Posts tagged ‘deficits’

The Flip Side of the Trade Deficit

I originally got to this post at Carls Talk because of the cool map I put in this post.  However, I was really struck by his lament that foreign companies won't sell into Norway because it is too small.  Given that Norway has a trade surplus, you would think that given all the whining in the US about trade deficits that everything would be hunky-dory in Norway and that they would be thrilled that foreign companies wouldn't sell there.  But check this out:

When seeing Norway's GDP in the context of this map, one realizes
why Norway often is one of the last countries U.S. companies consider when
expanding to Europe.

Norway might be an unattractive market when considering expansion
because the market is so small and as a result there is little domestic
competition.  This  has enabled local players to
build monopolies or duopolies with substantial  entry-barriers in many
industries.  Furthermore, the government has sheltered the domestic
market against international competition by adding a hefty import tax
and inconvenient delivery methods on goods purchased outside the
country, rendering international online merchants at a disadvantage
when competing on price and convenience.

On the flip side, if you manage to establish your business here, you
can overcharge your customers and get away with horrendous customer
service.  The average Norwegian customer is not used to good service
and competitive prices.  Online merchants are slow.  Recently it took
four weeks before I received a book shipped to me from a local
merchant.  On a recent trip I recently purchased shoes for our kids in
the U.S.  The selection was superior, and the price:  1/4th of what the
local Norwegian merchant was charging. 

Gee, you mean there is a price consumers pay for protectionism that might offset a few job gains in sugar growing and textiles?

A Challenge to Lou Dobbs

Sorry posting has been light this week.  A reader was nice enough to point to the latest rant by Lou Dobbs here.  Apparently, he has decided to take the position that free traders are now elitists, while folks like him who want the government to pick and choose winners among American businesses and industries as "populist."  The obvious response of course is that beneficiaries of American protectionist legislation tend to read as the who's who of politically connected elitists.  It is also hilarious to equate free trade, whose benefits are backed by 100 out of 100 economists, with some irrational faith-based belief system.  But I will leave that aside to point to this line:

He and others completely disregard the $5 trillion in trade debt that
the United States has built up through 30 consecutive years of trade
deficits. That trade debt is rising faster than our national debt and
is simply economically unsustainable, no matter what any faith-based
economist would argue. Our political, business and media elites
continue to disregard reality.

Here is my very, very simple challenge for Lou Dobbs to help those of us who obviously don't get it:  Point to where this $5 Trillion of Debt is.   What private individuals or corporations owe it to whom?  That should be simple.  With the national debt, we can just go out and count all those government bonds.  But where is this trade "debt"?

Answer:  IT DOESN'T EXIST.  What he means is that over some time span of several decades, American has a cumulative trade deficit of $5 trillion.  But trade deficit does not mean debt.  I showed this in great detail here.  Calling it a "trade debt" is not a sloppy mistake on Dobbs part but an outright lie, meant to make the point that running deficits every year is unsustainable.  But America has become the wealthiest country in the world running trade deficits for the majority of the last 100 years.   In fact, one can argue that the trade deficit itself only exists as a phantom of the awkward and limited way in which we measure trade

I constantly get people who write me that the fact the Chinese are buying up a lot of US government bonds or corporate bonds with their trade profits is proof of a "trade debt."  No such thing.  The US Government bonds are evidence of a fiscal deficit of the federal government, also called the national debt, and exists not because of trade but because Congress has no fiscal discipline.  Corporate debt is growing to buy back stock, make corporate acquisitions, and to buy new plants and facilities.  The fact the Chinese help to fund these debts does not mean that trade caused this debt.  In fact, foreigners buying US debt securities depresses interest rates and actually keeps the national debt lower.

Here is a thought experiment:  Wal-Mart runs a multi-billion dollar trade deficit every year with China.  Why isn't it building up lot's of debt to the Chinese?

Libertarians and Republicans

As a libertarian that voted rather unenthusiastically Republican in the last election, I am right here with Ryan Sager:

some libertarian types may have been upset with President Reagan's
deficits, he was at least singing from their hymn book: Government is
the problem, not the solution. George W. Bush on the other hand has
never even gone to the trouble of aping a small-government posture.
Instead, Bush has adopted one of Reagan's other famous lines, sans
irony: I'm from the government, and I'm here to help.


represents a fundamental shift in the direction of the Republican Party
and a threat to its traditional alliances. The shift is self-evident.
Instead of being the party that tries to rein in entitlement spending,
the Republican Party is now the party of the $1.2 trillion Medicare
prescription-drug benefit. Instead of being the party that is opposed
to even having a federal Department of Education, the Republican Party
is now the party of extensive intrusion into local schoolhouses by Washington.
And instead of being the party of the rule of law and state's rights,
the Republican Party is now the party of Congressional intervention
into the thoroughly adjudicated medical decisions of an individual

A few weeks ago I wrote here that about the high-stakes battle over judicial nominations.  When Republicans were out of power, they could be trusted to support non-activist judges against liberal activist alternatives.  Now, however, my fear is that Republicans may have shifted their stand, seeking to nominate activist conservative judges.  Leaving no one at all in Washington to support a constitutional separation of powers.

Conservatives and the Oscars

I really didn't want to go here again, but after some thought, I am really amazed at all the disdain for the Oscars coming out of the conservative blogs(CQ,Powerline,LaShawn Barber,LGF).  As I posted here, I thought Rock did an OK job, and for once all the awardees kept their speeches focused on movies rather than their own lame political views. 

However, conservative blogs have pointed out that most conservatives probably got turned off during Rock's monologue, particularly his jabs at GWB, and tuned out.  I am confused just what Rock said that was so horrible.  First, it is expected that monologues like this take some shots at whoever is in the White House.  And Rock certainly did so, but he also took shots at prominent liberals and Hollywood luminaries as well.

Second, just what did he make fun of?  He made fun of going to war and not finding WMD.  Now, I am certainly bright enough to know that the argument for war was more nuanced (heh heh) than just WMD's, but if I was a conservative, I would LOVE it if someone made fun of GWB every day for our WMD intelligence.  If such jokes at his expense occur frequently enough, maybe he will get mad enough to do the real thorough house cleaning of the CIA which is desperately overdue.

The other thing Rock poked fun at Bush for was the growing deficit.  Hey, conservatives out there, what's wrong with that?  Again, I am smart enough to understand there are valid reasons for deficits - wars and recessions are two of them.  Also, I understand that if you want to cut spending, you usually have to cut taxes first, drive the budget into deficit, and use that as a lever for getting spending cuts.  However, Bush has done NOTHING in four years to try to reign in domestic spending, and has done several things (e.g. prescription drug benefit) that greatly increase spending.  Reagan ended up with large deficits but only after putting up a valiant fight with a Democratic-controlled Congress to cut spending.  GWB has a Republican Congress and hasn't even tried.  So what's wrong, even for conservatives, with taking a poke at GWB on deficits?

Oh yes, the blogs have one other complaint - that he said "ass".  You know, whenever I hear this kind of complaint, it just reminds me of Beavis and Butthead going "heh, heh heh, heh -- he said ass -- heh, heh"