Baker showing some scientific objectivity here... he's risking getting thrown out of Club Lefty for exhibiting a lack of hypocrisy violation.
(We've been making these same points here since last year...)
Currently we are running an annual trade deficit of around $540 billion (@3 percent of GDP). This could be offset by spending more on education, infrastructure, clean technology or other areas, but the Very Serious People will not let us run larger budget deficits. In that context, it is quite reasonable to link a trade deficit to higher unemployment, so Trump in not wrong in that respect.
having the dollar as a reserve currency does not doom the United States to running large trade deficits. The problem is inept management of the international financial system.
In an era of secular stagnation Donald Trump is right to equate a trade deficit with lost jobs, it means less demand https://t.co/TKTUK5UOdp— Dean Baker (@DeanBaker13) March 27, 2016
"A trade deficit, in fact, increases our real standard of living. How can it be any other way? So, the higher the trade deficit the better. The mainstream economists, politicians, and media all have the trade issue completely backwards. Sad but true."
ReplyDelete- Warren Mosler
And "the deficit is too small. .." dont forget....
ReplyDeleteStrictly speaking, Mosler is right, but his assumption is that deficits can and WILL be adjusted to make up for lost external demand and the jobs created by deficit spending would be at least as productive as the ones being picked off by trading adversaries.
ReplyDeleteRight now, the way it stands is the poor and middle lose jobs and ability to produce and consume real goods when net exports fall. And the rich consume more cheap imports while calling for austerity to keep labor cheap while telling labor they are morally depraved, unenlightened, uneducated and stupid -- as the real causes of the economic problems -- Go get another degree!
And that doesn't even account for the strategic nature of which industries, university programs and jobs are targeted by trading adversaries. This isn't Grandpa Krugman's version of econ 101 trade. Trade is conducted in a negative-sum game context which we can't pretend DOESN'T exist, because we think it shouldn't exist.
""A trade deficit, in fact, increases our real standard of living"
ReplyDeleteNotice the "our" placed in the Mosler statement. Who exactly does "our" refer to?
ReplyDeleteKrugman weighs in now back slapping Baker here:
http://krugman.blogs.nytimes.com/2016/03/28/trade-deficits-these-times-are-different/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&_r=0
this was tipped off a while back these lefties know Trump wins YUGE in a general election on this issue... so they are back peddling BIG LEAGUE now in advance of Hillary imo will do a big 180 on trade ...
How they are trying to spin it is that it is only because we are in "a liquidity trap!" that would need to regulate the trade... Baker careful words here "In an era of secular stagnation Donald Trump is right" LOL oh ok ... its only because we are "in an era of secular stagnation!" whatever the hell that is...
Krugman: "That is, we’re in a liquidity trap. And in that kind of world it’s true both that trade deficits do indeed cost jobs"
Oh.. ok... its only in "that kind of world!" like shit just happens....
What a bunch of idiot hypocrites...
Matt-
ReplyDeletegiven our tepid growth rates, multi-decade worst employment metrics, the deficit is obviously too small given the private credit conditions, trade conditions, and domestic income distribution.
So how is reminding us about an obvious truism that Warren regularly points supposed to discredit him?
As Neil Says.....
ReplyDeleteOnce you start thinking in currency area terms trade surplus and trade deficit disappears.
In a deficit situation people in Birmingham, Alabama and Birmingham England save in Sterling denominated assets.
In a surplus situation people in Birmingham, Alabama and Birmingham, England save in something other than Sterling (probably US dollars).
In the first instance the currency area is bigger than the land area of the UK, in the second it is smaller. And that's about it. This does not matter in a globalised financial world with multi-national banks.
ReplyDeleteHow is an ex post result of more savings supposed to help reduce unemployment?
How is an ex post result of more (foreign?) savings supposed to help us with trade?
We operate in a system that easily meets the real needs of consumers, with excess capacity to produce all goods, services and resources but does not come close to meeting the financial needs of consumers. The bottleneck is money.
ReplyDeleteWell then people need more income and not savings...
ReplyDeleteThe bottleneck is money.
ReplyDeleteExactly. Money is created in two ways, either by government spending or private credit extension (credit-debt). Government spending creates net financial assets. Private credit extension implies that private credit and debt sum to zero. So net private saving exclusive of government created net financial assets is offset by net private borrowing. Net borrowing is limited by several factors, the most important of which is income to service the debt. Income and its distribution limit net borrowing. This is where the bottleneck generally arises, especially when most money creation is through private credit-debt.
No mystery there. And the answer is functional finance. e.g., government purchase of otherwise idle resources including labor. No brainer. Win-win.
"How is an ex post result of more (foreign?) savings supposed to help us with trade?"
ReplyDeletePerhaps it helps you to stop worrying about it.
Targeting the trade deficit is simply code for 'confiscate the savings of non-residents'. It's precisely the same as confiscating the pensions of local people. It's a beggar thy neighbour strategy.
Although of course the maintenance of a 'shadow' peg on export-led currencies is similarly a beggar-thy-neighbour strategy.
"The problem is inept management of the international financial system. "
ReplyDeleteBaker shows his true centralisation credentials.
You can't manage the international finance system. You can only manage your own currency area - everybody who has assets denominated in your currency.
Every currency area managing their own currency next to each other will work just fine. How do we know that? Because the tool you are using at the moment, The Internet, is a collection of Autonomous Systems in constant exchange with each other, and that works pretty well.
What we need to do is sack the people in charge of the currency area who insist on flying an airplane as though they are driving a car.