your FReeper homepage with a list of terminology whose definitions are too inconvenient for you to abide by, Mr. Pole.

Perhaps it makes you unhappy that the formula 1+1 equals 2.
While there may be many dissenters, I'm sure there will also be many "creative thinkers" who will be sufficiently open-minded to permit you to redefine the number "1" so that you may have any "correct" answer that you wish.

If you have time you can also include all the different meanings of the word "is" that you subscribe to as well. Please list them alphabeticly A~Z in capital letters, then a~z in lower case. If that is insufficient to list all your definitions of "is", you may continue utilizing the Greek alphabet, upper and lower case. Give us a ping when you're done.

[expat_panama]

"...you can say that trade surpluses do not prevent depressions..."

That's for sure, and we can also say that trade deficits don't prevent prosperity.   I guess all we can see is that the bigger the trade deficit, the better off we are.

[remember]

"...you can say that trade surpluses do not prevent depressions..."

That's for sure, and we can also say that trade deficits don't prevent prosperity. I guess all we can see is that the bigger the trade deficit, the better off we are.

If we're going to talk about the trade deficit, why don't we actually look at a graph of the trade deficit? Your graph is of the current account deficit, a close relative of the trade deficit. The Current Account Balance equals the Goods and Services Balance plus the Income Balance plus Unilateral Current Transfers, net. The following graph shows the trade deficit AND the current account deficit:

The actual numbers and sources are at http://home.att.net/~rdavis2/tradeall.html. As you can see, the goods and services deficit did not become a surplus during either the double-dip recession of 1980-82 or the recession of 1990-91. And during the recession of 2001, even the current account didn't become a surplus. So this proves that trade DEFICITS likewise to not prevent recessions. In addition, the U.S. had numerous periods of prosperity during the 77 years from 1894 through 1970 during which it ran nothing but trade surpluses. That likewise proves that trade surpluses don't prevent prosperity.

In fact, I believe we have talked about this before. During a recession, people spend less on goods and services, including imports. If it is not a worldwide recession, exports tend not to be affected. Since the trade balance equals exports minus imports. this causes the trade deficit to decrease (or a trade surplus to increase). Hence, it's likely that recessions tend to cause the trade deficit to narrow, not the other way around as you suggest.

In fact, I believe that you are missing the forest for the trees. In concentrating on every zig and zag in the trade deficit, you're ignoring the long-run trends. The U.S. ran a trade surplus in the 77 years from 1894 through 1970 and has run a trade deficit ever since 1976. It is now close to 6 percent of GDP, a level which I don't believe it has reached before. Do you believe that every year from 1976 to now was more prosperous than every year from 1896 to 1970 and that, judging by our current record deficits, we are now approaching economic nirvana?

[expat_panama]

"During a recession, people spend less on goods and services, including imports."

That part I can follow you because it's just like what I said in post 55 "the bigger the trade deficit, the better off we are."  The part where you lost me was with "Do you believe that every year from 1976 to now was more prosperous than every year from 1896 to 1970 and that, judging by our current record deficits, we are now approaching economic nirvana?"  

Where to begin.  Aw heck, I can't imagine you or anyone else ever wanting to live like they did back in the 1800's --I personally know people who do and--   it ain't pretty.  How about you and I try and agree on an index of prosperity for comparing standards of living in 1896 with today lifestyles--- nah, can't happen.   

I guess it's simply not a good idea to post ideas just before dawn on a Sunday morning.  I tried to respond immediately to you this morning but what I was typing came out like "Do you believe that every year from 1976 to now was less prosperous than every year from 1896 to 1970 and that, judging by our current capital account surpluses, we are now approaching economic perdition?" Like, that just doesn't even make any sense.

[remember]

The part where you lost me was with "Do you believe that every year from 1976 to now was more prosperous than every year from 1896 to 1970 and that, judging by our current record deficits, we are now approaching economic nirvana?"

Where to begin. Aw heck, I can't imagine you or anyone else ever wanting to live like they did back in the 1800's --I personally know people who do and-- it ain't pretty. How about you and I try and agree on an index of prosperity for comparing standards of living in 1896 with today lifestyles--- nah, can't happen.

Following is the definition of prosperous as given by the Merriam-Webster Online Dictionary:

1 : AUSPICIOUS, FAVORABLE
2 a : marked by success or economic well-being
  b : enjoying vigorous and healthy growth : FLOURISHING

I am of course using definition 2b. In terms of wealth, at least that wealth that results from technology, we are naturally better off now than we were in 1900 and will almost surely be better off in 2100 than we are now. But, in terms of growth, every year from 1976 to now was obviously not better than every year from 1896 to 1970. Likewise in those terms, your statement that "the bigger the trade deficit, the better off we are" is obviously not true.

[expat_panama]

in terms of growth, every year from 1976 to now was obviously not better than every year from 1896 to 1970....

Maybe posting stuff in the wee hours of the morning is a bit like singing while drunk -the subjectively sensed quality gets a much higher rating than that from other people's evaluations. 

Recent economic growth "not better" than before?  The average expansion of the economy from 1896 to 1970 was $14 billion, and from 1970 to now it's been $350 billion.   That's in current dollars.  In 2000 dollars it's $47 bill. versus $225 bill.    Over all average % real growth was a fraction of a percent higher in our nation's formative years, but averages are pointless in view of the fact that day to day and year to year life was pure chaos.   Early growth used to range up to +19% one year and -13% in another.

I say we're far better off now, but it doesn't matter.  None of this pertains to the topic. We were talking about the record high trade deficit and whether it matters.  We have agreed that by itself, the trade deficit isn't important.  "During a recession, people spend less on goods and services, including imports."   We don't have to agree on whether the 'good old days' were better than the modern era.

We can take the rest of the year off and have fun with our families --cheers!

[remember]

Recent economic growth "not better" than before?

What I said was that economic growth was "not better than every year from 1896 to 1970". That's despite the fact that the deficit was bigger in every year.

I say we're far better off now, but it doesn't matter.

I agree that, by many measures, we are better off. However, it's far more plausible that we are better off because of advances in technology, not because of our record-setting trade deficit.

We can take the rest of the year off and have fun with our families --cheers!

I agree. We can take a well-deserved vacation and pick things back up in the new year. Have a happy holidays!