John Maynard Keynes’ biggest disservice to the economics profession is to not start with an open economy. In a world of free trade and free movement of capital, a nation’s biggest constraint on raising output is the “balance-of-payments constraint”. It is sad that in spite of the crisis the economic profession has not even started debating on the constraints imposed on nations due to free trade (and the whole world as a consequence).
Intuitively I agree with Ramanan on this although I do not have the expertise in the subject to make a deeply informed judgment. But my sense is that until economists and especially political economists aka macroeconomists start with the global economy as a closed system, we are going to keep looking for solutions in the wrong direction. A lasting solution has to be social and political as well as economic, and the notion that nations get it right by each pursuing maximum utility in the form of "national interest" will be about as effective as individuals pursuing their own interest in achieving general equilibrium through markets. It's nonsense.
Historically, economics really begins with trade. Even communal tribes that operated on the gift economy internally traded with neighboring tribes and over time, trade encompassed most of the world, providing the first contact and later communication among different people, resulting in shared knowledge and cultural and institutional influence. So it is quite amazing to me as an outsider looking in at economics to find what seems obvious being relegated pretty much to an afterthought.
The world will not work and humanity will not see peace until the world works for everyone. What's good for humanity is good for the world economy rather than vice versa, as neoliberalism assumes.
45 comments:
Well, the Bible predicts a world-wide monetary system run by the Devil ("666") so I suggest we aim for DECENTRALIZATION so as to not be complicit with (and share the fate of) Satan.
It's this simple; God does not need a hierarchy; Satan does. Be careful then that you do not build him one lest he come and YOU be responsible for helping him.
posted this comment; will see if it gets past their censors
This is such a naive question that it only proves the superficiality of the whole economics profession.
Compare the diversity of HUMAN CULTURES cultures to the diversity of physiologies, simplifying it to the diverse physiologies of the human species alone, itself a gross oversimplification, since humans cannot survive separated from a diverse ecosystem capable of maintaining their survival needs.
Nevertheless, the analogy is useful. The median human physiology includes ~70 trillion cells, ~300 cell types, and ~60 organs. Quite obviously, the vast network of cells & organs in any given human must maintain some semblance of hyper-local homeostasis EVEN WHILE participating in semi-local networks called families, locales, communities, provinces nations and even confederations such as NATO and/or the EEU and "emu."
One immediate point is that functional viability of [component PLUS aggregate] must be maintained. There is ALWAYS a 2-stage optimization process occurring - namely, keep the components alive PLUS grow the system; i.e., reap the return on coordination.
It is not a historical accident that the latter half of the word "coordination" includes the root word, "nation."
Now for the coup de grace. How does any aggregate of components explore their expanding group options and SELECT those which deliver a higher vs lower net Adaptive Rate? Quite simply, it always boils down to the collective process of "steering" through the aggregates self-made obstacle course.
http://openmonetaryopsforum.blogspot.com/2013/10/everyones-looking-for-better-way-how-do.html
Already, it should be clear that the aggregate goal is to maintain adequate resource throughput, of either a nation state or a individual human physiology. Anything less is a gross failure to deal with the actual situation embodied in any given context.
Once visualized that way, it is quite clear that free trade is a perverted econonic concept, unless it also applies to free trade among local forms of capital as well, which would require significant if not complete reductions of all, selectively regressive taxes and tariffs on labor, transportation and other forms of "capital." After all, every "nation" faces Adaptive Demands to manage it's own resiliency, agility and Adaptive Rate, just as surely as any local "physiology" does.
If a liver, lung or kidney organ isn't free to outsource it's functions SEPARATE from managing the net resiliency of the physiology [aka, "system"] it serves as a component of, then neither is a given merchant free to pursue "free trade" at the expense of the resiliency of the nation it is a component of.
http://mikenormaneconomics.blogspot.com/2013/04/free-trade-that-just-means-that-large.html
I doubt the 'balance of payments constraint' is anything more than another control mechanism designed to force an economy into a particular way of operating.
What you have is interacting dynamic entities within a closed system. The actions of one affects the others *and feedback on itself*.
