Trade deficits are ALWAYS detrimental to their nations’ GDPs.

[Supposn]

[GDP/(trade deficit)] & [cause/effect]

ItFitzMe, the higher GDP’s per capita indicate a more robust economy. USA’s domestic markets’ sales volumes are positively related to our GDP.

The sales volumes of both domestic and imported products rise or decrease in general unison.
We sell both more domestic and imported products when our economy’s doing well;
We sell both less domestic and imported products when our economy’s doing poorly.

GDP affects the trade deficit; it’s not the other way around.
Why are you looking at their relationship?

Respectfully, Supposn

Your statement, the thread topic is that "Trade deficits are always detrimental to the nation's GDP." That is a cause and effect relations statement where the cause, a trade deficit, causes a detrimental effect to the nation's GDP. The effect of a change in GDP is caused by the trade deficit. That's how I am reading the statement.

The best I can take the word "detrimental" is to mean "decreases", after all, no one considers an increase in GDP as being detrimental.

The comments regarding M decreasing GDP, which was questioned in terms of validity, appeared consistent with this interpretation.

How else did you mean it?

ItFitzMe, a trade deficit is Always detrimental to the GDP (more than otherwise); but at any given moment, global trade is unlikely to be THE major factor affecting GDP.
I never wrote or inferred that the GDP only moves in tandem with the balance of trade. Due to the balance of trade, GDP will be greater or less than otherwise.

From the consideration and concern my doctor gives to my blood pressure, I would suppose that it’s an important indicator of my state of health. But I also suppose at any moment other of my organs may have equal or greater affect upon my health.

Respectfully, Supposn

 

[itfitzme]

[GDP/(trade deficit)] & [cause/effect]

ItFitzMe, the higher GDP’s per capita indicate a more robust economy. USA’s domestic markets’ sales volumes are positively related to our GDP.

The sales volumes of both domestic and imported products rise or decrease in general unison.
We sell both more domestic and imported products when our economy’s doing well;
We sell both less domestic and imported products when our economy’s doing poorly.

GDP affects the trade deficit; it’s not the other way around.
Why are you looking at their relationship?

Respectfully, Supposn

Your statement, the thread topic is that "Trade deficits are always detrimental to the nation's GDP." That is a cause and effect relations statement where the cause, a trade deficit, causes a detrimental effect to the nation's GDP. The effect of a change in GDP is caused by the trade deficit. That's how I am reading the statement.

The best I can take the word "detrimental" is to mean "decreases", after all, no one considers an increase in GDP as being detrimental.

The comments regarding M decreasing GDP, which was questioned in terms of validity, appeared consistent with this interpretation.

How else did you mean it?

ItFitzMe, a trade deficit is Always detrimental to the GDP (more than otherwise); but at any given moment, global trade is unlikely to be THE major factor affecting GDP.
I never wrote or inferred that the GDP only moves in tandem with the balance of trade. Due to the balance of trade, GDP will be greater or less than otherwise.

From the consideration and concern my doctor gives to my blood pressure, I would suppose that it’s an important indicator of my state of health. But I also suppose at any moment other of my organs may have equal or greater affect upon my health.

Respectfully, Supposn

Due to the balance of trade, GDP will be greater or less than otherwise.

Then otherwise what? GDP doesn't include imports. GDP doesn't include balance of trade.

GDP is Gross Domestic Product. Gross means total. Domestic means in the country. Product means the stuff that is made.

It is the production done in the country. It includes all the stuff made in the country. It includes the stuff made and consumed in the country. It includes exports. It does not include imports. Balance of trade is exports minus imports. It does not include balance of trade.

There is no direct relationship between the measure of GDP and balance of trade. There is no balance of trade in GDP.

As your stating it, "Due to the balance of trade, GDP will be greater or less than otherwise" is a non-sequiter.

I'm guessing hers, is English a second language for you?

 

[DSGE]

Your statement, the thread topic is that "Trade deficits are always detrimental to the nation's GDP." That is a cause and effect relations statement where the cause, a trade deficit, causes a detrimental effect to the nation's GDP. The effect of a change in GDP is caused by the trade deficit. That's how I am reading the statement.

