Let’s start with the definition.
GDP = C + I + G + (X – M)
- C = Personal Consumption Expenditures
- I = Gross Private Investment
- G = Government Spending
- X = Exports
- M = Imports
GDP Components
Wait a second. It says right there that imports are subtracted. Yes it does, but it is a mirage.
Gross Domestic Product
GDP stands for Gross Domestic Product. Gross domestic product (GDP) is the total market value, expressed in dollars, of all final goods and services produced in an economy in a given year.
The key word is “domestic”.
Imports are not domestic. Shouldn’t they be subtracted?
The answer is only if they were incorrectly totaled in the first place.
Correcting Misconceptions
The St. Louis Fed discussed this today in How Do Imports Affect GDP?
When the Bureau of Economic Analysis (BEA) measures economic output, it categorizes spending with the National Income and Product Accounts (NIPA). Some of this spending, which is counted as C, I, and G, is spent on imported goods. As such, the value of imports must be subtracted to ensure that only spending on domestic goods is measured in GDP. For example, $30,000 spent on an imported car is counted as a personal consumption expenditure (C), but then the $30,000 is subtracted as an import (M) to ensure that only the value of domestic production is counted.
As such, the imports variable (M) functions as an accounting variable rather than an expenditure variable. To be clear, the purchase of domestic goods and services increases GDP because it increases domestic production, but the purchase of imported goods and services has no direct impact on GDP.
Controversial Political Issue
In the Introduction to its article, the St. Louis Fed stated: “International trade is measured as part of GDP and is a large and growing component of our nation’s economy. It’s also an important, but controversial, political issue. However, the current textbook and classroom treatment of how international trade is measured as part of GDP can lead to misconceptions if not properly explained.”
What If?
I can hear you thinking. “Wait a second, what if we did not have imports? Wouldn’t domestic production be higher?”
In general, no.
For example: It would take a lot of effort for the US to be self-sufficient in growing bananas. I am sure it could be forced via tariffs, but at what cost?
US bananas would undoubtedly be more expensive than bananas from some place where they grow better. Money spent on bananas would be money not spent on something else.
Consumers would pay more for bananas than they are really worth on the global market. Only a fool (or a subsidized US banana grower) would think such tariffs are a good thing.
Take titanium. Most of the world’s Titanium Supply is from China, Russia, and Japan. The US isn’t even on the list. We cannot produce enough titanium in the US no matter what the tariff.
Winning vs Losing
Trump’s myopic view of trade is that someone “wins” and someone “loses”.
In reality, deals are not made unless both sides think they gain.
What about subsidies?
If China is indeed dumping steel, solar panels, anything, it is at the expense of China and for the benefit of US consumers and importers.
If a deal benefits us consumers and corporations then it is a good deal. Period.
Excellent Trade
In essence, for every alleged “dumped” good, we hand over clearly depreciating dollars and get foreign-subsidized materials in return.
It is idiotic to complain about this, but Trump does.
The Enabler
Q. What enabled this setup?
A. Nixon closed the gold window in 1971. Shortly thereafter, deficit spending exploded across the board.
Instead of blaming NAFTA, China, Obama, and everyone else for allegedly bad deals, It would behoove Trump to really understand what’s going on.
Trump is clueless and so is everyone else who thinks Trump’s trade wars are “winnable”.
For further discussion, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
Mish
Freedom to do whatever they want with no consequences has been given to bankers and the solution is malinvestments galore and totally distorted economy where profits, consumer demand, jobs, taxes, markets, invesments are dependent on an ever increasing debt bubble that can never be repaid because to get the profits now the productive capacity of economy was destroyed, production was offshored and economy became rent-seeking, speculation and debt induced false demand while the ability to pay the debts by consumers, companies, states, cities and federal government was destroyed.
Freedom to do whatever they want with no consequences was given to employers trying to steal from the economy by employing illegal immigrants and paying low wages to get more profit for company owners while bankers and Fed and debt crazy politicians kept the consumer demand up with ever increasing debts.
