Is it unlikely (or even impossible) for the USA to increase its wealth while it has a trade deficit?
It’s rare that commentators ask this. Yet I think the question is absolutely critical for the USA's future!
I really think that it is very unlikely for the USA (as a country, everyone combined, not just the public or the government) to increase its overall wealth as long as the USA has a trade deficit!
Why? Well, think about it.
The trade deficit means that, by dollar value, people in the USA bought more goods and services from foreign countries than they sold to foreign countries.
A business can't profit if its revenue doesn't exceed its costs. So why should it be any different for the USA? The two aspects of the analogy might not be identical, but they are similar.
By the way, I assume (but am not positive) that the trade deficit measures all types of products and services that comprise revenue and costs. If I'm wrong about this, it could mean my assumption is wrong. If that's the case, I hope someone will correct me. Perhaps it excludes investments in USA financial products?
But even if the trade deficit excludes some other products, I doubt their value would be large enough to offset the massive deficit.
Again, a trade deficit means the value of exports are less than the value of imports, of course.
If you think about exports, those are crucial! If you sell products to foreigners, and get their cash, the USA as a whole is richer. But if you are selling products to your own countrymen, the USA is not becoming wealthier overall; the money is simply redistributed from USA customers to USA sellers!
As for imports, they aren’t a complete waste. After all, when you buy something from a foreigner, you are getting something in return: an asset. It doesn’t just disappear...or does it? Well, in a consumer society like the USA, I would think that a lot of imports are things that you don’t require, that do eventually essentially disappear from common use, things like TVs, clothes etc. TVs are replaced, clothes get ripped and kids grow out of clothes…so they do disappear, in that sense.
This means that when a family buys two TVs over several years, at the end of that period, their wealth has increased only by the value of the second TV. The first has been tossed!
Now, the foreigners that buy our exports would toss some of their purchases too…but because the USA buys much more than they do, the USA tosses a greater dollar value of goods than the foreigners do, and hence the wealth of the USA decreases by a greater absolute value, in that respect.
I would like to know how much of the USA imports are consumable or typically replaced within a few years. I would be surprised if it’s not a significant portion of imports!
This appears to be the history of the balance of trade:
http://www.census.gov/foreign-trade/statistics/historical/gands.pdf
Look at that! During the 37 years from 1973 to 2009, there's been a deficit, and the deficit is trending higher and higher!
My thesis is that the USA may be losing wealth every single year there is a trade deficit! (Although during the years that the deficit was small, it's possible wealth was not lost).
Someone may counter by saying: how can that be? GDP (the total goods and services produced by the USA) is growing virtually year over year!
Well, the GDP measure tells you little in this respect. This is because GDP could be growing as a result of the USA borrowing money, and borrowing money is not an increase in wealth, it's actually a decrease in wealth, assuming you pay interest to borrow! (And the USA has certainly been borrowing more money than it earns in tax revenue. This is shown by the other large deficit, the budget deficit, and the debt of about $13 trillion).
Think about it. The country could be organically shrinking as a result of buying far more goods than it sells. Yet if the country is also borrowing massive amounts of money at the same time, and plowing that money into the economy, that economy will create goods and services and GDP will be much higher than it would be had the borrowing not occurred!
This means that borrowing and GDP growth are masking the shrinking of the country’s wealth!
The implication of this is frightening! It means that the USA may have been shrinking each of the last 37 years!
If this continues, what will happen? Well, I suppose endless trade deficits would mean a country would shrink and shrivel! At the very least, it would eventually become a third world country!
Now, I’m not suggesting that endless trade deficits will occur indefinitely. As China becomes wealthier and pays its workers more, the cost of goods will become more expensive and the USA should import less.
But when will that occur? And what shape will the USA be in by then?
Why is the trade deficit not mentioned as often as its importance would justify? Why are the consequences of it not emphasized as much as you'd expect? For something so shocking to occur for 37 years straight...there should be alarm bells ringing!
Hey, congrats, you discovered 16th century economic theory.
ReplyDeleteAlso: "its" is the possessive. No apostrophe.
See how you feel about this when you get old. Doofus.
ReplyDeleteSorry the previous comment was meant as a snarky response to your elderly-bashing piece.
ReplyDeleteOn this one, the piece about "losing wealth", your readings in economics are very obviously far too inadequate for you to be holding forth with "original" thoughts on economics. You should read up on the history of monetarism and centralization (any mainstream textbook on the history of economics will do), read 20 Centuries of Wage and Price Control. Read the chapter on John Maynard Keynes in the book Intellectuals by Paul Johnson. Read anything by any of the following three Henry Hazlet, F.A. Hayek, Ludwig von Mises. Then come back here and hold forth on economics.
ReplyDeleteReader 20,
ReplyDeleteI DIDN'T use an apostrophe: "Is it impossible for the USA to increase its wealth while it has a trade deficit?"
This is one of a series of posts that you've made making several clearly false, unflattering claims about my writings. Your posts are not welcome on my site.
It's clear you are likely making things up to try to discredit me. You continued doing this even though I've been able to rebut every single one of your arguments, even the claims that were not intended as an attempt to make me look bad.