The best I can take the word "detrimental" is to mean "decreases", after all, no one considers an increase in GDP as being detrimental.

The comments regarding M decreasing GDP, which was questioned in terms of validity, appeared consistent with this interpretation.

How else did you mean it?

ItFitzMe, a trade deficit is Always detrimental to the GDP (more than otherwise); but at any given moment, global trade is unlikely to be THE major factor affecting GDP.
I never wrote or inferred that the GDP only moves in tandem with the balance of trade. Due to the balance of trade, GDP will be greater or less than otherwise.

From the consideration and concern my doctor gives to my blood pressure, I would suppose that it’s an important indicator of my state of health. But I also suppose at any moment other of my organs may have equal or greater affect upon my health.

Respectfully, Supposn

Due to the balance of trade, GDP will be greater or less than otherwise.

Then otherwise what? GDP doesn't include imports. GDP doesn't include balance of trade.

GDP is Gross Domestic Product. Gross means total. Domestic means in the country. Product means the stuff that is made.

It is the production done in the country. It includes all the stuff made in the country. It includes the stuff made and consumed in the country. It includes exports. It does not include imports. Balance of trade is exports minus imports. It does not include balance of trade.

There is no direct relationship between the measure of GDP and balance of trade. There is no balance of trade in GDP.

As your stating it, "Due to the balance of trade, GDP will be greater or less than otherwise" is a non-sequiter.

I'm guessing hers, is English a second language for you?

I completely forgot about this thread. I think I was halfway through a conversation with this guy a while ago, but I guess you can take it from here. It'll irritate me much less. Heads up though, most of what you're gonna get is just the same unjustified assertion over and over again, "Trade deficits are ALWAYS detrimental to their nations' GDP", and a lot of links to his blog or the million other identical threads he's created.

 

[editec]

One has to be flat out ignorant to imagine that offshoring industy isn't going to have a negative effect on the GDP.

I cannot believe we are even debating this question.

 

[DSGE]

One has to be flat out ignorant to imagine that offshoring industy isn't going to have a negative effect on the GDP.

I cannot believe we are even debating this question.

...No they don't. In fact one has to make simple fallacies such as "there are finitely many jobs" or "that money goes overseas" in order to think international trade has a negative effect on GDP.


Here's something you can do for me: Explain to me how international trade is different from domestic trade. The only difference between the two, aside from arbitrarily drawn borders, is that you have to do a currency conversion in the Foreign Exchange market. So you're going to have to explain how the addition of the ForEx market adds some crazy friction, or how trade with California and Japan is somehow radically different from trade with California and Michigan.

Do you think California should make their own cars rather than "exporting jobs" over to Michigan?

 

[Supposn]

[The comments regarding M decreasing GDP, which was questioned in terms of validity, appeared consistent with this interpretation.
How else did you mean it?

Due to the balance of trade, GDP will be greater or less than otherwise.

Then otherwise what? GDP doesn't include imports. GDP doesn't include balance of trade.

GDP is Gross Domestic Product. Gross means total. Domestic means in the country. Product means the stuff that is made.

It is the production done in the country. It includes all the stuff made in the country. It includes the stuff made and consumed in the country. It includes exports. It does not include imports. Balance of trade is exports minus imports. It does not include balance of trade.

There is no direct relationship between the measure of GDP and balance of trade. There is no balance of trade in GDP.

As your stating it, "Due to the balance of trade, GDP will be greater or less than otherwise" is a non-sequiter.

I'm guessing here, is English a second language for you?

ItFitzMe, I’m sorry I’m so slow on the keyboard. I’d like to respond to all of you now but I haven’t slept, I have to go. But this last one struck a nerve because I haven’t conceived
superior wording to express this concept.

What I want to convey is:
Due to a trade surplus the GDP will be greater than if rather than a trade surplus the trade balance was zero or it was a trade deficit;
or due to a trade deficit the GDP will be less than if rather than a trade deficit the trade balance was a trade surplus.

