Baker on the trade deficit again.

Beat the Press:

For those who never had any economics or are in high level policy positions, an over-valued dollar has an enormous effect on the balance of trade. If the dollar is over-valued by 20 percent it has roughly the same impact as imposing a 20 percent tariff on all U.S. exports and providing a 20 percent subsidy on imports. There is nothing in policymakers bag of tricks that can come close to having the same impact on trade as a reduction in the value of the dollar. Anyone who argues otherwise (think of people pushing the TPP or TTIP) are either showing their ignorance or not telling the truth.

Furthermore, the trade deficit is the main reason the economy is below its potential and we are not at full employment. We currently have a trade deficit of more than 3 percent of GDP (@ $520 billion a year). This is money people in the United States are spending that is creating demand in other countries, not in the United States. That creates a huge gap in demand. If we count the multiplier effects, it would come to around 4.5 percent of GDP ($780 billion a year), which would translate into more than 6 million jobs. This gap can be filled with more government spending, more investment, or bubble driven housing construction, but as a practical matter it is not easy to raise these other components of demand. (The obstacle to increased government spending is political not economic.)

This is all basic national income accounting. In other words, it is definitional, it can't be wrong. The only problem is that people don't understand it. And it seems that many of the people who don't understand it are in policymaking positions.

It's a persuasive argument. It would be nice if someone would give a clear counter-point to it. Apparently there isn't one. But too many of the wealthy benefit from large trade deficits, and too many others don't understand it, so it seems unlikely to change.

Cheers,
Scott.

Post #395,262 by Another Scott 10/4/14 10:01:14 AM Reply	Baker on the trade deficit again. Beat the Press: For those who never had any economics or are in high level policy positions, an over-valued dollar has an enormous effect on the balance of trade. If the dollar is over-valued by 20 percent it has roughly the same impact as imposing a 20 percent tariff on all U.S. exports and providing a 20 percent subsidy on imports. There is nothing in policymakers bag of tricks that can come close to having the same impact on trade as a reduction in the value of the dollar. Anyone who argues otherwise (think of people pushing the TPP or TTIP) are either showing their ignorance or not telling the truth. Furthermore, the trade deficit is the main reason the economy is below its potential and we are not at full employment. We currently have a trade deficit of more than 3 percent of GDP (@ $520 billion a year). This is money people in the United States are spending that is creating demand in other countries, not in the United States. That creates a huge gap in demand. If we count the multiplier effects, it would come to around 4.5 percent of GDP ($780 billion a year), which would translate into more than 6 million jobs. This gap can be filled with more government spending, more investment, or bubble driven housing construction, but as a practical matter it is not easy to raise these other components of demand. (The obstacle to increased government spending is political not economic.) This is all basic national income accounting. In other words, it is definitional, it can't be wrong. The only problem is that people don't understand it. And it seems that many of the people who don't understand it are in policymaking positions. It's a persuasive argument. It would be nice if someone would give a clear counter-point to it. Apparently there isn't one. But too many of the wealthy benefit from large trade deficits, and too many others don't understand it, so it seems unlikely to change. Cheers, Scott.
Post #395,271 by boxley 10/5/14 2:02:55 PM Reply	the wealthy benefit? how, because foreigners buy overpriced stock? Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free American and do not reflect the opinions of any person or company that I have had professional relations with in the past 59 years. meep
Post #395,275 by Another Scott 10/5/14 4:09:59 PM Reply	See the comments. Yeah, they benefit from a stronger dollar because Porsches are cheaper and they get more bang for the buck when they travel to Davos. :-/ But I still think they'd benefit *more* if the economy were growing better, and that is only going to happen when the bottom 90% earn more. Grow the pie rather than dragging people down below themselves, in other words. But convincing them of that seems to be an impossible task in the current political environment... FWIW. Cheers, Scott.
Post #395,284 by mmoffitt 10/6/14 8:17:10 AM Reply	Sure, they'd benefit more, but, they have no patience to wait for it to bubble up. They want it all and they want it now. What else explains 1% getting 31% of all income when corporations are posting record profits? Could they pay their wage slaves more and generate even more demand for their widgets? Of course, but why not just steal the wages to begin with? Much more efficient that way.
Post #395,289 by boxley 10/6/14 9:33:01 AM Reply	wannabees buy porsches, not rich people. Cheap hotels in the 3rd world are not what I would class as a real benefit. Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free American and do not reflect the opinions of any person or company that I have had professional relations with in the past 59 years. meep

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