There has been too much freedom.
There should be some consequences and less freedom.
In 2008 thousands of bankers should have lost everything they owned and been sentenced to tens of years in prison.
New generation of bankers would have learned to NOT do the stuff that happened in 2002-2008.
Instead they got a slap on the wrist with a feather and raises and bonuses paid by TARP money and Fed goosing banks by crashing rates abnormally low to create more malinvestment and create an economy that is even more addled and distorted by debt.
The bankers who had created the mess stayed at the top and told the new generation of bankers how it is done because they were the heroes who made hundreds of millions out of NOTHING and now another bubble has been built…
Every employer who employs illegal immigrants should get a 1 million dollar fine for every illegal employed so if a slaughterhouse or meat processing plant employs 100 illegals the owners should be fined 100 million dollars so they would lose EVERYTHING.
Within 24 hours all companies employing illegals would have FIRED them in the state and one example in every state and the jobs magnet would have been completely shut.
Trump promised mandatory e-Verify but since Trump got elected he DELETED his immigration promises from his website and NOTHING has been done to get mandatory e-Verify.
Sessions runs a couple raids every month somewhere in USA to make it seem like something is being done but it is just to fool the voters.
Sessions is either a clueless Bambi handled by Koch Brothers funded Republican snakes in Trump administration or Sessions is himself intent on sabotaging Trump’s election promises on immigration…
The rising tide has lifted all boats. When the tide recedes what will left is not much of anything. I suspect the next time down wont have much of a recovery. The 2020s will be the decade of deflation.
In the trade example you gave of Bananas it is clear that there is NO point in growing them in USA and if we would grow them in USA they would be more expensive and take the money used in high priced bananas away from other consumption.
However the model does not work when taking into account manufacturing products since there is NO advantage for producing iPhones in China to US consumers since Apple and other manufacturers of tech charge the maximum amount they can get from iPhones and other tech while optimizing the total profit (highest profit per product times the optimum amount of product sold for maximum total profit) and the only ones profiting are Apple stock holders and apple executives and other tech company owners and executives (higher profits lead to higher stock price and higher option profits and executive compensation).
If IPhones would be produced in USA the product price would be about the same but the profit margin for Apple would be about 20% less so stock prices and executive compensation would be lower.
However the real problem is the fact that the whole economic model in USA and Europe that is based on debt consumption is broken.
The current economic model where USA and Europe consume with ever increasing debts for consumers, companies, states, cities and countries while the consumption is kept up with debt, debt, debt is unsustainable and this debt consumption model is enabled by Fed, ECB and banks loaning against ever more higher priced collateral which is priced so high due to the continually expanding debt bubble that keeps prices rising while the tax revenue is increased by this debt based consumption but still politicians at all levels consume much more than they get via taxes and the continual debt increase is enabled by Fed and banks buying government debt to keep it all going.
The only chance to return to something normal is to STOP the current offshoring of production and bring more production to USA and Europe AND slowing the debt increases by governments and consumers so there would be some reasonability in the economic model.
The profit boost from offshoring of production and lowering of working class wages (no real wage growth since end of 1970’s and wage crash increasing since 1990’s with drywall installers dropping from 25 dollars an hour to 10-15 dollars an hour and same for landscaping, cleaning, restaurants etc.) by importation of tens of millions of illegals and millions and millions of legal low wage immigrants should have crashed the consumption and therefore the profits of companies but consumption has been kept up by bubbles in everything and continued increases of debts and the economy destroying caused by offshoring of production and massive immigration has been hidden under mountains of debt.
However the trouble with what Trump is trying to do is that it will crash the markets when the profit margin gets smaller for companies.
This will in turn crash the retirement savings of many for the current time and make the calculations on what is needed on future investment returns to fund pensions be really, really unattainable instead of the current situation where they are out of whack.