Floats can work to buffer that if you adopt the correct policies- which funnily enough are the same policies adopted by stock exchanged. Set a rate of change that is unacceptable and then *slow that down* so the change can be absorbed.
So you have largely free capital flows, etc - but with a dampening system in place to stop changes being too abrupt, and to distribute any real effects fairly across the population.
That should allow each state to operate semi-autonomously - and allow the states to shrink down to their optimum size. That allows for effective democracy, etc.
For me offsetting mercantilism with financial asset creation is a powerful tool - particularly if you let the mercantilist know that is what you intend to do.
Lots of dynamics to understand and the like, but I think it is the only way to go.
The big hug club of global agreement just isn't going to happen any time soon.
"John Maynard Keynes’ biggest disservice to the economics profession is to not start with an open economy."
this is a complete idiotic statement
by Ramanan.
Keynes did treat in details open economy issues.
Frank
"this is a complete idiotic statement
by Ramanan"
I said didn't start with the open economy. Didn't say he didn't talk of it at all.
From the wiki on "Savings Identity":
"Savings identity or the savings investment identity is a concept in National Income Accounting stating that the amount saved (S) in an economy will be amount invested (I). More specifically, in an open economy (an economy with foreign trade and capital flows), governmental borrowing plus private investment must equal private savings plus foreign investment. In other words, investment must be financed by some combination of private domestic savings, government savings (surplus), and foreign savings (foreign capital inflows).[1] [2]"
So what are the "foreign capital inflows"? when for instance the Asian countries run a perennial trade surplus?
What is the 'capital'?
The real goods?
So what the Asian nations are really doing is "investing in the USA"?
I'm pretty sure they are not looking at it that way; as they are 'investing' in the US...
And another thing, this whole ex post "S=I" thing I believe is way out of control in the orthodoxy... it looks to me that they think they can foment I by forcibly creating S a la QE...
So when this wiki page here says "that the amount saved (S) in an economy will be amount invested (I). " this is NOT CORRECT imo... the "will be" should be changed to "was"...
rsp,
Ramanan,
How does the QE work out in the National Accounts?
When the CB steps in like this is "savings" increased due to the increase in bank deposits? If so, where is the increase in "investment"? At the CB?
Trying to understand..
rsp,
F.,
"God does not need a hierarchy;"
What the heck are you talking about!?
The whole thing is ALL ABOUT 'hierarchy'...
Scriptural phrases: "given UP", "set UNDER", "be SUBJECT", the LORD", etc...
????????
His whole creation IS a 'hierarchy', including Satan.
rsp,
Franko,
I said God does not NEED a hierarchy and He doesn't. Nevertheless, He may CHOOSE to allow the Angels and us to help Him.
Satan, otoh, has no choice since He is limited in his power.
"this whole ex post "S=I" thing I believe is way out of control in the orthodoxy... it looks to me that they think they can foment I by forcibly creating S a la QE... "
Yep. These are not functions, but rather descriptions or snapshots (like in accounting).
These identities do not describe/capture flows or any dynamic process lively, and hence causality cannot be derived from them.
If some people are taking identities (tautologies) as discrete functions with implied causality it's a pretty bad mistake.
Matt,
"So what the Asian nations are really doing is "investing in the USA"?"
No, they are 'financing' investment in the USA by 'lending money' that they accumulate as a result of their trade surplus.
"So when this wiki page here says "that the amount saved (S) in an economy will be amount invested (I). " this is NOT CORRECT imo... the "will be" should be changed to "was"..."
good point about how misleading these descriptions in mainstream economics can be.
Whatever economic problem I'm considering, I always START WITH a closed economy. Then I add the complexities that derive from an economy being open.
When solving problems, always start with the simplest case or example of the problem.
y,
then who is doing the investing?
iow if "S=I" and for instance the Chinese are 'saving' in the USDs they receive in return for the provision of their real goods then "S" has increased for the Chinese but who has done the "I"?
Since the US hit the 'debt ceiling' in late May, no new USTs were issued net, while at the same time I'm sure the Chinese were running a surplus of some amount with the US so from an accounting standpoint, the Chinese HAVE TO have just been accumulating bank account balances which is increasing their 'savings' but where is the 'investment' then which is the other side of the equation?
