David F. Ruccio — Balance this!

First, we have to understand, the U.S. trade deficit has risen and U.S. manufacturing output has fallen not because of the “blind forces” of international trade. For decades now, U.S. corporations have decided to increase their profits by a combination of shifting production to other countries and automating many of the production processes that remain in the United States. And they’ve left the American working-class behind.

Second, there’s no guarantee that increasing manufacturing output within the United States will be accompanied by an equivalent number of new jobs. Just look at the chart at the top of the post. Since 2009, U.S. manufacturing output has increased by more than 38 percent but jobs in the manufacturing sector have only risen by 8.2 percent.

The U.S. trade balance is thus not the problem. The forces of U.S. capitalism have sacrificed the American working-class on the altar of higher profits. They did so before Trump was elected—and they’ve continued to do so since.

The problem capitalism as the political choice to favor capital (bourgeois liberalism, ownership of private property) as a factor over labor (workers, most people) and land (the environment). This choice involves negative externality based on capitalizing gains and socializing losses. Workers and the environment bear this cost of income and wealth transfer to the top.

The solution? Increasing the priority of people and the environment and decreasing the priority of ownership.

The result if not implemented? Increasing dysfunction and eventual systemic breakdown.

No brainer, especially when the consequences of fouling the nest are rising, and social and political unrest is increasing.

Something is needed to restore balance and it is not a matter of reform as much as redesigning the a system that is no longer working.

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.   — Karl Marx, Preface to A Contribution to the Critique of Political Economy

Occasional Links & Commentary
Balance this!
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Ramanan — Public Debt And Current Account Deficits

On account of sectoral balances

The Case for Concerted Action
Public Debt And Current Account Deficits
V. Ramanan

Neil Wilson — A Tale of Two Nations

A parable about trade.

Modern Money Matters
A Tale of Two Nations
Neil Wilson

Peter Dorman — The Identity-Equals-Causation Fallacy, Yet Again

Informal fallacy of false cause.

Econospeak
The Identity-Equals-Causation Fallacy, Yet Again
Peter Dorman | Professor of Political Economy, The Evergreen State College

Xinhua — Spotlight: Trump gets them wrong, from trade balance to basic economics

The Chinese news service weighs in on Trump.

Xinhua
Spotlight: Trump gets them wrong, from trade balance to basic economics

The Millennium Report — Donald Trump compares the US’s trade deficit with China to RAPE and promises to ‘turn it around’

The Republican frontrunner, who has lashed out at ‘politically correct’ speech in the past, told supporters: ‘We cannot continue to allow China to rape our country. And that’s what they’re doing.’

While the bombastic billionaire has often attacked the U.S.-Chinese trade deficit, the Fort Wayne rally marks the first time in recent history he has chosen to use the word ‘rape’ to describe it.

Donald Trump accused China of carrying out ‘the biggest theft in the history of the world’ over the U.S. trade deficit, comparing it to ‘rape’ in a typically inflammatory speech.

According to CNN, Trump has used the inflammatory term to describe the deficit once before, back in 2011, as he toured a defense manufacturer in New Hampshire.

Trumponomics.

The Millennium Report
Donald Trump compares the US’s trade deficit with China to RAPE and promises to ‘turn it around’

Brian Romanchuk — Growth Limits (Again)

Brian comments on Ramanan

Bond Economics
Growth Limits (Again)
Brian Romanchuk

Dean Baker — Correction to Mankiw: Economists actually agree, just because you call something “free trade” doesn’t make it free trade

In principle we could get back to full employment with large government budget deficits, but that is not going to happen for political reasons. Aggressive use of work sharing leading to shorter workweeks can also move us toward full employment, but this is also not something we are likely to see any time soon.

This means that if we want to get back to full employment, we have to reduce our $500 billion (@ 3 percent of GDP) trade deficit. (This is the intro econ on which all economists agree. It can even be found in Mankiw’s textbook.) Reducing the trade deficit means taking steps to lower the value of the dollar against other currencies. These trade agreements would be the obvious place to have currency rules. If we don’t address the currency issue here, where exactly are we going to do it?

Real-World Economics Review
Correction to Mankiw: Economists actually agree, just because you call something “free trade” doesn’t make it free trade

Dean Baker

Dean Baker — If the Dollar Stopped Being the Preeminent Reserve Currency It Would Mean More Jobs and Growth

Baker's argument is that given the present state of domestic finance still being highly leveraged and a zero possibility of increasing the government contribution under the present political circumstances, the only way out if through the external sector and a falling dollar would support this. Moreover, if the world held fewer dollars in reserve relative to other global reserve currencies, then the trade deficit would be reduced, meaning fewer imports and less embedded labor. So with decreasing imports and increasing exports, US domestic investment would increase and so would domestic employment. In other words, there would be a US "rebalancing."

However, if the US would also adopt mercantilism, the global economy would likely buckle under the strain with the major marketplace accepting less from abroad and invading the marketplace of other countries. This is especially true now that the US is a major petroleum producer again, as well as natural gas.