[I.e. due to the balance of trade, GDP will be greater or less than otherwise].

////////////////////////////////////////////
Google Wikipedia, gdp
GDP = C + I + G +(X – M)

X= Exports, M = Imports, (X – M) = (balance of global trade)

/////////////////////////////////////////

What's the message number with the "M" comment you refer to?

Respectfully, Supposn

 

[editec]

One has to be flat out ignorant to imagine that offshoring industy isn't going to have a negative effect on the GDP.

I cannot believe we are even debating this question.

...No they don't. In fact one has to make simple fallacies such as "there are finitely many jobs" or "that money goes overseas" in order to think international trade has a negative effect on GDP.

Say what?

Here's something you can do for me: Explain to me how international trade is different from domestic trade.

Non US manufacturers do not hire and pay US workers who then pay American taxes.


Non US manufacturers do not pay US taxes.

The only difference between the two, aside from arbitrarily drawn borders, is that you have to do a currency conversion in the Foreign Exchange market.

Wrong

 

[DSGE]

One has to be flat out ignorant to imagine that offshoring industy isn't going to have a negative effect on the GDP.

I cannot believe we are even debating this question.

...No they don't. In fact one has to make simple fallacies such as "there are finitely many jobs" or "that money goes overseas" in order to think international trade has a negative effect on GDP.

Say what?

I'm saying the conclusion only comes from making common fallacies that jobs can be "taken" in that there are x jobs and y people and if a job gets "taken" overseas now there are only x-1 jobs domestically but still y people. That's bullshit. As long as people continue to want things there will continue to be jobs for everybody.

Or fallacies like "now that income goes overseas we're less able to buy things here!". That's bullshit because nominal money that flows out of a country flows back in, because that's the only place it can be spent. If US dollars go to China, what's China gonna do with them? They can't spend them in China. The exchange them for yuan in the forex market where somebody who wants to buy, because they want to buy US goods, gets them, or they send them right back to the US to buy investment securities where they get spent on Us goods.

Here's something you can do for me: Explain to me how international trade is different from domestic trade.

Non US manufacturers do not hire and pay US workers who then pay American taxes.

So what? Non-Californian manufacturers don't hire and pay Californian workers who then pay Californian taxes (not sure why taxes enter into this...?)

Non US manufacturers do not pay US taxes.

See above.

The only difference between the two, aside from arbitrarily drawn borders, is that you have to do a currency conversion in the Foreign Exchange market.

Wrong

...

Seriously? Just, "WRONG!!!!". Would you like to maybe qualify that? Maybe explain why it's wrong?

Very disappointing response.

 

[Supposn]

No they don't. In fact one has to make simple fallacies such as "there are finitely many jobs" or "that money goes overseas" in order to think international trade has a negative effect on GDP.


Here's something you can do for me: Explain to me how international trade is different from domestic trade. The only difference between the two, aside from arbitrarily drawn borders, is that you have to do a currency conversion in the Foreign Exchange market. So you're going to have to explain how the addition of the ForEx market adds some crazy friction, or how trade with California and Japan is somehow radically different from trade with California and Michigan.

Do you think California should make their own cars rather than "exporting jobs" over to Michigan?[/QUOTE]

DSGE, interstate trade differs from international trade to the extent that the producers all contribute to our governments’ revenue pools. To the extent they pay their full share of taxes, we are burdened with lesser tax loads and/or government debt and/or better fund our governments’ activities.

You’re correct to contend there are not a finite number of jobs available. Our trade deficit puts our wages and salaries in competition with much lower foreign wage scales which is detrimental to our median wage. The numbers of jobs that can be created are limited by how low our median and our minimum wages are permitted to descend (expressed in dollars of constant purchasing power).

If the U.S. Constitution were worded differently there might now be little or no difference between U.S. interstate and international trade. It may enable living standard and wage scales of the entire nation to descend to that of Mississippi.

