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Old 04-25-2017, 04:38 PM
 
Location: NH/UT/WA
283 posts, read 174,498 times
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Quote:
Originally Posted by rruff View Post
Good post, but I disagree with this part.

What you are describing is comparative advantage, not a trade deficit. In an ideal world the currency value would eventually adjust to balance trade. The US would export where they have a real advantage and import where they have a disadvantage. Trying to get back to the topic of this thread, inherently low productivity manufacturing does not make sense in any advanced country, but that same country should have the resources and productivity to compete in other areas, making up the difference. Not necessarily in manufacturing, but in services. The "wages are too high" argument can be swiftly and easily dealt with by depressing the currency exchange value. Or in the case of the US simply ceasing to boost it.

The fact that other industrial economies tend to run a significant trade surplus while the US runs a continual high deficit, should show that something besides "free trade" and comparative advantage are going on.
You're right, and it's global investment flows wagging the trade tail. The United States allows foreigners far greater ability to manipulate our catpital markets than vice versa.... Eventually you get to a point where a gigantic portion of the worlds savings inbalances are forced upon the United States. I'm not a fan of the Gold Standard, but it wasn't really possible to happen under it, now you can have a country like China have it's CB print yuan and use it to buy US assets (and not allow the US to do the same), mathematically requiring the US run a current account deficit, and then get interest on top of that.

Being the world's "reserve currency" in a wild-west fiat system where most/all other countries control their capital account forces the US to absorb a huge portion of the cost of global savings/investment imbalances. If Trump want's to fix the US's trade problem we should have global trade go more to Keyne's idea of a "bancor" international trade currency, and end the US dollar as the reserve currency. The biggest benefactor to the US dollar losing the reserve status would be the US economy! Right now global financial interests run roughshod over currencies and debt markets, and the imbalances have become greater than ever before. Currency crises and debt bubbles used to be a pretty rare but they have become almost commonplace nowadays.
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Old 04-25-2017, 06:43 PM
 
Location: Ruidoso, NM
5,179 posts, read 4,840,309 times
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Quote:
Originally Posted by ZachF View Post
I picked the wrong one, this one explains it better:

Is Peter Navarro Wrong on Trade? - Carnegie Endowment for International Peace
Good article, hella long though! I need to read it again and look at some of the links.
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Old 04-25-2017, 07:22 PM
 
Location: Ruidoso, NM
5,179 posts, read 4,840,309 times
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Quote:
Originally Posted by ZachF View Post
You're right, and it's global investment flows wagging the trade tail. The United States allows foreigners far greater ability to manipulate our capital markets than vice versa.... Eventually you get to a point where a gigantic portion of the worlds savings imbalances are forced upon the United States.
I'm not convinced of the tail wagging. The equation must be balanced, but capital is not dictating trade. The US is the 800lb gorilla in the room, and they are not forced to do anything. US oligarchs get precisely what they want. They *want* the US to absorb the excess production (and savings) of other countries. The oligarchs of these other countries are happy to oblige.

I'd wager the dictating principal in all of it is this: The rich using finance and global trade to transfer an ever greater percent of the world's production into their own accounts. Follow the money.

In Pettis's article he briefly mentions how the US began concentrating wealth (income and wealth disparity) in the late 70s and other countries followed suit. This naturally depresses consumption and increases savings (capital). That's what happened in the rest of the world, but in the US inspite of a huge increase in income disparity, the opposite occurred, via debt escalation that more than compensated.

Are there any articles you know of where he talks more about that?
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Old 04-26-2017, 09:10 AM
 
4,229 posts, read 1,980,745 times
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Quote:
Originally Posted by rruff View Post
What you are describing is comparative advantage...
No, what I was describing was the simple fact that alternatives to trade deficits would come with significant inflation, as goods purchased here simply because they were made here would often come with higher prices. "Buy American" is a plea to consumers to do what is against their own best interests. And trade is meanwhile not driven by imaginary hands pulling on imaginary strings, but rather by the purchasing choices of millions of consumers. These for the most part do not wish to pay more for less, so you get trade deficits. These end in moving dollars one way now and the other way later on. Both sides benefit from the arrangement.
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Old 04-26-2017, 10:47 AM
 
Location: Ruidoso, NM
5,179 posts, read 4,840,309 times
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Quote:
Originally Posted by Pub-911 View Post
No, what I was describing was the simple fact that alternatives to trade deficits would come with significant inflation, as goods purchased here simply because they were made here would often come with higher prices.
Very likely the opposite.