Reader 20,
ReplyDeleteyou may remember theory from centuries ago, but it's worthless given that you aren't able to analyse it properly. In fact, it's not only worthless, it's a waste of time for you to brush up on that histsory, because you aren't able to analyse and understand it properly.
I've destroyed every single one of your rebuttals handily among the many posts on this board.
Reader 53,
ReplyDeleteyou claim my readings are too inadequate.
First, readings aren't even necessary to form a logical thought.
And regardless, why don't you point out the errors in my post, if you can indeed find any, as you imply?
"increase it’s overall wealth"
ReplyDeleteWay to go for the inaccurate comeback.
Wealth distribution isn't necessarily zero-sum in the realistic long run. It shouldn't be understood as a stock that gets dumped out of one country into another. GDP growth (sans gov't borrowing, of course, which is one respectable point here) is the aggregate difference between capital costs taken as loans and the going market rate for products, which by extension, approximates the interest rate. The difference is made up by value-adding practices; labor, if you will, but the right labor must coexist with a favorable market environment.
ReplyDeleteSimply: Wealth is created when a banker gives a loan. In one column he/she writes the principal. In the other, the amount owed. Voilá. Instant money.
Keep your shirt on, and quit stockpiling mountain dew, oreos, and ammunition. We're gonna make it, pal. (And I'M unemployed!)
Sorry your thesis is patently wrong as it can be disproved by counterexample.
ReplyDeleteTake two completely separate economies which do not trade. Suppose that one invents electricity while the other does not. The first becomes richer. Suppose second that the first then uses some of its wealth to buy a consumption good from the second. It is true that by purchasing the consumption good the first economy has made itself a tiny bit poorer in the long term (any consumption reduces investment). BUT the first economy is still massively richer than the second!
More generally, the relevant point that you have identified is that consumption today reduces investment today and hence wealth in the future. Hardly rocket science is it.
lol @ Reader 56's denial
ReplyDeleteYES u.s.a. is becoming poorer overall, but MAINLY the middle class is getting wiped out in USA.
Nosuchthingasanopinion,
ReplyDeleteYou have an exceptionally logical way of thinking.
I can tell you're a conservative.
Reader 56,
ReplyDeleteYour example is incorrect. You claim that the first economy becomes richer after it invents electricity. This is false! It doesn’t become richer unless it sells that electricity to another economy!
If someone within the first economy buys electricity from the person that invented it, that first economy is no richer over; money has simply been transferred from one part of the economy to another.
If my ideas are so obvious to others, then why don’t more others voice them or use them in their policies?
Reader 57,
ReplyDeleteI agree. I plan to address this in a coming post.
Reader 58,
ReplyDeletethanks for the compliment!
Yes, most people would consider me a conservative, but i prefer to think of myself as a logical thinker above all else. I think that it would be more productive for people to be labeled as either logical or illogical thinkers!
Reader 55,
ReplyDeleteI disagree, here's why:
I do think it's a zero-sum game, because in all instances, including loaning of money, it's simply a transfer of money. Even earning interest results in a transfer of money.
All of those aspects you list, like labor, involve the transfer of money from one party to another.
When a loan is created, money isn't actually created-it's transfer from the lender to the borrower. The borrower does receive money he/she previously didn't have, but the borrower also owes the debt to the lender.
And I DO hope the USA makes it. The USA has some of the friendliest people in the world. The USA is still a very wealthy country above and beyond the debt it has...but the problem is that debt isn't very liquid, it's tied up in homes more so than savings.
In response to your comment that the USA is still very wealthy, I beg to differ:
ReplyDelete-26 million Americans unemployed or underemployed (as of July 2010).
-Between 1980 and 2005, over 80 percent of the total increase in income went to the top 1 percent.
-Percentage of all income taken home by the wealthiest 10% in 2007: 49.7- highest share recorded since 1917.
-The percentage of financial wealth that, by 2007, was owned by the top 20 percent of Americans: 93.
-Income distribution in America is worse than in parts of Latin America, such as Guyana, Nicaragua, and Venezuela, according to the Central Intelligence Agency. It is roughly equivalent to that of Uruguay, Argentina, and Ecuador.
-Forty years ago, top executives at S&P companies made an average of 30 times what their workers did; today they make 300 times what their workers make.
-Canada, Germany, Denmark, Norway, Finland, Sweden, and even the often reviled France have greater upward mobility than we do.
The U.S. can no longer pretend to believe that it is the top of the food chain or that we exceed any other country. The only thing we exceed in is, unfortunately, religiosity which will be the cause of our ultimate downfall.
Aerie,
ReplyDeleteI don't think that it's disputable that the USA is a very wealthy country. The most recent figures I've seen show that the combined wealth of Americans far exceeds their own debt plus the government debt combined, I believe (although I believe that when the Dow crashed to 6,500 one commentator said that at that point their net worth was a negative).
However, I agree with you that it's disgusting that the wealth is distributed so unevenly.
And since it's distributed so unevenly, so much so that there is a shrinking middle class, you could argue that it means little for Americans to be wealthy given that so few are partaking in that wealth.