Respectfully, Supposn

 

[DSGE]

DSGE, interstate trade differs from international trade to the extent that the producers all contribute to our governments’ revenue pools. To the extent they pay their full share of taxes, we are burdened with lesser tax loads and/or government debt and/or better fund our governments’ activities.

First, you're clutching at straws even attempting to include a government sector in your analysis. If you can't show how international trade is different from interstate trade just in terms of the welfare of consumer/workers confined within those borders, then you have a very weak argument.

Second, your argument makes no god damn sense. "They pay taxes so that we don't have to". No, that's bullshit, because A) they don't pay your state taxes, and B) if they were a sovereign state, the government wouldn't have responsibility for their citizens and so wouldn't need their tax revenue because they're not supplying public facilities for them.

You’re correct to contend there are not a finite number of jobs available. Our trade deficit puts our wages and salaries in competition with much lower foreign wage scales which is detrimental to our median wage. The numbers of jobs that can be created are limited by how low our median and our minimum wages are permitted to descend (expressed in dollars of constant purchasing power).

If the U.S. Constitution were worded differently there might now be little or no difference between U.S. interstate and international trade. It may enable living standard and wage scales of the entire nation to descend to that of Mississippi.

Respectfully, Supposn

From here on out, I'm not responding to unjustified assertions. Notice how when I make an assertion I attach a little explanation for why its true or why what I'm arguing against is false? If you want a discussion with me, you have to hold your posts to the same standard.

 

[itfitzme]

I completely forgot about this thread. I think I was halfway through a conversation with this guy a while ago, but I guess you can take it from here. It'll irritate me much less. Heads up though, most of what you're gonna get is just the same unjustified assertion over and over again, "Trade deficits are ALWAYS detrimental to their nations' GDP", and a lot of links to his blog or the million other identical threads he's created.

Oh, he's a Chinese bot. (See the time of that post?)

The Turring test only considered being unable to distinguish a computer from a person.

The Turring test never specified the IQ of "a person".

The corollary to the Turring test is being able to distinguish a person from a computer.

My isn't this a Brave New World.

(Bots don't care what time it is so I'm conflagrating two competing deduction. But what the heck.)

 

[Supposn]

“Externalities” / “production supporting products”

ItFitzMe, I’ve referred to “production supporting products”, you’ve referred to “externalities”

The portion of goods and service products that are not fully reflected within the prices of export products they support should not be ignored. I describe these as “production support products”; you describe them as “externalities”?

The significance of these externalities is that although they are fully captured by the producing nations’ GDPs, they are not attributed to global trade and to that extent exports are understated.

These externalities are real products but I can think of no way that they might be statistically identified or estimated or in any manner accounted for.

The production of export products can induce or support production of other products. These aren’t even a portion of production with any monetary value. I see even less hope of ever accounting for additional production due to production for export.

Respectfully Supposn

 

[Supposn]

ItFitzMe, when the 1 billion dollars of coffee was purchased, 1 billion dollars was added to the nation’s (I) Investments and to (M) Imports within the nation’s GDP. That decreased the nation’s (X-M) trade balance by 1 billion dollars Within the nation’s GDP. Importing the coffee made no net change to the nation’s GDP.

I contend that although an import make no change in nation’s GDP, it’s conceivable that due to externalities, an import can effectively greater reduce the nation’s GDP.

My contention is based upon the belief that importing denies the importer all production benefits that were earned by the exporting producer, (even if we can’t quantify their values). If that contention is accepted, due to externalities a trade surplus can only further
Increase and a trade deficit can only decrease the nation’s GDP.

/////////////////Explanations ////////////////////////

It’s very likely that among all of USA’s import items, there are some with understated prices due to externalities. The nation’s total amount of the import’s externalities is unknown and it’s assumed that (M) Imports is understated.
thus a nation with a trade deficit can have a lesser GDP due to externalities, but it can never be increased.

Similarly it’s very likely that among all of USA’s export items, there are some with understated prices due to externalities. The nation’s total amounts of the export’s externalities are unknown and it’s assumed that (X) Exports is understated.
thus a nation with a trade surplus can have a greater GDP due to externalities, but it can never be reduced.