Who do you think is 'investing' in this scenario?
rsp,
Matt,
Say there is only one bank, for simplicity.
That bank makes a loan to an investor called Mr Smith. The bank creates a deposit. Mr Smith invests the money building a factory. The people he pays for the materials and labour spend the money on goods imported from China. The Chinese exporter saves the deposit.
Because the bank deposit is a loan to the bank, the Chinese exporter is 'financing' the bank's loans, including the loan made to Mr Smith.
If what these 'scientists' behind the QE thought was that "increasing S will increase I" because "S=I" perhaps one could have said that before the massive QE we have seen with NO EFFECT...
Here is a guy who is attempting to debunk General Relativity and Black Holes:
http://www.youtube.com/watch?v=Q185InpONK4
When the evidence demonstrates a failure of a belief/Theory you have to have the intelligence to know that we have to 'go back to the drawing board' and get back to work on trying to figure out what is really going on and the terms/equations that show best how we can understand and work within the realm of "what is really going on" around us....
rsp,
"Who do you think is 'investing' in this scenario?"
whoever is doing the investing. Could be anyone. Domestic investors, government, foreign investors.
"Since the US hit the 'debt ceiling' in late May, no new USTs were issued net"
but the US has still been running a deficit, and the debt has continued to increase, so how does that work?
The point of QE is to try and get people to spend more, either as a result of a 'wealth effect' via higher asset prices, or in anticipation of higher inflation, which in theory could be caused by a weaker dollar.
It doesn't work though.
"The economy" as always been global from time immemorial because economics begins with surplus and surplus was traded with neighbors, first near but fairly quickly in historical time afar as well. "Global trade" is ancient.
Economist generally like to start thinking theoretically in terms of closed systems since they are simple cases, even if not realistic wrt to existing conditions. But the global economy is a closed system and virtually no economists are thinking of what takes place in it as a closed system other than the energy and materials that we on earth get from outer space.
Why is this. Ignorance? Maybe. But economics has been a Western endeavor by and large, and "trade" has been closely linked with classical political and economic liberalism, imperialism and colonialism, and the current policy of Western highly developed countries is all about maintaing that order in the form of neoliberalism, neo-imperialism, and neocolonialism under the rubric of "free markets, free trade, and free capital flow." It's about resource extraction, labor exploitation, and rent extraction.
Did that just happen as a matter of historical development based on ignorance of the world as a closed system, or was it engineered to obtain a larger slice of the pie through imposition involving a power structure? Considering all the expenditure on militaries and navies, for which it's difficult to see the need based on defense, the presumption is that something more was involved. And since military might was heavily involved in imperialism and colonialism, the evidence seems to suggest a plan.
Of course the conventional economists of the developed world don't want to think of the world as closed system socially, politically and economically, or regard it in historical terms, even though most of the issues in history have involved just that condition and fights over division of the pie. It's a career killer to say so, though, unless one is a radical, in which case one will be marginalized as a "Marxist" or "anarchist."
Public intellectuals in the West have been saying this, Chomsky for example, but he is not an economist. However, some major economists like Joe Stiglitz are now speaking up. Ha-Joong Chang has a book on world trade called Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism.
Meanwhile, the new world order is being imposed by central banks, international organizations like the IMF and World Bank that are under the direction of the developed world (as the merging world is now complaining), and transnational corporations.
These people understand full well that the world is closed system, and they are crafting policy to make it work for the ruling elite by craving out a better slice of the pie than they actually contribute to and to cement that in place permanently through treaties supposedly aimed at "free markets, free trade, and free capital flow," assuming labor to be a commodity. It's just BS.
What "S = I" says is that post facto, i.e., on consolidated books in the closed system being considered, the income spent on consumption in the period must equal the income received from sales of consumption goods in the period, and the income not consumed must equal the spending on goods not consumed, i.e., capital goods and inventory.