You didn't define wealth which is a terrible omission for someone who is attempting to make a statement about it. You seem to equate it with money in a previous reply regarding electricity and in a previous blog entry. I think that this is naive and also wrong. Here are some extra ideas
ReplyDelete1. Wealth could include assets. Many people contribute to a country by creating assets that outlive them (e.g. housing stock, roads, art). It is possible therefore that the wealth of a country increases whether or not there are any imports or exports
2. Wealth could including the material well-being of the population. In addition to 1. above material well-being increases because of productivity gains especially in the production of primary inputs such as energy and food which have multiplying effects for other activities that increase well-being such as healthcare and education. One might argue that a country is no richer after using some of its oil is used up because the oil has gone but I think that this is naive in two ways a) the oil was previously not recognised as wealth before it was discovered and b) the oil is indeed consumed but some of it might leads to further productivity gains for example the internet or television might might be said to increase wealth.
3. If you mean wealth = GDP. Its perfectly possible for the GDP of a country to rise in real terms whilst running a trade deficit. This is a simple economic fact. Just look it up in a book.
4. Its further possible for GDP minus net borrowing to rise in real terms. Again this is just an economic fact.
5. If you think wealth is money then Zimbabwe or Yugoslavia in the 90's would be wealthy with their 100 trillion and 500 trillion currency notes. The relationship between wealth and money is not clear as one must include inflation, money supply growth and purchasing power.
6. You also don't mention investment flows. Profits can be remitted back to a country generated by owned abroad. This affects the net flows.
7. GDP essentially equals number of people in employment * productivity * hours worked. If free time is measure as an aspect of wealth then GDP could fall and wealth rise. It could also rise with wealth. Whatever the trade flows these things can rise or fall.
Of course trade is important and the USA is in a terrible position with regard to debt and trade imbalances. But that was not your point.
The list goes on. You may be a high-IQ person but knowledge is essential too. Your dismissal of reader56 really is very naive. I've had a look at a few of your posts and they are fine thinking but by no means exceptional - I remember having many such discussions at this level when an undergraduate and so I am sure do thousands if not millions of others. Keep thinking but don't delude yourself.
Anonymous,
ReplyDeleteI equate wealth with money for one good reason. The vast majority of people would equate it the same way, and it's in my interest to define terms in a manner similar to that of my readers. That way there is communication.
For those that don't understand that wealth is related to money...well, let's just say that they aren't my targeted demographic.
I don't deny that wealth includes assets, I was including assets in my definition, and in fact exports and imports include assets. You are wrong to assume they don't.
However, assets that rise in value only contribute to overall wealth of the country if it is foreigners that are driving up the price.
Sure, wealth could include material well- being. But it's clear that I was referring to wealth that's more easily defined, since I referred to the trade deficit.
You are incorrect when you imply that productivity gains result in greater wealth for the country. It results in greater wealth in some respects, such as the fact that it can allow people to have more free time. However, it doesn't result in more US monetary wealth unless it results in greater sales to foreigners.
You mention:
"If you mean wealth = GDP. Its perfectly possible for the GDP of a country to rise in real terms whilst running a trade deficit. This is a simple economic fact. Just look it up in a book.
4. Its further possible for GDP minus net borrowing to rise in real terms. Again this is just an economic fact."
Why would you think I disputed this? In fact I specifically said that GDP has been increasing while the trade deficit has occurred. Bizarre.
As for point 4., I never disputed that.
You claim:
"5. If you think wealth is money then Zimbabwe or Yugoslavia in the 90's would be wealthy with their 100 trillion and 500 trillion currency notes. The relationship between wealth and money is not clear as one must include inflation, money supply growth and purchasing power."
I never said anything to suggest otherwise. Are you trying to imply that I'm unaware of point 5.?
Yes, I didn't mention investment flows. First, I'm not sure if that's included in the trade deficit, so that's why I didn't comment on it. However, I'm pretty sure that the size of the investment surplus or deficit is not enough to change my post's thesis.
You write:
"Of course trade is important and the USA is in a terrible position with regard to debt and trade imbalances. But that was not your point."
The entire point of my article was that the US's wealth position is in a terrible position, likely primarily due to the 37 straight years of trade deficits! Should I even bother debating with someone who makes such a bizarre claim?
It's sad to see someone who apparently is deluding themself regularly!
I think you are confusing "richer" or "wealthier" with having more money as cash or credit instruments. Richer implies that the standard of living is greater due to productivity gains.
ReplyDeleteFor example, producing 100 extra widgets without additional cost input, and giving some away 5 as charity does not make one net poorer--you still have 95 left which you didnt have before productivity increased.
Your idea of having wealth, like uncle scrooge's money bin, where cash, gold, diamonds are stored and measured with a measuring tape is rather quaint.
"Your example is incorrect. You claim that the first economy becomes richer after it invents electricity. This is false! It doesn’t become richer unless it sells that electricity to another economy!"--mr/ms Nosuch
ReplyDeleteSo, in your logic based on your alleged great intelligence, a country which never trades (or trades minimally) and seeks to become self-sufficient is doomed to poverty??
Or if I buy a stock, it goes up 10000% in one year, but I dont sell it, then do I remain as poor as I started with??
"Sure, wealth could include material well- being. But it's clear that I was referring to wealth that's more easily defined, since I referred to the trade deficit."--
ReplyDeleteMaking your own definition,for example that wealth only includes the cash in your wallet (including coins in your pocket) and nothing else, sure makes logical thought and argument much easier--so that you would understand this remark is meant to be sarcastic.