Respectfully Supposn

 

[EdwardBaiamonte]

Supposin,
1) why do you want to start Hawley Smoot trade war?
2) why do you want on import tax to make Americans poorer?
2) why do you want to create unemployment by reducing private spending with your tax?

 

[itfitzme]

////////////////////////////////////////////
Google Wikipedia, gdp
GDP = C + I + G +(X – M)

X= Exports, M = Imports, (X – M) = (balance of global trade)

/////////////////////////////////////////

What's the message number with the "M" comment you refer to?

Respectfully, Supposn

You have to read the definition of C to get that C is comprised of two parts,

C_domestic and C_imports

So

GDP = C_domestic + C_imports + I + G + ( X - M_imports)

And basically,

C_imports = M_imports

So,

GDP = C_domestic + I + G + X

There is no imports in GDP so imports do not mathematically effect GDP.

If you remove the -M_imports, you get something like

C_domestic + M_imports + I + G + X

Which is GDP + M

So, by your reasoning, what you are actually saying is that

M negatively effect GDP = C_domestic + M + I + G + ( X - M)

Which is not true, mathematically.

That's the issue.

 

[itfitzme]

ItFitzMe, when the 1 billion dollars of coffee was purchased, 1 billion dollars was added to the nation’s (I) Investments and to (M) Imports within the nation’s GDP. That decreased the nation’s (X-M) trade balance by 1 billion dollars Within the nation’s GDP. Importing the coffee made no net change to the nation’s GDP.

I contend that although an import make no change in nation’s GDP, it’s conceivable that due to externalities, an import can effectively greater reduce the nation’s GDP.

My contention is based upon the belief that importing denies the importer all production benefits that were earned by the exporting producer, (even if we can’t quantify their values). If that contention is accepted, due to externalities a trade surplus can only further
Increase and a trade deficit can only decrease the nation’s GDP.

/////////////////Explanations ////////////////////////

It’s very likely that among all of USA’s import items, there are some with understated prices due to externalities. The nation’s total amount of the import’s externalities is unknown and it’s assumed that (M) Imports is understated.
thus a nation with a trade deficit can have a lesser GDP due to externalities, but it can never be increased.

Similarly it’s very likely that among all of USA’s export items, there are some with understated prices due to externalities. The nation’s total amounts of the export’s externalities are unknown and it’s assumed that (X) Exports is understated.
thus a nation with a trade surplus can have a greater GDP due to externalities, but it can never be reduced.

Respectfully Supposn

See my later post regarding GDP, the measure of a nations domestic output. You are confusing it with the real thing that is the domestic output of the country. GDP is not the national output, it is a proxy measure based on all goods purchases and consumed by consumers and government that is then adjusted for what gets shipped in and out of the country.

Until you separate the two out in your argument, you're trying to prove an effect to actual production by incorrectly manipulating the mathematical proxy measure.

 

[itfitzme]

...No they don't. In fact one has to make simple fallacies such as "there are finitely many jobs" or "that money goes overseas" in order to think international trade has a negative effect on GDP.

Say what?

I'm saying the conclusion only comes from making common fallacies that jobs can be "taken" in that there are x jobs and y people and if a job gets "taken" overseas now there are only x-1 jobs domestically but still y people. That's bullshit. As long as people continue to want things there will continue to be jobs for everybody.

Or fallacies like "now that income goes overseas we're less able to buy things here!". That's bullshit because nominal money that flows out of a country flows back in, because that's the only place it can be spent. If US dollars go to China, what's China gonna do with them? They can't spend them in China. The exchange them for yuan in the forex market where somebody who wants to buy, because they want to buy US goods, gets them, or they send them right back to the US to buy investment securities where they get spent on Us goods.




So what? Non-Californian manufacturers don't hire and pay Californian workers who then pay Californian taxes (not sure why taxes enter into this...?)



See above.

The only difference between the two, aside from arbitrarily drawn borders, is that you have to do a currency conversion in the Foreign Exchange market.

Wrong

...