Median incomes have been flat for 40 years, while GDP/capita has doubled. In prior history income kept pace with GDP/capita. What could you do with double the real income? I'm not saying that closing the trade gap alone will make that happen, but it's one big factor that facilitated the divergence.

US imports are ~18% of GDP and exports are 14%. How much do you think the US$ exchange value would need to drop to close the gap? 10%? 20%? Let's say it's 20%, and the settling point for trade is 16% of GDP. The cost of those imported goods has gone up by 3.2% of GDP. It's a one shot deal, not 3.2% per year. Any increase in real incomes would more than compensate.
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Old 04-26-2017, 12:25 PM
 
4,229 posts, read 1,980,745 times
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Quote:
Originally Posted by rruff View Post
Very likely the opposite.
Evidence of a one-trick pony can be seen here. The simple facts are that higher prices for domestic versions of a product drive consumers to purchase more and more lower-cost imported versions of such goods, thus boosting the trade deficit but keeping a cap of sorts on inflation. Foreign exchange markets are of course fully aware of all this, and yet they do not react as you claim they should. This suggests that there are one or more serious flaws in your theories.
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Old 04-26-2017, 01:01 PM
 
Location: East of Seattle since 1992, originally from SF Bay Area
28,785 posts, read 51,744,100 times
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Quote:
Originally Posted by rruff View Post
Very likely the opposite.

Median incomes have been flat for 40 years, while GDP/capita has doubled. In prior history income kept pace with GDP/capita. What could you do with double the real income? I'm not saying that closing the trade gap alone will make that happen, but it's one big factor that facilitated the divergence.

US imports are ~18% of GDP and exports are 14%. How much do you think the US$ exchange value would need to drop to close the gap? 10%? 20%? Let's say it's 20%, and the settling point for trade is 16% of GDP. The cost of those imported goods has gone up by 3.2% of GDP. It's a one shot deal, not 3.2% per year. Any increase in real incomes would more than compensate.
It seems hard to believe when people like me and many others are making something like 20 times more than in 1980, but looking at the charts for adjusted (for inflation) income it is pretty flat, just slightly uphill. The remaining U.S. manufacturer, faces paying workers much more now, along with the additional costs associated with labor and their other costs that have increased such as rent, equipment purchases and maintenance, utilities insurance, legal. In order to meet that and maintain profits would cause their products to be more expensive than people would be able to pay.
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Old 04-26-2017, 01:01 PM
 
Location: Ruidoso, NM
5,179 posts, read 4,840,309 times
Reputation: 4206
Quote:
Originally Posted by Pub-911 View Post
The simple facts are that higher prices for domestic versions of a product drive consumers to purchase more and more lower-cost imported versions of such goods, thus boosting the trade deficit but keeping a cap of sorts on inflation.
Your theory has no basis in fact. Look at all the other developed countries that have trade surpluses, and see what their inflation rates are.

Economics seems to be populated by people who can't see the forest for the trees. I think it results from treating it like an accounting and finance issue, rather than physics (reality).

If you want a prosperous society you need to focus on productivity and production. This is so primary that the other considerations are nearly irrelevant. Productivity improvements rely on real investment in infrastructure, R&D, education, and productive assets. If your policies tend to maximize these factors, then the economic future of the society is assured.

So are our policies maximizing productivity and production?
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Old 04-26-2017, 01:06 PM
 
Location: Ruidoso, NM
5,179 posts, read 4,840,309 times
Reputation: 4206
Quote:
Originally Posted by Hemlock140 View Post
The remaining U.S. manufacturer, faces paying workers much more now, along with the additional costs associated with labor and their other costs that have increased such as rent, equipment purchases and maintenance, utilities insurance, legal. In order to meet that and maintain profits would cause their products to be more expensive than people would be able to pay.
They pay less for labor in real terms than they did 40 years ago. Back then unions kept the wages and benefits quite high. Coupled with tech advances that improved productivity, the real cost of making pretty much anything would be a lot less. Less than half I'd wager.
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Old 04-26-2017, 02:21 PM
 
4,229 posts, read 1,980,745 times
Reputation: 3789
Quote:
Originally Posted by rruff View Post
Your theory has no basis in fact.
There are nothing but facts here. These are simply ignored by some in favor of confabulated mish-mash. One of the effects of reduced trade deficits would have been accelerating inflation. End of story.
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