Also the debt increases at every level need to be slowed down but this will slow the GDP growth and lead to GDP crash leading to the mother, father and uncle of all recessions/depressions at some time and crash the values of Real Estate and the slowing and cutbacks of debt enabled spending by cities, states and governments will lead to the need to shrink government at all levels and cut it back by a lot .
The biggest mirage is that there would be some need for immigration of low wage workers or immigration of any kind of workers.
When the excesses in debt and debt based consumption at all levels will be taken out of economy this will lead to less high paid real estate salesmen buying BMW’s and less consumption in economy in general at all levels with the most high wage professions losing the most and cutbacks in the number of employers by cities, states and federal government (there can be less need in cutting back the numbers of workers if the wages and benefits for those employed by cities, states and government will be cut to the same level as they are in private sector.) and also massive cuts in employment by private employers since consumption will drop and all of this will lead to a spiral of GDP decreases.
Also the level of what is the price where Apple will be able to sell the best amount of iPhones for max total profits will be ratcheted down since the debt based consumption will be cut back by a lot while economy gets smaller so the Apple stock price is NOT just overpriced by the 20% unsustainable increase in Apple’s profit margin enabled by offshoring of production to China but Apple’s stock price is overpriced also because of all of the debt based consumption excess in the economy since without the debt increases the optimum sales price would be lower and therefore Apple profit margins would be cut by much more if the debt based consumption is stopped.
Most likely all politicians are too stupid to realize what is the situation since they have kept worsening the situation for years and years but at least part of the bankers should be intelligent enough to realize the situation but fixing the situation would crash their wages, options and other compensation and also crash the value of their real estate and stop their excess consumption so the craziness will continue until it is forced to stop.
What is the debt crash spiral starting point that will once started destroy stocks, tax revenues, consumption, retirements, government services, real estate values, executive compensation, many banks, high wages for educated professionals etc. etc.?
Nobody knows but there is one….
“However the model does not work when taking into account manufacturing products since there is NO advantage for producing iPhones in China to US consumers since Apple and other manufacturers of tech charge the maximum amount they can get from iPhones and other tech while optimizing the total profit (highest profit per product times the optimum amount of product sold for maximum total profit) and the only ones profiting are Apple stock holders and apple executives and other tech company owners and executives (higher profits lead to higher stock price and higher option profits and executive compensation).”
And banana growers don’t “charge the maximum amount they can get from” bananas?
Also, do you really believe absolutely noone at all would buy an Iphone, if Apple rounded up the price to $1000, instead of charging $999?
Apple is maximizing their profit with each iPhone, that is why they have different priced models so the most expensive are for those who clearly would pay almost anything.
The most sold IPhone model is priced also to maximum profit that gives them max profit per phone when multiplied with optimum amount of phones sold for maximum total profit.
Banana growers charge what they can but there are many growers growing bananas and many countries having banana farms so they are made to compete against each other for lowest price so the retailers in US set the banana pricing with how much profit they can get from bananas while selling almost all the bananas they bought from the growers.
There are also many models of Banana. At least outside the EU 🙂 Some curved, some straight, some organic, some overripe, some green, some picked by children, some certified to not be… All with different prices. Just as Iphones.
While there are many producers of cellphones as well. And would be, should be, more Iphone closes as well, were people freer to clone them at will, instead of the engineers competent enough to be able to do so, being barred from doing it by an army of ambulance chasers and thugs who are not.
You just have to step back enough so you can see the forrest for the trees. Economics, like the natural world, doesn’t consist of an infinite collection of special cases that Saint Trump needs to decide on one by one. Rather it’s just the same thing over and over. People optimize, hence arrive at optimal outcomes for themselves, if they are allowed to unrestricted. “Workers,” “Consumers”, “Men”, “Women”, “H1Bs” etc. are no different. Left alone, they’ll optimize. So just focus on getting rid on restrictions preventing them from doing so, and “The Invisible Hand” will take care of the rest. No Trump needed.
Nations exist to protect their citizens and limit immigration in such a way that it is beneficial to the citizens and try to keep the nation such a way that everyone has a place and everyone benefits from the success of the nation.
