Obama up 8 points

[KrazyHorse]

So now that we've demonstrated that there is a net benefit to the US when trade is balanced, let us continue and ask what it means when there are trade restrictions against US exports to a country while the US allows imports to that country.

To make things simple on ourselves, imagine that Japan refuses to allow any exports from the US while there are no trade barriers against Japanese exports. Now the situation is even better. The US gets Toyotas. What does Japan get? Small, green pieces of paper (which cost the US cents on the dollar to produce). Japan is free to keep them as long as they want. As long as the US has printing presses and trees it can continue to supply Japan with these pieces of paper, which for some reason the Japanese have chosen to accumulate. If the Japanese decide one day that they have no further need of these pieces of paper they are free to:

1) exchange them with the US (in order to import goods and services from the US) in which case we are back to the Iowa car crop

2) exchange them with somebody else for something, which is really none of our concern

3) exchange them with the US for assets in the US. Imagine, for example, that they buy a car factory in Tennessee. Now we have the best of both worlds. Construction workers, steel mills, concrete suppliers etc have discovered a way to turn buildings and machinery into Toyotas. However, instead of shipping these buildings out on barges the US gets to keep the building in Tennessee and use it to build more cars!

[Sirotnikov]

Originally posted by KrazyHorse
"There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First, you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them."

-Somebody much smarter than you

Is it the undercover economist?

[Naked Gents Rut]

I think you're being a little sanguine about the effects of a persistent trade imbalance. If the U.S. could really just print all the money it needed to pay for Japanese imports, there would be no problem. America can't do that, however, which leads to excessive borrowing from Japan to fund American consumption of Japanese imports. This may be good for America in the short-run, but it's very bad in the long-run.

[KrazyHorse]

No. At least not originally

[Sirotnikov]

No. At least not originally

I could have sworn it is.
My copy is at a friend's house so I can't check.

[Darius871]

Originally posted by KrazyHorse
It doesn't matter. It's a demonstration of principle. The principle is that a restriction on the importation of goods is not a transfer from foreign producers to domestic producers; it is a transfer from one type of domestic producer (farmers) to another (car manufacturers) with a deadweight loss to boot.

In fairness to Kid though, your argument assumes that the U.S. produces enough [widgets] to make up for the value of those imports, and will continue to, as opposed to purchasing many imports on an unsustainable amount of credit and/or dollars created by inflationary fiat, because a tertiary-quaternary economy of primarily service-sector fluff doesn't produce enough of what the Toyota-exporter actually needs or wants, even though people keep buying Toyotas anyway.

Grain & Toyotas make for an intuitive microcosm, but there's no reason to think the U.S.' demand for Toyotas is anywhere near Japan's demand for grain; consider that discrepancy in view of hundreds of different commodities, and you eventually come to a net trade deficit for the tertiary-quaternary economy, with the gap frequently filled by debt and/or an outflow of fiat dollars & foreign exchange reserves, neither of which is necessarily sustainable.

Seriously, what the hell does the U.S. produce now that isn't already produced in sufficient quantity elsewhere in the world for cheaper? Maybe grain, some biotech equipment, a small portion of the computer & networking market, and...? Certainly not enough going out to make up for what's going in.

[/just devil's advocate, I swear]

[KrazyHorse]

Originally posted by Naked Gents Rut
I think you're being a little sanguine about the effects of a persistent trade imbalance. If the U.S. could really just print all the money it needed to pay for Japanese imports, there would be no problem.

There is no problem...

America can't do that, however

You're actually quite wrong...

which leads to excessive borrowing from Japan to fund American consumption of Japanese imports

Paper money is a form of borrowing, Drake. The only difference is that it doesn't pay interest, while the demonstrated preferred form of foreigners holding US claims is Treasuries, which pay a very low interest.

[KrazyHorse]

Originally posted by Darius871
unsustainable amount of credit and/or dollars created by inflationary fiat

Which is only a problem insofar as foreigners are stupid.

[KrazyHorse]

Seriously, what the hell does the U.S. produce now that isn't already produced in sufficient quantity elsewhere in the world for cheaper?

Comparative advantage...not absolute.

[KrazyHorse]

Flippant answer: movies, music, microcode and high-speed pizza delivery.

[Kidlicious]

In theory, yes it works out, but in reality it doesn't.

[Darius871]

Originally posted by KrazyHorse
Which is only a problem insofar as foreigners are stupid.

I refuse to assume they'll always think U.S. T-Bonds will remain stable forever, particularly in light of the last two months. All it would take is demand from the Bank of China and some oil exporters to raise T-Bond interest rates, or pour more of their ample foreign exchange reserves into alternate investments with a higher rate of return, or both, to force a correction of the trade imbalance.

Would the correction be hard on their export numbers in the short-term, and "stupid" to that extent? Yes. Would it be less stupid to maintain their short-term exports with a fiat house of cards that isn't sustainable beyond a span of decades and would be better resolved by a gradual correction rather than a sudden crisis? Not necessarily.

[Naked Gents Rut]

Paper money is a form of borrowing, Drake. The only difference is that it doesn't pay interest, while the demonstrated preferred form of foreigners holding US claims is Treasuries, which pay a very low interest.

Treasuries do pay interest, however, so the U.S. is paying the rest of the world a small but real premium for the ability to consume more in imports than the U.S. exports. This is okay over the short-term, but if the CA deficit persists year after year we'll eventually reach a point where U.S. indebtedness to the rest of the world is so great that doubts form about the ability of the United States to service its debt, at which point a ****storm ensues.

I also don't enjoy the fact that current U.S. consumers are reducing the ability of future consumers to consume thanks to their profligate ways. I'm really looking forward to paying higher taxes and enjoying a lower standard of living in the future so that the government and people of today can consume beyond their means.

[Kidlicious]

Originally posted by Darius871
I refuse to assume they'll always think U.S. T-Bonds will remain stable forever, particularly in light of the last two months. All it would take is demand from the Bank of China and some oil exporters to raise T-Bond interest rates, or pour more of their ample foreign exchange reserves into alternate investments with a higher rate of return, or both, to force a correction of the trade imbalance.

Would the correction be hard on their export numbers in the short-term, and "stupid" to that extent? Yes. Would it be less stupid to maintain their short-term exports with a fiat house of cards that isn't sustainable beyond a span of decades? Not necessarily.

Interestingly, if their exports fall enough, they will have to drastically increase their own domestic demand. And they will sell of their US bonds to do it.

[KrazyHorse]

Kiddy, you don't have a clue what you're talking about.

In order to not be stupid your response needs to be as follows:

Yes, as an aggregate all trade is good for the US. However, since the US' comparative advantage is in high-skills professionals, financial services and capital goods trade tends to benefit the upper end of the income scale disproportionately. In fact, it does so disproportionately enough that trade actually negatively impacts the low end of the income scale (providers of low-skills labour).

My response is then as follows: there is little evidence to support the claim that low-skills US citizens are actively harmed by increases in trade, but even if we grant your premise shouldn't we be able to arrange a transfer from those who benefit from trade to those who are hurt by it (since we have made a positive gain overall this should be possible). While we're at it, what is the moral difference between those who are harmed by trade and those who are harmed by advances in technology? Why should we grant benefits to one and not the other? Remember, Japan is just a technology. Why are we even attempting to disaggregate these factors? If the income distribution becomes more skewed yet overall wealth increases shouldn't we be able to lift everybody up with increased transfers of wealth?

There. You've managed to have a sensible discussion about economics, Kid. I'm proud of you.