Thursday, May 8, 2014

That trade deficit

Perhaps, the easiest way to determine if you are holding a conversation with a Producer or Predator is to ask for an opinion on the merchandise trade deficit vs. the federal budget deficit.  Predators are all worried about the budget deficit because the laws and conventions surrounding debt are literally a matter of life and death to them.  If people suddenly realized that the Predator ability to change government policy based on debt arrangements was based on how computer chips are programmed and instructed, their 'power' would be exposed.  This, by the way, was precisely the point that Frank Baum was trying to make in the Wizard of Oz (the book) when he wrote "pay no attention to the man behind the curtain."  The reason we always hear about the government debt is that so long as most people treat it as something real and important, the people who control the money flows are the most powerful people on earth.

On the other hand, the merchandise trade numbers are a real indication of how well a country's Producers are doing.  The basis of nearly all Producer Class understanding is the idea that a society prospers when it produces nearly all the goods and services it needs to operate—but IF there is something they cannot produce for themselves, they should be so good at something (or many things) that they have something to trade with those who clearly produce a superior good or service they need.  There once, not so long ago, was a whole body of economic thinking that believed the clearest road to prosperity for any nation was import substitution.

When Predator Class economics came roaring back in the 1970s, one of the first things to disappear was an official concern for the trade deficit.  Suddenly it just didn't matter in all the important organs of public opinion.  Of course, it still mattered very much to the real economy.  The biggest factor that caused the trade deficit to rage out of control was our need to import oil.  And unlike importing a capital good like improved machine tools that would allow us to produce something superior for sale, oil was just burned.  So oil became this perpetual hole in the trade balance.  Occasionally we would try to rebalance the accounts by selling off the nation's prime real estate and the crown jewels of the industrial infrastructure.

But the Predators had a point.  For the USA, the trade deficit really did NOT matter—at least to the people who 'mattered'.  Why?  Because oil was priced in dollars, we could just "print" more money (reprogram the chips) to cover any shortfall.  So the message to the citizens of the land was: "In the global economy, your sole purpose is to buy stuff.  Making things is for the lower orders and foreigners."  This was comforting to the Leisure Classes in Washington and Wall Street.  It was a disaster for the people who actually made things as a means of survival.

Unfortunately, becoming a society of mere consumers is highly destructive.  People who only shop are missing important lessons in how the world actually works.  The Leisure Class is wrong about a very important fact—it is NOT good to be useless.

Enormous, Humongous Trade Deficit Went Down In March, But Still...

by Dave Johnson | May 7, 2014

Wall Street wants people to think that budget deficits are a problem. But the deficit that is causing trouble for our economy, costing us jobs and driving down our pay is the trade deficit. And we have an enormous, humongous trade deficit. I mean, huge. I mean $40 billion a month.

To show the effect of this huge trade deficit, imagine the effect on our economy if companies doing and making things inside of the U.S. suddenly received orders for $40 billion of goods and services. Imagine the hiring that would be taking place, the rise in wages as companies tried to get workers to fill the demand, the people getting off of food stamps, the effect on local stores, etc… Imagine that happening again next month and then every single month from now on. Another $40 billion. And then another $40 billion. And then another … That is exactly the measure of what this trade deficit translates to in lost jobs and economic drag.

That is why the trade deficit is such a problem.

The Department of Commerce’s Bureau of Economic Analysis released the March trade figures this morning. The U.S. international goods and services trade deficit fell to $40.4 billion from a revised $41.9 billion in February.

Even the U.S. goods deficit with China fell a bit to $20.4 billion, from $20.9 billion in February. But the U.S. goods deficit with Japan went up a bit to $5.9 billion, from $5.3 billion in February.

A Reuters report, “U.S. trade deficit narrows in March as exports rebound,” explains,
Exports of capital goods, industrial supplies and materials, and automobiles increased in March. Exports of services hit a record high, while those of non-petroleum goods were also the highest on record.
But the thing is, even if exports increase, it has to be balanced by a decrease in imports. Otherwise, more jobs are still being lost than are being gained.
Reuters explained that the trade deficit is a good part of what is holding back the U.S. economy, writing, “Trade subtracted 0.83 percentage point from GDP growth in the first quarter, helping to hold down the economy to a 0.1 percent annual growth rate.”

South Korea

The recent free trade treaty with South Korea was sold as a way to create U.S. jobs. So if we saw balanced trade or a trade surplus it would that promise was fulfilled. But instead, the U.S. goods deficit with South Korea went up in March to $1.3 billion, from $1.0 billion in February. This means that it is costing even more jobs.

According to Public Citizen’s Global Trade Watch on the second anniversary of the US-Korea free trade treaty exports to Korea were down 11 percent and the trade deficit with Korea was up 47 percent since this agreement was signed.According to the Economic Policy Institute, as of March 60,000 American jobs had been lost (mostly in manufacturing), exports to Korea were down 7.5 percent with the trade deficit up 59.6 percent. So it’s even worse now.

Scott Paul, President of the Alliance for American Manufacturing (AAM), said of the March numbers,
“Every dollar’s worth of trade deficit serves as a drag on economic growth, which means fewer job opportunities for American workers. A smart trade strategy starts with trade enforcement.

“If our workers and businesses have a level playing field here at home as well as in markets abroad, we will grow jobs. I was in Lorain, Ohio on Monday, where hundreds of jobs are in jeopardy because of dumped steel pipe from South Korea. Unless the Commerce Department makes the right choice in July, the American pipe and tube industry could suffer. Enforcing trade laws creates jobs in America.” more

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