If you are trying to be a troll, you seem to be pretty good at it.
Anonymous, you write:
ReplyDelete"I think you are confusing "richer" or "wealthier" with having more money as cash or credit instruments. Richer implies that the standard of living is greater due to productivity gains."
I'm not confusing anything, I defined wealth exactly as I did. And that doesn't include credit. Credit is borrowing from someone. It's not your money, so your wealth can't increase.
You write:
"Your idea of having wealth, like uncle scrooge's money bin, where cash, gold, diamonds are stored and measured with a measuring tape is rather quaint. "
Actually, my idea of wealth is more like wealth that is stored and measured electronically.
You write:
ReplyDelete"So, in your logic based on your alleged great intelligence, a country which never trades (or trades minimally) and seeks to become self-sufficient is doomed to poverty??"
Of course it's doomed to zero growth (related to trade alone). If it's not getting money from foreigners, it's getting money from within it's own country, and that's simply a shift of (not a growth of) money.
You write:
"Or if I buy a stock, it goes up 10000% in one year, but I dont sell it, then do I remain as poor as I started with??"
I never said it was impossible for a country to become wealthier using the stock market. The entire article referred to the trade imbalance.
You write:
ReplyDelete"Making your own definition,for example that wealth only includes the cash in your wallet (including coins in your pocket) and nothing else, sure makes logical thought and argument much easier"
I'm not making up my own definition. I bet that if you polled people, the vast majority would define wealth (in the context of a trade imbalance) to be entirely defined as money and assets.
Money as assets include home grown assets. If I have two apples and you have one, (same quality) even with zero trading, I am wealthier (ceteris paribus).
ReplyDelete""So, in your logic based on your alleged great intelligence, a country which never trades (or trades minimally) and seeks to become self-sufficient is doomed to poverty??"
ReplyDeleteOf course it's doomed to zero growth (related to trade alone). If it's not getting money from foreigners, it's getting money from within it's own country, and that's simply a shift of (not a growth of) money.-
So, if for illustrative purposes, (if you can expand your mind ) you look at the world as one country (or one planet), the net trade is zero between this planet and others, and in your philosophy trade is a zero sum game with wealth going in direction of trade balance, then theoretically our "wealth" should be the same as in cave-man days??, since our planet is not trading with others, but merely shifting wealth, we are doomed, in your opinion to "zero growth"
Anonymous,
ReplyDeletewhoever you are, for the sake of humanity, please stop regressing evolution.
You write:
"Money as assets include home grown assets. If I have two apples and you have one, (same quality) even with zero trading, I am wealthier (ceteris paribus). "
Huh? What does this have to do with anything I've written?
By the way, you wouldn't know who's wealthier unless you know the value of their non-apple assets.
Anonymous,
ReplyDeleteyou write:
"So, if for illustrative purposes, (if you can expand your mind ) you look at the world as one country (or one planet), the net trade is zero between this planet and others, and in your philosophy trade is a zero sum game with wealth going in direction of trade balance, then theoretically our "wealth" should be the same as in cave-man days??, since our planet is not trading with others, but merely shifting wealth, we are doomed, in your opinion to "zero growth" "
Of COURSE the planet can't get richer overall over time, from trade alone!!
It's impossible to get richer when the value of goods simply shift from one person to another.
Do YOU know of any way in which an item is traded in which money can be RECEIVED from the sale of an item and at the same time money is NOT paid to that same person? lol
I realize that most people don't think like I do, but I've clearly spelled out the logic for you.
This doesn't mean life doesn't improve, however. Productivity gains mean that living standards are higher, and allows for more free time during the day.
"This doesn't mean life doesn't improve, however. Productivity gains mean that living standards are higher, and allows for more free time during the day."--nosuch
ReplyDeleteSo finally, you have acknowledged that productivity gains result in improvement in living standards. I would posit that productivity gains are far more significant than trade imbalances in creation or destruction of wealth. I would guess that development of a light bulb and electrical power usage had far more impact on the world "wealth" than the balance of trade of whale oil, kerosene, and bees wax. Ditto for automobile. And as long as the exchange rate floats so that others freely exchange their goods for our money, I dont see a problem with deficit or surplus. Some would call higher living standards an improvement in wealth. But in your rather narrow minded approach, money and assets (by that I believe you mean financial assets) are all that counts.
In the broader sense assets includes ANYTHING of value, (whether or not immediately marketable) including for example, educational achievement, patents, professional licenses, health (can be positive or negative value), intelligence (or lack of same), etc.
"Do YOU know of any way in which an item is traded in which money can be RECEIVED from the sale of an item and at the same time money is NOT paid to that same person? lol"-nosuch
As far as the exchange of money from buyer to seller. It does not sit around in a money bin, but is used for example to buy bonds from the goods buyer, or to invest in the economy of the buyer (either directly or indirectly).
When there is a trade imbalance, on the other side of the equation there is a capital inflow to the debtor--During the railroad (post civil war) era, USA had huge imbalances as foreign capital financed much of our infrastructure, as our wealth multiplied greatly.
