Wednesday, January 16, 2013

That $48.7 billion November trade deficit

The other day I got an email from a guy who claimed to be a regular reader.  He seemed to think I had missed some of the advantages of running huge trade deficits.  It was cute, in an odd sort of way, because he writes as if he had thought this up himself.  Sorry, these arguments have been around since at least the 1970s and I have been swatting them out of the park for decades.

First his arguments that trade deficits don't matter.
but, consider this: the goods we import are a permanent loss of resources to the exporters and a net benefit to us of those resources (it improves our standards of living)

our loss is the dollars we create from nothing (fiat money with no intrinsic value that can't be depleted)

  • those exporter nations love our $
  • if we had imposed reparations on post war Japan demanding trillions of $ of Sonys, Panasonics, Toyotas, etc in return for scrip, they'd have screamed - but they did (and do) it willingly!
  • the US $ has become the global reserve currency - prized
  • what other nation is willing to run unending trade deficits in order to displace us in that regard?
  • why would we be willing to deplete our real resources to gain someone else's currency?
  • all nations cannot become net exporters: assets = liabilities just a contrary thought that took me a while to digest!
Essentially this line of "reasoning" is flawed for two reasons.

1) While superficially it may seem like it's a great deal that USA can create money with a few keystroke which we can then exchange for flat-screen TVs and Toyota Priuses, this "trick" covers a huge tragedy.  Just because electronic money seems less real than say, gold, it is not.  That electronic money spent in Japan or China is money not spent in Youngstown Ohio.  The people who earn that electronic money are more prosperous than those who do not.  The trade deficit affects lives in real and very meaningful ways.

2) There are huge cultural effects of manufacturing that are lost when we give up the practice in exchange for new and novel forms of laziness.  People who make things gain the wisdom of the tool makers and users.  People who do not tend to behave as would be expected of the partially evolved.  A country that forgets how to manufacture and settles for merely knowing how to shop has made a conscious decision to dumb down.  It is not at all surprising when a country that neglects to do the jobs associated with creating the very difficult soon is also a country that doesn't do too well in other intellectual pursuits either.

Those who claim that trade deficits don't matter (or are actually a good thing) are members in good standing of the Leisure Classes.  They don't get why folks take so much pride and feel so much satisfaction from creating stunningly beautiful and difficult things.  One of the reasons the Leisure Classes are so susceptible to untrammeled greed and other sins is that those who only shop can never feel the pleasures of the Instinct of Workmanship.  A builder can take his kids out to the job site on weekends to show them what he has accomplished in cooperation with his mates.  What exactly can an expert in force and fraud point to with pride?  Not much.  IMHO the inability to take pride in one's work is reason #1 why the Leisure Classes are a haven for sociopaths.

November Trade Deficit Drained $48.7 Billion From Economy

by Dave Johnson | January 12, 2013

Washington frets about the budget deficit, which is money we owe mostly to each other and have spent on things we do for each other to make our lives better. But the trade deficit is money that actually leaves our economy, making us poorer and less able to make our lives better.

The November trade deficit numbers are out:
  • The monthly U.S. international trade deficit in goods and services rose to $48.7 billion in November, up from $42.1 billion in October.
  • The monthly goods deficit with China was still huge at $29.0 billion in November. That is down a bit from the all-time record of $29.5 billion in October.
  • The 2012 U.S. goods trade deficit with China was $290 billion for those 11 months, and will probably top 2011′s record of $295 billion.
Scott Paul, President of the Alliance for American Manufacturing (AAM), issued the following statement:
“Despite talk of a manufacturing renaissance, we will shatter 2011′s record $295 billion annual trade deficit with China when the data for December comes in next month. The United States recorded a $29 billion bilateral trade deficit with China in November alone, bringing us to a $290 billion trade deficit with China so far in 2012.

“A recent study by Justin Pierce and Peter Schott (‘The Surprisingly Swift Decline of U.S. Manufacturing Employment‘) confirmed what we haveknown for some time: our trade deficit with China is draining manufacturing jobs from the United States. Unless we take aggressive steps to act in our own national interest, manufacturing in America will never reach its full potential. That means aggressive trade enforcement and ending China’s currency manipulation and other market-distorting practices.

“I want to see reshoring accelerate from a trickle to a trend. We won’t get there unless trade with China comes into balance.”
So while the inside-the-Beltway crowd worries about budget deficits, the serious problem of our trade deficit – which bleeds out jobs, factories, industries and our ability to make a living as a country – continues to go unaddressed. more

1 comment:

  1. That line of reasoning is straight out of the Modern Monetary Theory (MMT) crowd. I used to follow Bill Mitchell's blog and he would make exactly that point. It's a kind of magical thinking where the money has inherent worth and people will trade real things just for the paper money. It totally neglects the actual, physical state of the trading economies and the effects the trade has on them (as you point out).

    My favorite application of this line of thought: "China sure gives us a lot of goods in exchange for our government paper--so they're exporting real resources to us, making them poorer and us richer!" Except, China has developed massively over the past decades and raised the standard of living of an enormous population at an unprecedented pace. Meanwhile, with the exception of the dotcom boom, our economy has been stagnating and we've even seen some demographic sectors' life expectancy decrease in the last decade. Something tells me they're not getting poorer and we're not getting richer...

    MMT'ers have a couple good ideas, but that isn't one of them.