The St. Louis Federal Reserve has developed a measure of a country’s openness to trade. As should not be terribly surprising the United States, along with Britain and the Netherlands, is among the world’s countries most open to trade. None of our major trading partners (Canada, Mexico, China, Japan, South Korea, Germany) is.
If China had been bombing our factories over the period of the last twenty years, I’m pretty sure we would have responded. The economic war that China has been waging on us over the period has had much the same effect and here we sit, fat, dumb, and happy.
The tragedy of the situation is that according to David Ricardo’s theory of comparative advantage China would have been better off if the country were more open to trade.
Fat, dumb and happy?
I’ve got millions of voters who don’t fit that description. They happen to be backing the only two candidates for president that have generated any passion amongst the electorate this cycle – not that it will do them any good. But happy we certainly are not.
The problem is that when folks don’t behave as theory predicts, economists double down instead of looking at a new theory. The Chinese desire for stability at all costs could be a factor.
While China has been damaging our industries, the trade off has been cheap consumer goods, higher markups on expensive goods (e.g. ipads, etc), higher investment returns and those old nasty factories are out of sight out of mind.
I don’t always vote, but when I do, I vote TRUMP!
OT, but I thought this theory was interesting re productivity: https://www.washingtonpost.com/opinions/solving-the-productivity-mystery/2016/04/03/f03b2dac-f824-11e5-9804-537defcc3cf6_story.html?hpid=hp_no-name_opinion-card-d%3Ahomepage%2Fstory
Ricardo’s theory doesn’t address who gets the benefits. For the last 30 years, whatever benefits there were have accrued to the Ruling Class. The working class has lost substantial ground and many have be forced out of the labor force into penury. The middle class has also lost ground and been reduced in numbers. It is clear that both the working class and middle class would have benefited from a protectionist trade policy. They also would have benefited from an noninterventionist foreign policy, especially the thousands who died and the tens of thousands who were crippled.
Another vote for Trump.
Your point is correct: EVEN IF the benefits of trade in the case of the TPP are as advertised that’s still not a reason that most Americans should support it because they’re unlikely to benefit by it.
However, my point is slightly different. Under conditions of managed trade it is possible to skew the benefits of trade so that one country or the other benefits substantially more. The Japanese, Chinese, etc. have learned the formula and have been applying it.
Michael:
I found this:
oddly ahistorical. I would have said “business investment has slowed, resulting in weak innovation”. In the period from 1981 to about 1998 business invested an enormous amount in computer technology, more than ever before, and, at least from 1981 to 1995, got very little for their investment. That investment resulted in an enormous amount of innovation which was manifest as the boom of the late 1990s and have been reaping the benefits ever since.
As a result of reforms (maybe I should say “alleged reforms”) in the 1990s businesses have become much, much more risk averse. The best example of that was the recession of 2002-2003 which was essentially due to a shortfall in BI. The “Bush tax cuts”, relying as they did on boosting consumer spending, were the wrong policy prescription because there had been no appreciable decrease in consumer spending as there had been in business investment.
Applying Ricardo’s theory to a world using credit backed monetary systems is similar to applying decimal based arithmetic to a hexadecimal number system. Ricardo based his theory on sound money. It is rather difficult to manipulate the value of gold to gold transactions, or any like to like transactions where the medium is hard – silver, oil, or lawn chairs.
We have a financialized economy. This is not about the financial industry. It is about the monetary system and how the economy expands. Simply, more credit must be created to replace the debt that is retired, and new credit is needed to grow the economy. In addition, most of the service on the debt is ultimately being financed, and it needs credit creation also.
In an industrialized economy, growth is achieved by increasing output. Production increases implies increased output of goods. Increased efficiency allows the increased production of goods.
In a financialized economy, there are no goods to increase. Increased efficiency results in reduced costs, but this does not require an increase in output of goods because there are no goods. In a financialized economy, everything is “on paper” or fiat. It is simply an entry in an accounting ledger. Laying off people, even if it results in reduced output, is still more productive if it reduces costs.
In a financialized economy, money is the raw material used to create financial products, and any money used for anything else is unproductive and inefficient, in other words wasted.
This is why Adam Smith and the other classic economic theories do not work. This is why unions will not protect anybody. This is why the rich will continue to get richer, and they will get richer at an increasingly faster rate. This is why under the most progressive president in a long time the rich have been getting richer faster than ever. This is why Republicans and conservatives can complain all day long about Keynesian economics and policies, but they will never stop the money creating machine.
If China were required to use the US dollar as its currency and if they were required to have all their financial, monetary, and trade functions regulated by and under the US system, would there be any difference? If so, who has been getting screwed, and why? If not, explain.
Dave:
“oddly ahistorical.”
Hah! As I read it I thought, “Did I just hear Schuler’s head explode?”
Although the term “venture capital” can be sliced into seed, expansion, late stage etc, overall 2014 and 2015 experienced the highest investment pace in terms of dollars and transactions in over a decade.
This is almost certainly due to yield chase as pensions and endowments up their alternatives allocations in a low fixed income return environment and the use it or lose it nature of blind pool funds.