It's just a statement about differences in accounts and how all accounts must balance in the period. Making it say more than that requires a theoretical (causal) explanation that goes beyond the accounting identity. The value of the accounting identity is that any theoretical explanation that doesn't conform to the identity cannot be correct. It's function is therefore as a boundary condition.
that's a very clear explanation of S=I, Tom
Matt "God does not need a hierarchy;"
What the heck are you talking about!?
The whole thing is ALL ABOUT 'hierarchy'...
Scriptural phrases: "given UP", "set UNDER", "be SUBJECT", the LORD", etc..."
The Great Chain of Being
Matt,
"So what the Asian nations are really doing is "investing in the USA"?"
No, they are 'financing' investment in the USA by 'lending money' that they accumulate as a result of their trade surplus.
In trade there are two states and three conditions:
1. Actual "trade" where imports = exports, i.e., balanced trade.
2. One party is a net importer and the other is a net exporter. The net exporter as a trade surplus and the net importer has a trade deficit but holds an advantage in real terms.
(a) The net exporter invests (spends on assets) the difference between its exports and imports. This is called foreign direct investment (FDI). The current account is trade balance, FDI, foreign saving, and transfers like interest and dividend payments.
(b) The net exporter saves (doesn't consume or invest) the difference between its exports and imports in the currency of the importer.
2. (b) is often referred to as 'lending money' to the net importing country, because the net importing country pays for the imports with IOUs, or debts.
The fact is that, with the unique exception of external debt servicing, international transactions imply reciprocal transactions between countries, a condition necessary and sufficient to guarantee equilibrium on the foreign exchange market. For example, let us consider the case in which a given country, A, is a net commercial importer with respect to the rest of the world, R. Two situations are possible. If A is a key currency country, its net imports are paid by crediting the banking system of the rest of the world, R, with a bank deposit in money A. The net inflow of goods and services is thus balanced by an equivalent outflow of claims on A’s bank deposits. The demand for money R (MR) in terms of money A (MA), due to A’s net commercial imports, is matched by an equivalent demand for money A in terms of money R, which leaves the exchange rate unaltered. If MA is not a key currency, country A pays its net imports in money R. This it can do either by drawing on its official reserves or by obtaining a loan from R. Since official reserves are actually used for other purposes (mainly to reassure foreign investors), it is through a loan that A gets the amount of MR necessary to pay for its commercial imports. Now, the loan is obtained by exporting an equivalent amount of financial claims. Because of the net credit obtained from R, A incurs a debt, which is precisely the result of its net sale of financial claims. As in the previous case, the net purchase of real goods and services is balanced by a net sale of financial bonds, so that no variation in exchange rates occurs between MA and MR.
The payment of A’s net commercial and financial exports leads to the same result: the reciprocity of each transaction leaves exchange rates unaffected. This does not mean, however, that international payments are discharged in a purely logical way. The first case analysed above is clear evidence to the contrary. When paying for its net commercial imports, a key-currency country subjects its money to a process of duplication that leads to the creation of an international, speculative capital...
...First developed by Rueff (1963), this analysis of the so-called euro- (or xeno-) currencies is a key element in the explanation of exchange rate erratic fluctuations. Let us briefly summarise the main logical steps of the analysis. The payment by a reserve-currency country, A, of its net commercial imports implies the transfer to the exporting countries, R, of claims on A’s bank deposits. As shown by double-entry book-keeping, not a single unit of the income formed in A is transferred to R. The credit entered on the assets side of R’s banking system means that a part of A’s bank deposits are now owned by R. The deposits themselves, however, are still entirely present in A’s banking system. Hence, what R earns is the ownership of a deposit that remains available in A. Now, the fact is that the amount of money A entered on R’s banking system becomes autonomous with respect to its corresponding deposit in A. As stressed by Rueff, money A is subjected to a duplication since it is simultaneously available in A and abroad. Yet, while the bank deposits in A define A’s current output, the duplicate invested abroad has no real content whatsoever. By allowing the duplication to occur and the duplicate to become autonomous with respect to the initial bank deposits, the present structure of international payments allows the formation of a capital whose nature is essentially speculative. With no link to real production, this capital feeds a speculative market in which national currencies become objects of trade and their exchange rates are directly dependent upon supply and demand. As it happens with real goods, xeno-currencies are sold and purchased for their own sake; yet, contrary to what happens with real goods, their price is not related to their cost of production. Moreover, being mere duplicates, xeno-currencies do not contain any real production either. Despite this lack of objective relationship with national outputs, xeno-currencies are autonomous objects of trade on the foreign exchange market. Therefore, what makes up the speculative character of this market is not the kind of transaction it deals with (some of which are not speculative at all), but the fact that its very existence is due to the pathological process of duplication that transforms currencies from means into objects of payment. Speculation is the effect and not the cause of speculative capital, which is the direct consequence of currency duplications. As soon as currencies are transformed into objects of trade, their exchange rates vary according to their sales and purchases, and speculation arises with a view to making capital gains from these variations. It is not surprising, thus, that this kind of speculation becomes the main cause of exchange rate fluctuations, which, in turn, become the main incentive to speculation.