Seriously? Just, "WRONG!!!!". Would you like to maybe qualify that? Maybe explain why it's wrong?

Very disappointing response.

Since before WWI, recessions have been global. And since WWII, given the data, imports for the US have decreased on recessions. I suspect the opposite is true for national economies with the low standard of living. But every nation goes into recession simultaneously. So there is something going on that isn't clear. But it seems that net imports are just another symptom of a deeper and broader issue.

It is about comparative advantage, until it's not. That's a key question. What happens when the cost of manufacturing sneakers in every country equalizes?

Each country enjoys their standard of living as long as it is increasing. The "better off country" enjoys a higher standard of living as the "less well off country" is happy to make an ever increasing supply of goods. What happens when they equilize? They haven't, yet, but when they do? I've go to wonder. Perhaps it just becomes a matter of who got there first, a equilibrium like Ford makes small cars and Chrysler expensive ones. The "comparative advantage" just becomes a matter of tooling up. Ford picks, Chrysler has to pick the other one. Ford can't do both effectively.

 

[itfitzme]

The first thing is comparative advantage vs absolute advantage. Know these or there is no discussion.

It isn't GDP that we really care about anyways. What we care about is employment. We know that standard of living and efficiency increase with time. We know that employment fluctuates and when it goes to shits, it takes employment down with it. If it's low and GDP is high, then we are more interested in employment anyways and GDP is just masking the issue.

Now, all the theory in the world is meaningless with out real data to put it into context. Physics is easier because we can do it in the lab. You can do basic "forces of the universe" experiments at home by flipping coins (statistics and normal distribution) and making a pendulum (gravity). For economics, thank the Congress and industry for the internet and data. Our tax dollars at work.

Things have to be done per capita. Population grows and GDP goes up with it. If absolute GDP isn't keeping up with population growth, it's going up but it isn't good. As well, if you just look at absolute GDP, everything just gets swamped out by the population increase.

Things have to be looked at in real dollars.

So here is the employment ratio vs net exports (real dollar per capita).

The data points are connected by year.

There is some connection between net exports and employment. When employment railed, imports per capita continued to increase along the top because people were consuming more then we could produce domestically.

In the early years, when every house hold was a single income earner household, there were little imports because household income wasn't up there. This had nothing to do with imports and exports. It was a social thing. Women didn't work.

In between the two, imports increased as employment increased. Here is the story of employment and net exports. Here is the story of the national and global economy. Find the comparative and absolute advantage in here. Does comparative advantage remain constant with time? While the standard of living and technology increases in other countries?

That's the story of employment and imports. There is the story of recessions. Just follow that line, as it moves on up and loops around. Isn't it just beautiful.

As an aid to understanding it, here is the labor force to population ratio.

Note where it began to increase above the level of 1973 and where it leveled in 1990. Compare those dates to the graph above.

What did the EPR vs Net Exports do after 1990, when the labor force to population ratio maxed out?

What did it do before then, from 1972 up to 1990?

Don't ask me what's up with the with 1948 through 1962. I haven't figured out yet. But 1962 through 1972 and beyond should be clear as to why the workforce kept going up.

What is interesting is that it was at no appreciable imports with a recession that it began to really climb.

Now, check out the consumption per employed person. This is C from the NIPA account divided by population.

Well, damned if the standard of living just never really fell back much over all those recessions, not for employed people anyways. This is what I figured. Recessions don't drop the standard of living for those employed as much, it just kills the standard of living for those that drop out of employment.

See what I mean when consumption is per capita?

It falls back more clearly.

Going back to that EPR vs NE. Notice how the increases and recession from, 1983 and on, tend to follow the same slope of EPR/NE ratio. Notice how, before the recessions, there was a decrease in NE while EPR still went up. Notice how the 2006 to 2007 fall back on NE followed the max employment rail before the recession hit. Notice the consistent under-ward loop after the recessions of 1980, 1990, 2001. Notice that 2001 was railed, it couldn't loop up and back around under. We can almost predict what the economy is gonna do on this last recession. (quarterly and monthly data would be better. It's amazing how things get more complicated when resolution increases. Patterns can disappear into the noise. )

It is a global economy. It has been since forever, before WWI and WWII. Those were the result of global recessions. Where does absolute advantage and comparative advantage fit into this?