Many large corporations seem to find indebtedness a way of life and dont seem at all worried about borrowing money to invest in the business which can result in greater profits, and buyers of these debts seem perfectly satisfied (as in a free market) with the returns on their investments in debt and feel they are adequately rewarded for their risks.
It's interesting that over the last 37 years there has been a Republican president for c.25 of them, and a Democratic president for only c.12.
ReplyDeleteI wonder what that says about the success of Republican fiscal policy? And, given that people should only support that ideology which most benefits the country overall, I wonder what people should make of this analysis with regard to their voting intentions?
"Money as assets include home grown assets. If I have two apples and you have one, (same quality) even with zero trading, I am wealthier (ceteris paribus)."--me
ReplyDelete"Huh? What does this have to do with anything I've written?
By the way, you wouldn't know who's wealthier unless you know the value of their non-apple assets."--no such
You obviously havent bothered to look up "ceteris paribus"--such an intelligent person as yourself--I am shocked--lol
What this has to do with what you have written--as long as the usa grows more and more apples we are getting wealthier regardless of trade balances--but of course you are too intelligent to understand this very subtle argument.
I still feel (my opinion) that equating trade gaps with wealth, and looking at trade (buying and selling),and the economy in general as a zero sum game with transfer of wealth rather than creation of wealth is so inane that you are coming out with all sorts of ridiculous (ie sophomoric) arguments to support your position, but of course, that is only my opinion.
Anonymous,
ReplyDeleteYou write:
"So finally, you have acknowledged that productivity gains result in improvement in living standards."
Finally? I never denied it. I explained that my definition of wealth was the definition most people would use: money and assets. You fail to explain what's unreasonable about that.
" I would posit that productivity gains are far more significant than trade imbalances in creation or destruction of wealth."
More significant? How could they be more significant? If you have compare a huge trade imbalance with huge productivity gains, your wealth dwindles to near zero, productivity means nothing! (And by the way the USA has had massive productivity gains during the period they had the trade imbalance. #1 productivity in the world, I believe. That hasn't stopped their economy from deteriorating to the point it's at.
Anonymous,
ReplyDeleteYou write:
"In the broader sense assets includes ANYTHING of value"
I hadn't disagreed. But my post was about wealth and assets as defined in the most traditional sense, so why don't you stick on topic?
You write:
"'Do YOU know of any way in which an item is traded in which money can be RECEIVED from the sale of an item and at the same time money is NOT paid to that same person? lol'-nosuch
As far as the exchange of money from buyer to seller. It does not sit around in a money bin, but is used for example to buy bonds from the goods buyer, or to invest in the economy of the buyer (either directly or indirectly)."
Huh? Just answer the question. Do you know of any way someone can receive money from someone if there isn't someone paying it to them?
"Many large corporations seem to find indebtedness a way of life and dont seem at all worried about borrowing money to invest in the business which can result in greater profits"
So what? I agree, and I never disagreed. My post had NOTHING to do with borrowing money, it was all about the country losing wealth by selling more non-consumable goods to foreigners than it buys.
Anonymous:
ReplyDeleteYou write:
"It's interesting that over the last 37 years there has been a Republican president for c.25 of them, and a Democratic president for only c.12.
I wonder what that says about the success of Republican fiscal policy?"
The only way to measure success of policies is to compare it versus policies that were enacted in the same environment, at the same time.
This can't be done, we can't compare Clinton's policies versus another person's policies because Clinton was the only one in power at that time.
The best way to evaluate policies is pure logic. That's it.
And it's not crucial as to whether a Republican or Democrat was in power, it's important what POLICIES were used while in power. Clinton was a Democrat, but when he created a budget surplus by slashing government spending and actually closing down the government for days, that's actually a conservative concept (less gov't spending)
Anonymous,
ReplyDeleteYou write:
"What this has to do with what you have written--as long as the usa grows more and more apples we are getting wealthier regardless of trade balances"
First, you didn't answer my question. How can you determine if someone is wealthier only by knowing what apples they have, as you claimed below?
"If I have two apples and you have one, (same quality) even with zero trading, I am wealthier (ceteris paribus)."--
Oh, that's right, your statement was false. You didn't explain it properly.
You're pointing out that wealth can be created naturally, by growing things.
You are correct. But again, you are grasping at straws. I never suggested that wealth can't be created by growing food, did I? I can't find anywhere that I made that suggestion.
Regardless, you don't truly believe that sale of organic food would make up for the trade deficit in non-consumable goods, do you?
You write:
"I still feel (my opinion) that equating trade gaps with wealth, and looking at trade (buying and selling),and the economy in general as a zero sum game with transfer of wealth rather than creation of wealth is so inane that you are coming out with all sorts of ridiculous (ie sophomoric) arguments to support your position, but of course, that is only my opinion. "
Well if that's your position, then why don't you challenge my arguments? Every time I point out an error of yours you simply ignore it and find another point to make. I'm shutting you out by something like, what, 10-0?
Anonymous,
ReplyDeletethere is a problem with your argument about apples. (As I said, whether your argument is correct or not isn't relevant to my post anyway).
You are correct that wealth can seemingly appear from nowhere if the objects are grown (meaning no money has been paid for them).