From:
http://www.quantum-macroeconomics.info/international-economics/
overview:
http://en.wikipedia.org/wiki/Quantum_economics
Oliver,
in your first case, exporters will usually want to change a large part of their deposits into their own country's currency, so that they can pay creditors and employees, pay other costs, reinvest, etc.
This increased demand for their country's currency causes it to appreciate, unless the central bank there intervenes to purchase the foreign currency by creating more of its own currency. In this way it accumulates foreign currency reserves, which it uses to purchase the foreign government's bonds.
by buying the foreign currency by creating more of its own currency, the exporting country's central bank can stop its currency from appreciating, which allows the country to maintain its exporting position.
Right, this is what China does to control its exchange in its position as a net exporter. The PBOC increases its holding of fx by exchanging foreign currencies exporting firms receive for RMB so that don't have to use the foreign exchange market. But this injects RMB into the Chinese and risks domestic inflation.
by buying the foreign currency by creating more of its own currency, the exporting country's central bank can stop its currency from appreciating, which allows the country to maintain its exporting position.
So foreigners are subsidized by the domestic population, courtesy of their back-stabbing central bank? How lovely!
Why not instead let the monetary sovereign provide the fiat (give it to it's citizens?) needed and let foreigners buy that fiat from the domestic population? Huh?
F,
They think they are 'productive' and they are 'competing' with the nations they run the surplus with... and their surplus means they are "winning".
Like right now China thinks they are "winning"...
Someone I know was at a US institution that was conducting a tour for some Chinese delegation that was visiting... so they provided a small token of their visit to them which was a coffee mug with the logo of the US institution on the mug....
The Chinese flipped over the mug and it said "CHINA" on the bottom and they all laughed like it was a big deal that "CHINA" was really the ones that produced the ceramic mug...
We have been producing ceramics in the west for thousands of years while these people drink and eat of out of hollowed out bamboo or whatever like Cro-Magnons.
... I guess they are all proud that they have finally figured out how to do ceramics after 1,000s of years and now they want to show this off to the world so they keep reducing the prices presented to US entities in order to achieve the higher share of production...
Once these foreign nations finally 'grow up' they may eventually figure out what they are doing in real terms and they will probably just stop doing it on their own....
rsp,
Matt, Chinese ceramics have for a very long time been among the most sophisticated and artistic on the planet. They invented porcelain, otherwise known as 'Fine China'. Ever hear the term 'Ming vase'?
"The earliest pottery vessels date back to 20,000 BP and were discovered in Xianrendong cave in Jiangxi, China. The pottery may have been used as cookware. Other early pottery vessels include those excavated from the Yuchanyan Cave in southern China, dated from 16,000 BCE"
"The early inhabitants of Europe developed pottery at about the same time as in the Near East, circa 5500–4500 BCE."
http://en.wikipedia.org/wiki/Pottery#History
looks like you had it the wrong way round Matt. The Chinese developed ceramics thousands of years before the Europeans.
@Y
by buying the foreign currency by creating more of its own currency, the exporting country's central bank can stop its currency from appreciating, which allows the country to maintain its exporting position.
contradicts (?):
The demand for money R (MR) in terms of money A (MA), due to A’s net commercial imports, is matched by an equivalent demand for money A in terms of money R, which leaves the exchange rate unaltered.
which, imo, is another way of saying Imbalances? What imbalances? (L.R.Wray)
@Tom
The PBOC increases its holding of fx by exchanging foreign currencies exporting firms receive for RMB so that don't have to use the foreign exchange market.