The US is a very tough competitor and in a free market environment everyone else would at a disadvantage. That would likely result in calls for protectionism and an end to the era of free trade.

CEPR

If the Dollar Stopped Being the Preeminent Reserve Currency It Would Mean More Jobs and Growth

Dean Baker

Dean Baker — The Simple Reason for the Long Downturn: Housing Bubble Burst

Many economists and business writers view the duration and severity of the downturn as being a mystery. They argue that it has something to do with the financial crisis, although the exact nature of the relationship is often not quite clear, with the financial crisis looming as a dark cloud hanging over the head of an otherwise healthy economy....

First, the housing bubble created a surplus of housing, so housing is not contributing to the recovery. Secondly, consumers are still saving at a higher than usual rate, so consumption is lagging. Thirdly, the outsized trade deficit is also creating demand leakage.

There is no mystery about the downturn or the potential routes to recovery. The only problem is that the people in control of economic policy have no interest in taking the steps necessary to bring the economy back to full employment. And most of the people who write about the economy are doing their best to say that it is all just so mysterious since it is far too simple for them to understand. Happy 5th anniversary!

Truthout
The Simple Reason for the Long Downturn: Housing Bubble Burst
Dean Baker, Truthout | News Analysis

William Greider — Why Was Paul Krugman So Wrong?

Out of paradigm, but of in interest if you follow Greider as a leading progressive voice.

The Nation
Why Was Paul Krugman So Wrong? [about free trade]
William Greider

The whole entire media has got it ass backwards

It's really amazing sometimes when you see the shallow level of thought that goes into the current reporting on economics. Or for that matter what comes out directly from the economics community or our lawmakers. (No surprise on the latter.)

I came across this headline on Yahoo! Finance: "Can natural gas help America's trade balance?"

Apparently, like so many other people, the author is quite perturbed by the negative sign in front of our nation's trade balance. He's obviously been influenced by the rest of his colleagues in the mainstream media or by the usual, bullshit propaganda coming from the clueless economics profession or perhaps the greedy crooks and liars on Wall Street.

His"big idea" is to erase that horrible, terrible, negative sign in front of our nation's trade balance by selling off our cheap, abundant, supply of natural gas.

I'm always amazed at the lack of even the slightest bit of follow-through in the reasoning process of most people. They get some idea in their heads (usually planted there by some cynical, manipulative, person or entity) and rather than think it through all the way to its logical conclusion they'll just take it as given and run with it.

Hey, yeah...getting rid of that horrible, terrible, negative sign in front of our trade deficit would be great (that's what he's been told, of course), but he fails to follow through and see what the ultimate consequences of that plan would bring. Remember, his plan was to sell off a large portion or maybe even all, of our cheap, abundant, natural gas supply.

What these clowns are proposing (and FYI there is currently a bill floating around in Congress that proposes to do exactly this) is to rid ourselves of all of our cheap, abundant, natural gas, which we use as a fuel to power our electric generating plants, heat our homes and propel a large part of our municipal transportation fleet, so that we can have a plus sign in front of our trade balance. Can he not see the ridiculousness of this? Can others not see the ridiculousness of this? This is NOT how we look after our interests, it's how we IMPOVERISH ourselves!!

Look...the negative sign in front of our trade balance is really a positive to us in real terms. It means we get the stuff--clothes, cars, television sets, computers, electronics, fuel...in essence, all the things we use in our everyday lives and which define our standard of living--in exchange for our paper money that we can print all day long. It's the foreigners who are the clear losers in this, not us. Yet this guy and many others like him, including a majority of members of Congress along with our own president, want to turn it around the other way and send away our real assets for the benefit of foreigners so that we can earn some...yuan?? Really???

All I can say is, we are screwed.

Philip Pilkington — Why MMT is Right and the Dreamers are Wrong – Kaldor Versus the Kaldorians

Nicholas Kaldor was one of the most famous economists of the 20th century. He was considered by many to be the direct heir to John Maynard Keynes as he was not only an extremely accomplished theoretical economist but also played a key role in the construction of British economic policy after World War II and was an all-round politically savvy individual – he ended his life, like Keynes, with a Lordship.

We mention this because if you read his writings you note that there were really two Kaldors. One was the Kaldor of the halls of Cambridge University. This was the Kaldor of abstract mathematical models of how capitalist economies function (some of the finest ever produced, mind you). The other Kaldor was the Kaldor that actually analysed economic problems and proposed solutions – while keeping firmly in mind the political situation of whatever time he was giving advice.

Naked Capitalism
Philip Pilkington: Why MMT is Right and the Dreamers are Wrong – Kaldor Versus the Kaldorians

Economics v. political economy.

Phil and Ramanan debate in the comments.

Ramanan — Toward A Higher European Integration?