But there is a negative effect, though. The more you grow, the less resources are available for growth in the future (unless they are infinitely replenishable)
Also, did you get that land and the seeds for free? Of course not. After all, you did pay money for the land and the seeds, didn't you?
There are resources (approaching) infinitely inexhaustible, for example the energy from the sun (and related potential energy from tides, winds, water cycle, lightening, etc) should last a few billion years, but we will probably either be extinct or living on other planets due to meteor hits by that time
ReplyDeleteProductively harnessing this energy, as we now use 100 horsepower cars instead of 100 horse coaches lead to INCREASE in wealth. Looking at trade balances in terms of export and import of goods 1-the usa deficit is $.4 trillion out of an economy of 15 trillion,--which of course results in a capital inflow into the usa as those dollars are recycled into debt or equity in the USA
and 2-services and income from foreign investments is treated separately from trade balances.
Just to be sure, the deficit is $0.4 trillion (the decimal point was barely visible in prior post) and to correct prior assertion it does include services and goods.
ReplyDeleteAnonymous,
ReplyDeleteyou write:
"There are resources (approaching) infinitely inexhaustible, for example the energy from the sun"
Infinite? I doubt it. Even the sun is expected to die out eventually.
But what's your point? I never said there weren't resources that could last a very long time.
My post was about the trade deficit, and I can assure you that only a tiny fraction of that is currently impacted by nearly inexhaustible energy sources.
You write:
"Productively harnessing this energy, as we now use 100 horsepower cars instead of 100 horse coaches lead to INCREASE in wealth."
Impossible. Productivity increases free up time,
it's impossible for them to change the fact that for every payment someone receives, an equal amount is paid. No change in wealth.
You write:
"which of course results in a capital inflow into the usa"
A trade deficit means that you are buying MORE from foreigners than you sell, so more money is leaving than coming in.
"A trade deficit means that you are buying MORE from foreigners than you sell, so more money is leaving than coming in."mr/s no such-- This is not true.
ReplyDeleteI hate to cite wikipedia as a source, but in the second paragraph you will see why balance of payments (which includes trade) MUST balance
"A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world.[1] These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarises international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item.
When all components of the BOP sheet are included it must balance – that is, it must sum to zero – there can be no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter balanced in other ways – such as by funds earned from its foreign investments, by running down reserves or by receiving loans from other countries.
While the overall BOP sheet will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account. This can result in surplus countries accumulating hoards of wealth, while deficit nations become increasingly indebted. Historically there have been different approaches to the question of how to correct imbalances and debate on whether they are something governments should be concerned about. With record imbalances held up as one of the contributing factors to the financial crisis of 2007–2010, plans to address global imbalances are now high on the agenda of policy makers for 2010." balance of payments, wikipedia
Anonymous,
ReplyDeleteI don't even need to read your entire post to know that what you're discussing has zero relevance to my post.
My post was NOT about balance of payments. It was about the trade deficit. That's it.
""There are resources (approaching) infinitely inexhaustible, for example the energy from the sun"(my "quote"
ReplyDelete"Infinite? I doubt it. Even the sun is expected to die out eventually."-your response
If you cut and pasted my entire entry it reads as follows
"There are resources (approaching) infinitely inexhaustible, for example the energy from the sun (and related potential energy from tides, winds, water cycle, lightening, etc) should last a few billion years, but we will probably either be extinct or living on other planets due to meteor hits by that time." my complete sentence.
Which shows what a fool you are! by taking statements out of context.--tsk, tsk
Anonymous,
ReplyDeletewhat's your point? Yes, you clarified your point that there is a limit to those resources, but you were still wrong to say they were approaching infinity, because billions of years is nothing compared to infinity.
Anyway, you failed to answer my question:
"But what's your point? I never said there weren't resources that could last a very long time."
So what's your point? My post was about the trade deficit. Why do you mention nearly inexhaustible energy sources? Every time you lose an argument, you keep expanding the debate in an attempt to find a topic you can outsmart me on.
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ReplyDelete"My post was about the trade deficit"--you
ReplyDeleteFunny I though the title was about USA's 37 years of wealth shrinkage.
Which, if you define wealth by the standard of living, i.e the number and quality of "toys" and services for each person, we are far wealthier now than 37 years ago, despite your bringing up trade deficit (which I call capital inflow into the USA and dollars are recycled)
Anonymous,
ReplyDeleteyes, the article was also about wealth shrinkage.
What does that matter? You still defined trade deficits incorrectly, and you still blabbed on by defining balance of payments, yet didn't offer one single word about why you bothered to define balance of payments.
Dumb people consider that which they dont understand "babble"
ReplyDeleteNow--get this straight.
1-China sends us goods.
2-We send China money
3-The money does not sit in a money bin in China but is used to invest in the United States, either financing our budget deficits, buying or building American companies or property. China makes money from its investments into the United States--the money finds its way back home-- (example building real estate, building toll road, investing in mining, etc)
Obviously, your view of economics seems to stop after step 2--ie china gets all our money (and puts it in a giant money bin!) and we lose the "wealth" represented by that money
Anonymous,
ReplyDeleteunfortunately you seem to be the dumb one here.
First, I never suggested that China doesn't spend any of its import revenue in the USA.
Second, there is no way that China spends 100% of its important revenue (from the USA) within the USA.