I think you have to be careful with the word exchange. The point they're trying to make is, that after the act you call exchange, both the foreign reserves as well as the newly created local currency are still owned and thus can be used by country A. There is no actual exchange as in an exchange of ownership in the proper sense. Of course, there is a corresponding new liability on country A's CB balance sheet, but the thing is that there are now two 'monies' circulating for only one transaction. One is backed by the output sold while the other, in their terms, is 'empty' and thus prone to be misused for speculative purposes.
I'm not completely sold on the monetary emissions school of thought - some of it seems outright Austrian - but I do think they have created a very clear framework for general analysis. They're incredibly good at keeping apart stocks and flows, or at properly defining squishy terms like 'demand', for example. I do think it complements PK and MMT where these are lacking though, especially by bringing finance and the real economy back together within one framework. There are now two universities in Switzerland (Fribourg & Lugano) with courses in monetary emissions. An open mind like yours should look into it :-).
Matt,
The Chinese elites want to develop their own national industries first, then they will be able to (domestically) supply the demand from the newly created middle class.
It's already happening, as consumption (domestic) is an increasing share of the GDP, instead of investment (which still is the majority, but has a decreasing share).
Mercantilism has been always used by local elites to develop their own capital in a fast paced way to be competitive with other external powers and elites. It's useful cause they get wealthier, not only financially (accumulating financial assets) but also from a real pov, as they create new assets and capital, while increasing the quality of life of the population and their wealth too, creating higher quality jobs and a knowledge base theirself.
Meanwhile, the west will lose know-how accumulated during decades because industries are being moved away. This is real capital too, and more important than already manufactured goods you are importing in exchange. It's way better to know how to do something, over having that something someone else gave you.
The saying of some MMT'ers to "not worry about trade imbalances, as exports are a real cost" is short-sighted and worrying to me, in more than one way.
Ignacio,
countries can only run current account surpluses if other countries run current account deficits...
@y, Oliver
It's important to consider the fact that trade in foreign exchange dwarfs trade in goods and services.
Last time I checked, the annual volume of foreign exchange transactions was more than $800 trillion a year, which was 60 times the annual volume of world trade and more than 10 times world GDP.
Financial transactions involve only the capital accounts of the BoP - the current account stays unchanged - and are limited only by the willingness of the parties to exhange financial instruments, including shares, corporate and sovereign bonds, etc.
Thus financial transactions (of which foreign exchange transactions are a particular type) have only a very loose connection to real transactions.
Let's say I am an American who wants to buy shares in a Japanese corporation. I sell $100,000 in T bills, and use the corresponding dollar deposit to buy the same amount of Japanese shares.
The domestic bond sale shows up in the U.S. Flow of Funds accounts but does not affect the capital account (or the current account) of the U.S. BoP.
The purchase of Japanese shares, however, shows up as an increase in U.S. Private holdings of Foreign Assets, while the payment of the $100,000 shows up as an increase in the dollar holdings of the Japanese. The two sides of the Capital account balance increase by the same amount leaving the net balance unchanged.
This is just an example of a transaction involving foreign exhange that does not affect at all either the current account or the capital account balance. And yes, such transactions dwarf trade in goods and services, net income and transfer payments among countries, etc.
Suppose instead the case of a "real transaction" between the U.S. and Japan.
In this case I want to buy a Japanese car worth 10 million Yen. I place an order with Toyota, which ships the product and sends me a bill denominated in Yen. I then arrange with my American bank to buy Yen. The bank places the order with a foreign exchange broker who finds a party willing to sell yen for dollars and conveys the foreign exchange rate (yen/dollar) for the transaction.
If the accepted rate is 100 Yen for a dollar, my bank transfers $100,000 to a dollar denominated account designated by the party who is seller of dollars. This party then sends the corresponding 100 million yens to the Japanese bank where Toyota holds its deposits.
