Friday, April 22, 2016

A Keynesian Lists Five Big Truths About Trade

Keynesian economist Alan Blinder, a professor of economics and public affairs at Princeton University and former vice chairman of the Federal Reserve and an informal policy adviser to the Hillary Clinton campaign, has an op-ed in WSJ today that make a number of sound points on trade. He almost sounds Rothbardian:
 International trade is, once again, a hot-button political issue, making this an unpropitious time for rational discourse about the subject. Nonetheless, here are five issues on which the overwhelming majority of economists, liberal and conservative, agree.  
1. Most job losses are not due to international trade. Every month roughly five million new jobs are created in the U.S. and almost that many are destroyed, leaving a small net increment. International trade accounts for only a minor share of that staggering job churn. Vastly more derives from the hurly-burly of competition and from technological change, which literally creates and destroys entire industries. Competition and technology are widely and correctly applauded—international trade is not so fortunate 
.2Trade is more about efficiency—and hence wages—than about the number of jobs. You probably don’t sew your own clothes or grow your own food. Instead, you buy these things from others, using the wages you earn doing something you do better. Imagine how much lower your standard of living would be if you had to sew your own clothes, grow your own food . . . and a thousand other things.
The case for international trade is no different. It’s not mainly about creating or destroying jobs. It’s about using labor more efficiently, which is one key to higher wages
.But there is a catch: Whenever trade patterns change, some people will gain (either jobs or wages) but others will lose. The federal government could and should help them more, but it doesn’t. So Americans who do lose their jobs due to international trade have a legitimate gripe.
 3. Bilateral trade imbalances are inevitable and mostly uninteresting. Each month I run a trade deficit with Public Service Electric & Gas. They sell me gas and electricity; I sell them nothing. But I run a bilateral trade surplus with Princeton University, to which I sell teaching services but from which I buy little. Should I seek balanced trade with PSE&G or Princeton? Of course not. Neither should countries. 
4. Running an overall trade deficit does not make us “losers.” The U.S. multilateral trade balance—its balance with all of its trading partners—has been in deficit for decades. Does that mean that our country is in some sort of trouble? Probably not. For example, people who claim that our trade deficit kills jobs need to explain how the U.S. managed to achieve 4% unemployment in 2000, when our trade deficit was larger, as a share of GDP, than it is today.
A trade deficit means that foreigners send us more goods and services than we send them. To balance the books, they get our IOUs, which means they wind up holding paper—U.S. Treasury bills, corporate bonds or other private debt instruments. That doesn’t sound so terrible for us, does it? 
One exceptional country—the U.S.—is the source of the world’s major international reserve currency, the U.S. dollar. Since ever-expanding world commerce requires ever more dollars, the U.S. must run trade deficits regularly. That’s sometimes called our “exorbitant privilege,” since we get to import more than we export.
Read the rest here.

3 comments:

  1. " Whenever trade patterns change, some people will gain (either jobs or wages) but others will lose. The federal government could and should help them more, but it doesn’t. So Americans who do lose their jobs due to international trade have a legitimate gripe."

    I'd like to hear a detailed explanation for how this is going to work. Bureaucrats are going to calculate the impact on jobs and wages of trade pattern changes? Yea, right. And then take money from who to pay for it? Just those who gained from those trade pattern changes? Of course not. Everyone will pay, including those same losers. What will actually happen is that those determined to be the "losers" will fall into two categories: those who have ties to the politicians, who will be the big winners and two, those cases that will buy politicians the most air time, and those votes, in which case the distribution will be peanuts since the most effective way to do this is to spread the funds as widely as possible.

    "Since ever-expanding world commerce requires ever more dollars, the U.S. must run trade deficits regularly."

    Huh? Sorry, I don't get it. I grow carrots and my neighbor grows apples and we trade them. If I double the size of my carrot production, according to this clown, my neighbor must double his production too. The apple-carrot exchange rate must be fixed (perhaps by Bureaucrats)

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  2. I've never been a fan of the personal finance reasoning that's made in point three, not very effective in communicating the concept. He says he has a surplus in trade with Princeton, the value of his services in US dollars there don't match the US dollars he gets in payment? Wouldn't that be a zero balance? Also in point 4 he's basically saying that it is no problem for the US to keep going in bigger debt to finance more imports than exports. How is that a pro free trade justification? Maybe I'm misunderstanding how trade of goods and services are calculated? I get $200 in exchange for $100 in toilet paper, I still owe them $100 worth of something, but I'm importing more than exporting!

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  3. I agree with AJO, and have similar questions. On a gold standard (or any backed currency) all transactions are one for one. Where does an imbalance occur? Could be on local trade or worldwide. Its only with fiat currency and central banks inflating that leaves someone holding the bag. Maybe RW can clarify.

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