Third (and most importantly) you fail to mention that your argument works both ways. If China spends some import revenue within the USA, then the USA also spends some import revenue (from China) within China. Therefore, a large part of the reinvestment in the USA that comes from Chinese import revenue is offset by the outflow of money from US import revenue that's reinvested in China.
Unless China keeps the money in a money bin earning zero interest--ALL of it finds its way, directly or INDIRECTLY-- (country a to b to c to a) to the country of origin, either as loans, gifts, purchases or investments--
ReplyDelete"When all components of the BOP sheet are included it must balance – that is, it must sum to zero – there can be no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter balanced in other ways – such as by funds earned from its foreign investments, by running down reserves or by receiving loans from other countries."--from wiki
note operative words "must balance"--Sort of like newtons law of motion regarding equal and opposite actions and reactions.
Anonymous,
ReplyDeleteI don't even need to learn about balance of payments to know that your claim is false.
If the USA sells China something, there is absolutely NOTHING that forces China to reinvest 100% of the revenue back in the USA.
Cmon, it's absurd to say otherwise!!!!!
Balance of payments probably DOES have to balance...but that doesn't mean that there isn't a deficit!
Look at the balance sheet of a corporation. It balances, so that shareholders equity + expenses = assets. But that doesn't mean the company isn't losing money badly!
Look at the balance sheet
If our government spends more money than it takes in, China steps in to buy our debt--They suppossedly have 2 trillion in treasury instruments at last count.
ReplyDeleteWhen USA buys stuff, they pay with cash or iou. I am not saying that either owning a pile of iou's, or owing a pile of iou's is the way to go.
China, sending stuff to us expects to get paid something of value ($'s), and by importing from China we are saying that we are getting value for the dollars (temporarily) being exported.
Otherwise, without recyling, all the money goes into a money bin and stays there!
For corporations, you seem to confuse balance sheet with Profit and Loss statement--tsk, tsk
Regardless, the statement that USA is poorer over 37 years is wrong, and froeign trade is a relatively small part of the usa economy. unlike most countries, USA has a large total economy ( nearly the size of european union) which thrives in large part on internal trade.
Anonymous,
ReplyDeletefirst, if the US government spends more than it takes in, it borrows money (or uses savings, which it doesn't have). That might balance out when it comes to balance of payments, but it is NOT a balance of wealth. Because when China lends money it is a liability, a debt, that the USA owns. Not wealth.
And regardless, China isn't the only one that fills the spending gap by lending the USA money...many other countries do too.
As for corporations, I didn't confuse anything at all. There is nothing wrong with mentioning profit/loss in the same breath as the balance sheet, because profit and loss either increase or decrease shareholders equity, which appears on the balance sheet.
Haven't you given up yet? You are a sucker for punishment, you must be something like 0-25 by now.
Foreign trade is a relatively small part of the US economy? Are you kidding? Americans are known as some of the biggest consumers in the world, and they buy tons of it by importing!
Regardless, it doesn't matter even if foreign trade is a tiny part of the economy. Foreign trade is the main way that a country becomes wealthy. You could have a domestic economy that's the largest in the world, but it tells you NOTHING about a country's wealth, because the domestic economy doesn't increase a country's wealth. The money simply shifts elsewhere within the economy.
If the economy is large (per capita) and growing (per capita) then the wealth of the country is increasing--by definition.
ReplyDelete"Foreign trade is a relatively small part of the US economy? Are you kidding? Americans are known as some of the biggest consumers in the world, and they buy tons of it by importing!"--nosuch
ReplyDeleteWRONG--but of course you know how to look it up--lol
Anonymous,
ReplyDeleteI am not going to continue tolerating your comments.
If the economy is growing per capita, then the wealth of the country is NOT increasing, by definition. To know the answer to that question, you'd need to know how much the debt of the country is growing by.
Also, it's impossible for a country to become wealthier by trading within it's own borders, because the money simply shifts around and stays within the country.
I don't need to look up the foreign trade stats. If you want to believe that the effect of foreign trade on the USA's economy is smaller than the same stat in most other countries, you go ahead and believe that. There's a reason that consumer spending accounts for about 70% of GDP.
"Also, it's impossible for a country to become wealthier by trading within it's own borders, because the money simply shifts around and stays within the country."
ReplyDeleteSince it is impossible for the EARTH to become wealthier (since it doesnt trade with other planets)... your argument reducto ad absurdum----we must have the same wealth today as we had in stone age days.
"I don't need to look up the foreign trade stats"--As the saying goes you can argue about your opinion, but you cant make up your own facts.
Anonymous,
ReplyDeletecorrect! It's impossible for the earth to become wealthier over time as a result of trade within the planet. I explained this to another reader in a post earlier in this thread!
Now, if you can figure out how the earth can become wealthier by simply moving wealth around within the land, let me know!!!! lol
About foreign trade...listen, it doesn't matter whether I'm correct or not as to whether foreign trade is a large portion of the US economy relative to other countries...you made this argument, seemingly unable to understand my main article (or perhaps you wanted to shift the argument, since you lost every other one).
My article's point was simply that the trade deficit is large enough to be draining the USA's wealth substantially, and that is UNDENIABLE.