It's not the same system as it has been. It hasn't been since 1997, abouts.

 

[DSGE]

Since before WWI, recessions have been global. And since WWII, given the data, imports for the US have decreased on recessions. I suspect the opposite is true for national economies with the low standard of living. But every nation goes into recession simultaneously. So there is something going on that isn't clear. But it seems that net imports are just another symptom of a deeper and broader issue.

It is about comparative advantage, until it's not. That's a key question. What happens when the cost of manufacturing sneakers in every country equalizes?

I don't think it is. That's useful for understanding the composition of international trade, but I don't think it's relevant to trade balances. It's just about wanting to consume/invest more than you produce. A trade deficit is just credit from abroad. Say I want to buy a house. I haven't been sufficiently productive to either have built my own house or earned enough income to trade for an existing house. I get a loan from the bank (a capital inflow). The capital comes from a lender who wants to postpone consumption until the future. I use it to purchase a house from somebody. Over time I earn income equal to the value of the house plus interest. I repay that to the lender, who uses it to consume.

Forget about money, that just needlessly complicates things. Think about the transfer of real goods that is occurring. In period 1 the creditor has produced a house (or something of equal value to a house). They want to postpone consumption. I want to consume now. The creditor gives me the house, which I consume in this period. In periods 1 and 2 I work to produce some good, X. In period 2 I've produced enough X to be equal to the value of the house plus interest. I give that much of good X to the creditor, who consumes it.

Trade deficits are to a nation exactly what credit is to a consumer. It's just a way of changing the intertemporal distribution of consumption to make it consistent with individual preferences.

 

[itfitzme]

Since before WWI, recessions have been global. And since WWII, given the data, imports for the US have decreased on recessions. I suspect the opposite is true for national economies with the low standard of living. But every nation goes into recession simultaneously. So there is something going on that isn't clear. But it seems that net imports are just another symptom of a deeper and broader issue.

It is about comparative advantage, until it's not. That's a key question. What happens when the cost of manufacturing sneakers in every country equalizes?

I don't think it is. That's useful for understanding the composition of international trade, but I don't think it's relevant to trade balances. It's just about wanting to consume/invest more than you produce. A trade deficit is just credit from abroad. Say I want to buy a house. I haven't been sufficiently productive to either have built my own house or earned enough income to trade for an existing house. I get a loan from the bank (a capital inflow). The capital comes from a lender who wants to postpone consumption until the future. I use it to purchase a house from somebody. Over time I earn income equal to the value of the house plus interest. I repay that to the lender, who uses it to consume.

Forget about money, that just needlessly complicates things. Think about the transfer of real goods that is occurring. In period 1 the creditor has produced a house (or something of equal value to a house). They want to postpone consumption. I want to consume now. The creditor gives me the house, which I consume in this period. In periods 1 and 2 I work to produce some good, X. In period 2 I've produced enough X to be equal to the value of the house plus interest. I give that much of good X to the creditor, who consumes it.

Trade deficits are to a nation exactly what credit is to a consumer. It's just a way of changing the intertemporal distribution of consumption to make it consistent with individual preferences.

And like a household, if I borrow to buy a washing machine, my wife can go to work too. If we borrow and buy a second car, I don't have to drop her off and we both can work at higher paying jobs in different places. Then we go and get use to an increasing standard of living and leverage into buying really cool stuff. That's just great until a recession hits and income falls back faster then prices. Now we are just squeezed and can't to no more borrowing.

It's a real ***** if we were borrowing against our home equity. Oops. Balance sheet recession and a liquidity trap.

"intertemporal distribution of consumption", eh. "to make it consistent with individual preferences".

That's part of the deeper issue, the "intertemporal distribution of consumption to make it consistent with individual preferences." Well, it's that "individual preferences based on expectations" thing that gets us every time.