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View Full Version : Is a trade deficit a good thing?


David Newman
04-11-2011, 05:14 AM
I know it's generally thought of as a terrible thing, but just another perspective on it to consider. When a trade deficit occurs, we are getting real goods in exchange for a bank account. Those goods are real benefits that directly raise our standard of living. At the same time, exports are real costs.

I know the next question is going to be, "What about the jobs?" There is a level of taxation for a given amount of government spending that can be employed to provide enough buying power to the private sector to restore full employment regardless of jobs lost in certain industries. The lack of understanding of our monetary system by our government officials and the media cause us to believe that we are losing out when we are benefiting immensely from the goods we are receiving. Because jobs are being lost, the officials in DC blame trade deficits rather than using the monetary system effectively to restore full employment.

finnbow
04-11-2011, 08:47 AM
At the risk of sounding like a pompous prick, it is you, sir, who has a "lack of understanding of our monetary system." Give me one example of a nation has employed your model whereby "(t)here is a level of taxation for a given amount of government spending that can be employed to provide enough buying power to the private sector to restore full employment." Where are you going to get the tax revenue if companies are not making and selling things?

If your logic is valid, then being a net-exporting nation would be a bad thing. Germany, the economic powerhouse of Europe, has been a net exporter for years and enjoys a high standard of living along with (relatively) low unemployment (even after spending billions on reuniting East Germany).

An industrial base is vitally important to a viable First World economy. Under your model, we would become a highly taxed service economy. There's no future in that.

Do you want fries with that?

David Newman
04-11-2011, 09:02 AM
I reread my comment and don't see where I mentioned that we weren't making and selling things? With the right fiscal policy in place we can support full employment and output, we can consume our output and import.

finnbow
04-11-2011, 09:16 AM
With the right fiscal policy in place we can support full employment and output, we can consume our output and import.

And what is the magic, yet elusive "silver bullet" fiscal policy you're referring to? From your several posts addressing economic issues, you've suggested that both budget and trade deficits don't matter, and that there's some sort of pixie dust that will make things balance out and you're the only one who has any of it.

Said pixie dust wasn't provided to me when I got my MBA.

David Newman
04-11-2011, 09:46 AM
When I got my MBA, I didn't receive said pixie dust either. ;)

That fiscal policy is the "right" spending to debt ratio to create aggregate demand to support full employment. At times, this will be a significant government deficit (and by nature, a significant public surplus) and at other times, spending will need to be reeled in and taxation increased to keep inflation from ramping up at a dangerous level. I couldn't give you specifics on what that ratio would be, but you could watch the employment numbers to know.

finnbow
04-11-2011, 09:53 AM
If one thing has been proven over the years, there's no one certain, unequivocal answer provided by "the dismal science." It remains so.

David Newman
04-11-2011, 10:03 AM
I'd agree with that, and will add that there is only better understanding. The better we, and our law makers, understand our system the closer we can get to grasping the system we have in place, the better chance we have to succeed. Working under the constraints of a fixed monetary system when using a floating currency certainly doesn't help us.

finnbow
04-11-2011, 10:10 AM
I'd agree with that, and will add that there is only better understanding. The better we, and our law makers, understand our system the closer we can get to grasping the system we have in place, the better chance we have to succeed. Working under the constraints of a fixed monetary system when using a floating currency certainly doesn't help us.

I would argue that lawmakers have no desire to better understand the underpinnings of our economy. It might conflict with their ideology and it's their ideology that gets them elected.

The American people are still not ready to get off of the "you can have it all, but don't have to pay for it" gravy train introduced by Reagan and followed by his acolytes. America continues to want lower taxes with no cuts to Medicare, Medicaid or Defense. Something's gotta give.

"The system can no longer make choices, especially unpleasant choices, for the good of the nation as a whole. Public opinion is hopelessly muddled. Polls by the National Opinion Research Center at the University of Chicago consistently show Americans want more spending for education (74 percent), health care (60 percent), Social Security (57 percent) and, indeed, almost everything. By the same polls, between half and two-thirds of Americans regularly feel their taxes are too high; in 2010, a paltry 2 percent thought them too low. Big budget deficits follow logically; but of course, most Americans want those trimmed, too."*

* http://www.washingtonpost.com/opinions/big-government-on-the-brink/2011/04/09/AFNcwrGD_story.html

David Newman
04-11-2011, 10:25 AM
In our current recession, I'd fully support increased spending and/or tax cuts. I'd probably prefer large tax cuts and minor spending cuts but then again, I don't worry about deficits until the slack in the economy is removed.

I do think wise injection of money into the public sector is imperative. I have no problem with investment into social security, medicaid, medicare, education and military. There are a lot of public agencies that don't do much for the public good that I'd like to see disbanded.

merrylander
04-11-2011, 10:39 AM
The way these idiots keep bandying the word 'entitlements' about we will soon find all the insurance companies using it as well. After all, if my house burned down tomorrow I will not have paid Allstate $400,000 over the last 10 years and that is a rough estimate of 'full replecement value' for the building and contents. So anything the insurance company pays over and above your contributions is an 'entitlement'. Truman was right, someone please find me a one armed economist.

noonereal
04-11-2011, 10:47 AM
In our current recession, I'd fully support increased spending and/or tax cuts. I'd probably prefer large tax cuts and minor spending cuts but then again, I don't worry about deficits until the slack in the economy is removed. .

This is poor economics.
What you need during downturns is increased social help with tax increases to pay for it along with job stimulating building projects which will benefit industry after the downturn.

This is very basic and very indisputable the best course. Finding a politician to honestly admit and champion such a thing is a complete different story.

David Newman
04-11-2011, 01:23 PM
Your model is flawed and one of the reasons we haven't been able to sustain more constant growth. By increasing taxation, you are thereby removing the additional buying power that your infrastructure projects had produced. Since government doesn't rely on taxation or borrowing to spend, there is no reason to increase taxes in a poor economic environment. Eventually, when the economy recovers, you start to take away the aggregate demand by increasing taxes or spending cuts to prevent inflation.

You are trying to work within the constraints of a fixed currency system where the government must tax and borrow to spend.