Toyota has thus received full payment in Yens. The sale of the car adds to Japanese exports, pushing Japan's current account in the direction of a surplus and adds to American imports pushing the U.S. current account in the direction of a deficit.
Now comes the more interesting part. The Japanese party (say, a broker or dealer in foreign exchange) who has sold the yens for this transaction now possesses dollars, which reflect a fall in the Japanese capital account - the reverse of the rise in the current account originated by the export of the Toyota car.
This Japanese dealer can then do whatever it wants with the dollars it has received. It may, for instance, buy U.S. shares in the NYSE. But this financial transaction (as opposed to the "real" one described above) will only change the mix between different items of the capital account. It won't affect the overall balance in the capital (or current) accounts of either Japan or the U.S.
And as we have seen such financial transactions are a large multiple of total real transactions/trade in goods and services.
That's the reason they have a much larger impact on the foreign exchange markets and the foreign exchange rates than the "real' ones.
Jose,
I agree with all that you write here but our policymakers think rather that "we are not competitive" they use this word ALL THE TIME when they look at the ex post CAD and they don't even know the heck the Capital Account even is because they say things like "US corporations should repatriate their overseas profits" and such nonsense statements ALL THE TIME....
Too bad YOU are not a western Treasury Minister to explain these things to everybody who should have this knowledge but alas are morons in positions of authority...
They couldn't explain things like you have here in minutes in a million years...
They see this as some sort of "contest" to see "who can sell more", where we know and can see this as if it is any type of "contest" it is a race to the bottom with no real winners...
y,
the Ming dynasty was after 1000 AD some time and doesn't look like the technology was widely distributed.
Like Jose writes above, it looks to me like things are finally being more widely distributed over there just in the last 20 years and currently...they have basically remained in the stone age until our lifetimes...
Ignacio,
"The saying of some MMT'ers to "not worry about trade imbalances, as exports are a real cost"
I think if someday some western leader was able to stand up and inform them of what they were really doing in real terms and sort of chuckle at them for doing it, a la "you send us REAL things and we mark up computer accounts morons! Thanks! LOL zombie western wannabes!" that they would pretty quickly stop what they are doing...
rsp,
@ Jose
It's important to consider the fact that trade in foreign exchange dwarfs trade in goods and services.
That's precisely the point they're trying to make. And they go on from there to say that currency trading for currency is an empty trade that does not represent what currency is there for, namely for keeping score between goods and services that change hands.
It's more than just a technical view of what happens - it digs deeper into questions of why things are done and, once that is defined, whether they could be done otherwise. The starting point is an interpretation of the labour theory of value and a corresponding theory of income (as opposed to money) based on the classical identity income = output whereby both are redefined as instantaneous flows. Or such is my understanding.
Oliver, IIRC, it was Michael Pettis that described the steps that the Chinese government takes to keep its exporting companies from selling dollars on the market in order to manage its currency and how it also prevents firms acquiring foreign currencies from then exchanging it so much RMB at the fixed rate as to create inflation in China. The PBOC has rules regulating its exporters that soak up the USD, which are then used to purchase tsys, and borrows RMB from the companies, only allowing enough yuan into circulation to conduct operations. They run a balancing act to work the peg.
I agree with all that you write here but our policymakers think rather that "we are not competitive" they use this word ALL THE TIME when they look at the ex post CAD and they don't even know the heck the Capital Account even is because they say things like "US corporations should repatriate their overseas profits" and such nonsense statements ALL THE TIME....
That only when a Democrat is in the WH. When confronted on growing deficits and the twin deficit problem, George W Bush explained how the current and capital accounts work and how the US was way ahead of the game in foreign investment.
Matt,
Ming dynasty vases have sold for over $20 million. To my knowledge Chinese vases are the most expensive ceramics ever made.
@ Tom
I think the question of whether such flows are manageable is orthogonal to the question of whether they're necessary.
They propose something similar to the Bankor. I know, pie in the sky, but it's the frame of reference that's important. And it's not like they're missing out on technical detail. Quite the contrary, it's a classic banking / book keeping school of thought related to other streams within PK but with a slightly different emphasis and pedigree.
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