The link in my article shows that the 2009 trade deficit was $374 billion. If that had instead been a SURPLUS of $374B, that would be a swing of $748B, which would have a MASSIVE impact on the economy, adding wealth averaging $2,493 per PERSON (assuming a population of 300 million).
$748B is also enough to completely wipe out the total BUDGET deficit of every year in US history except the last 2 years or so (it would wipe out a huge chunk of the overall deficit during those two years).
So are you calling nosuchthing's third law of economics--wealth is neither created or destroyed, but just spread around???
ReplyDeleteFunny, I didnt think that Abraham Lincoln was able to afford burn 1000 candles or hundreds of kerosene lamps to light up the night back in 1800's whereas I am doing it at the rate of 15 cents/hour (approx 1/100 of median hourly wage). Nor was he able to travel between California and New York in six hours at a cost equivalent to one weeks median salary . How much was stagecoach and some rail travel or travel through panama isthmus or around South America in equivalent dollars in those days?
Another questions--is trade the ONLY way to create wealth--If there are other ways, hasnt the USA used those methods over the last 37 years??
So you are admitting that people on earth today are as wealthy as they were in pre-historic times???
Anonymous,
ReplyDeletejust because wealth isn't created through trade, that doesn't mean life doesn't get better. Productivity gains don't increase wealth, but they increase the amount of time available for leisure, they increase enjoyment of life.
Productivity gains sometimes mean that people can afford more than they could afford in the past, but their wealth hasn't increased, the cost of the items has decreased due to productivity gains in its production.
I'm not sure if trade is the only way to increase wealth. The only other possibility I can think of is through the stock market, and that has resulted in a decrease in American wealth for at least the last 10 years or so, since the Dow is lower than it was in 2000. However, if you put me on the spot and asked if the stock market could create wealth, I would be hesitant to say it does, because for every buyer, there is a seller. However, there are reasons that I believe it may be able to create net wealth, but that's for a future article.
And yes, I'm admitting that people today are no wealthier than in prehistoric times.
ReplyDeleteIf you disagree, then give me an example of wealth that was created out of the blue suddenly (without trading currency or assets and without producing something from a raw material asset).
"Productivity gains sometimes mean that people can afford more than they could afford in the past, but their wealth hasn't increased, the cost of the items has decreased due to productivity gains in its production."--nosuch
ReplyDeleteBeing such a stickler on "definitions" as you are, can you please define wealth??
"just because wealth isn't created through trade, that doesn't mean life doesn't get better. Productivity gains don't increase wealth, but they increase the amount of time available for leisure, they increase enjoyment of life."-nosuch
And if wealth increase does not mean creating "more leisure time", people affording more toys and services, "life getting better"--
What does it mean???--lol
Anonymous,
ReplyDeletejust give up. You are losing badly, and every time I point out where you are wrong, you simply shift to another topic. Does it feel good to lose so badly?
I am not going to define wealth again...I already have earlier in this thread. Wealth does not include productivity, because knowing how productive a society is does not tell you how wealthy it is. Also, having more leisure time does not tell you how wealthy a person is, so leisure time is not part of the definition of wealth.
If you define wealth solely as "benefit always derived from positive trade balance" than using tautology logic, ( ie law of the excluded middle--A or Not A--either trade balance is positive or negative--no middle-- society becomes wealthier or poorer) you are never wrong.
ReplyDeleteBut if wealth is assets (including public assets such as roads and public buildings, infrastructure, etc), we do have more now than in caveman times.
And certainly since present day population is at least 100 times prehistoric population, we have more total assets even if (according to your preposterous answer) our overall wealth (because earth does not trade yet with other plants) has not increased, otherwise we would be 100 times poorer today (and perhaps 10 times poorer than in 1700's
But please repeat what your definition of wealth is??
Anonymous,
ReplyDeleteyou write:
"If you define wealth solely as "benefit always derived from positive trade balance" than using tautology logic, ( ie law of the excluded middle--A or Not A--either trade balance is positive or negative--no middle-- society becomes wealthier or poorer) you are never wrong."
First, I didn't define wealth solely by whether the trade balance is positive or negative.
Also, you say that use of such a definition would mean one is "never wrong". Never wrong about what? You don't say.
You write:
"But if wealth is assets (including public assets such as roads and public buildings, infrastructure, etc), we do have more now than in caveman times."
How could we have more now than in caveman days? Where did the materials to create the concrete and wood come from? Out of thin air? No, they simply came from assets that were in a different form, in the earth, or from trees, etc. The only way in which assets would increase over time in a natural way is from environmental triggers, such as rain resulting in more trees growing that there otherwise would, allowing for more wood and homes to be built; things like that.
You write:
"And certainly since present day population is at least 100 times prehistoric population, we have more total assets even if (according to your preposterous answer) our overall wealth (because earth does not trade yet with other plants) has not increased, otherwise we would be 100 times poorer today (and perhaps 10 times poorer than in 1700's"
So you seem to be implying that a large increase in population along with the fact the population doesn't seem to be poorer, implies that wealth has increased?
Why would you make that claim? How many people do you know of who are born and who automatically, magically result in an increase in assets that coincides with their birth?
My definition of wealth is assets that have a value that can be quantified.