“Kaldorians” jumped to highlight the serious defects in the European plan for integration when officials were working on the Maastricht Treaty. One of the implicit assumption[s] on which the dogma of “free trade” is pushed is that current account deficits do not matter. The government’s task is to only make markets free in this view. The Euro Area was formed with the highly incorrect notion (among various others) that nations can simply solve their “balance of payments problem” by getting rid of it altogether.

Read it at The Case for Concerted Action
Toward A Higher European Integration?
by Ramanan

Ramanan — The Monetary Economics Of Sovereign Government Rating

Ramanan criticizes the MMT claim that imports are benefit in real terms and trade deficits don't matter as long as other countries desire to save in the importer's currency, because floating rates ensure market clearing and a currency sovereign is not constrained operationally in its own currency.

Read it at The Case of Concerted Action — Post Keynesian Ideas For A Crisis That Conventional Remedies Cannot Resolve
The Monetary Economics Of Sovereign Government Rating
by Ramanan

Ramanan has a comments section at The Case of Concerted Action, where I expect one can count on his responding to reasonable criticism. Comments welcome here, of course.

Are US import numbers the canary in the coal mine?

A much better than expected reading for the US February balance of trade (-$46 bln vs. expectations of -$51.8 bln) caused some economists to revise their Q1 GDP forecasts higher. Barclays is now calling for a 2.7% growth rate, up from its earlier estimate of 2.5%.

We all know that the trade balance factors into the "Net Export" component of GDP, which is normally a subtraction because it's perennially negative. In this case a smaller negative number would actually end up "adding" to GDP in that it takes less away. (Got that?)

But the quick decision to upgrade Q1 forecasts may be short-sighted. That's because the improvement in February's trade balance came mostly from a sharp decline in imports, which fell by $6.3 bln. Exports on the other hand, rose by only $0.2 bln.

A fall in imports speaks to softening demand, which is something the economy has been struggling with for a while now. In fact the data shows that demand, at least as measured by imports, is falling rapidly. (See chart below.)

Net exports are the smallest component of GDP, so any improvement here has only a limited impact on overall GDP, but if the demand fall-off shows up in any of the bigger components like Personal Consumption Expenditures or Business Investment, then the gains from trade would be completely offest. The import numbers may well be the canary in the coal mine.

What if foreigners sell their dollars?

Here’s question that is often asked: “What if every foreigner in the world sold their dollars?”

Well, who would they sell them to?

If they sold them to each other (i.e. A Chinese sold his dollars to a Brazilian, etc), it would just represent a shifting of ownership, but the total quantity of dollars held by foreigners would not change, only the composition of ownership would.

There is only one way for the rest of the world to completely get rid of their dollars and that is to exchange them for goods and services produced in the U.S.

They give us all their dollars and we give them our products and services in exchange.

That’s the only way that the total quantity of dollars held by foreigners could be reduced to zero.

So, a) would that be bad and b) would that affect the dollar’s exchange value?

The answer to “a” is, it would be neither good nor bad. Our economy would just look a lot different, that’s all. We’d have a HUGE trade surplus and a lot of Americans would be employed making goods and services that were ultimately exported. The foreigners would get the “stuff” and we’d have the dollars. (Then we’d have to turn around and either buy or make the stuff for ourselves.)

Would the foreign exchange value of the dollar suffer? Hard to see how. Ostensibly, we’d want those dollars in exchange for our goods and services otherwise why would we be selling them? And we’d have a HUGE trade surplus so how could that hurt the dollar? It wouldn’t.

When you think it through this stuff is pretty easy. It’s just that no one thinks it through.

Peter Morici addresses trade deficit as demand leakage

Read it Asia Times Online
Trade deficit hits US growth
By Peter Morici
Professor at the Smith School of Business, University of Maryland School, and former Chief Economist at the US International Trade Commission

The United States should impose a tax on dollar-yuan conversions in an amount equal to China's currency market intervention. That would neutralize China's currency subsidies that steal US factories and jobs. That amount of the tax would be in Beijing's hands - if it reduced or eliminated currency market intervention, the tax would go down or disappear. The tax would not be protectionism; rather, in the face of virulent Chinese currency manipulation and mercantilism, it would be self defense.

Cutting the trade deficit in half, through domestic energy development and conservation, and offsetting Chinese exchange rate subsidies would increase GDP by about $525 billion a year and create at least 5 million jobs.

Peter Cooper — Constructive Remarks on a Promising Beginning

Peter Cooper offers a preliminary critique of Modern Monetary Realism.

Read it at heteconomist.com
Constructive Remarks on a Promising Beginning

by Peter Cooper

Mish — Chinese exports only 2.7% of US consumption

"Made-in-China" Only 2.7% of U.S. Spending; Really? What Does It Mean? Inflationists Take Note

Mish parses the numbers for us. The figures show that the US is still alive and well, in spite of superficial appearances.

For one thing, China is chiefly an assembler rather than a producer. For example, I recall reading that the cost of an Apple iPhone out the door is about $125. Although it carries an "Made in China" label, the Chinese contribution is only a bit over six dollars. (Sorry, I've lost the link to that article.)