Globalist view of let everyone go wherever they want is a race to the bottom that destroys the economic models of countries and this leads to the destruction of those countries.
Illusion of everything being OK can be kept up with ever-increasing debt levels for a while but since in the end everything is false and based on debt eventually everything crashes and if at the moment the crash happens the nations have been separated to parts that hate each other the destruction will be bad and it gets even worse the more parts there are like what happened to Jugoslavia.
Americans have been betrayed since the 1970’s starting with taking the dollar off the gold standard, continuing to flows and flows of illegal immigrants already in the 1970’s thanks to Teddy Kennedy’s immigration law changes in the 1960’s that also brought ever increasing levels of legal immigrants and thanks to inventing the interpretation that a kid of an illegal immigrant or a kid of a tourist on vacation should be given birthright citizenship. Then in 1986 Reagan gave a mass-amnesty to illegals and the already increased illegal immigration exploded. Then in the 1990’s Clinton played the saxophone and was the “black” president while locking up more blacks than anyone before him and while crushing black employment and wages with ever increasing levels of illegal immigrants and then it was bubble time to hide all the economic destruction under a tech bubble and then GWB blew the real estate bubble and more illegal immigrants were allowed to come and then it was Obama’s time to stab every African-American in the back by bringing more and more illegal immigrants to USA to take away black neighborhoods, take away black jobs and crash black wages and deal more drugs than blacks all the way to MS-13 gangsters slaughtering black girls in high school.
“Nations”, nor any other abstract entity don’t own free people. People are not “it’s” citizens, that “It” should “care for” as if they were some form of children.
Instead, proper, just and civilized nations exist to do and enforce those, and those only, things that the US founders included amongst just government’s enumerated powers, in a certain geographic area. Nothing more. When nations do that, and only that; whatever results is good by definition. When they don’t, it’s not. The rest is up to free individuals.
The cost of the iPhone isn’t what comes from China. It’s the engineering and software that goes into it, which all comes from the US. The actual hardware (the screen, chips, battery, glass, etc) is actually pretty cheap stuff. Arm chips are available in quantity for about $10. OLED screens, about $50 (although quick searches estimate about $150 for Apple’s). Stainless Steel and glass (even fancy Corning Gorilla glass) is almost nothing in the dimensions and quantity Apple is using. Circuit boards are plastic and fiberglass. There’s a little copper and rare earth metals too.
When the price of the ‘capital’ was artificially (insane credit expansion!) lowered (ZRP) by Fed (+CBers) for nearly 10 yrs, since ’09, who took the best advantage of that ?
CAPITAL (mobile +globalists) or the USA wage worker in the main street?
Same is the one of the major root causes of increase in inequality in INCOME & WEALTH, among the bottom 90% since 2000!
Charges H Smith (of oftwominds.com) is one of the very bloggers out there pointing this hypocrisy of ignoring the ongoing struggle between CAPITAl (mobile) vs US wage worker – the real issue, since ’09!
Marx used to spout nonsense about Capital VS Labor as well….
While economists pointed out the rather inevitable truism that Capital NEEDS labor to be productive, while Labor needs Capital to ditto.
In fact, the more capital labor have available, the more value labor can add per effort. Hence, the more it can demand in wages. Now, how can labor obtain greater availability of capital? The same way availability of anything increases: By making it cheaper. And how do things get cheaper? By increasing the number of suppliers competing to deliver things the cheapest. While getting rid of any restriction that may increase costs. Just like for any other good in the entire universe.
There has never been, nor will ever be, some natural law that says labor can’t bypass current owners of capital and source it cheaper from someone else, if whomever they are currently stuck sourcing it from, extracts too large a share of the value labor uses capital to create. If labor bypassed the idle capital owners, both labor and the end customers for the stuff labor produced, could benefit, by splitting the rent they formerly had to pay idle capital “owners.”.
There currently ARE plenty of laws that do restrict, and drive up the cost of capital for labor. Zoning, land use and IP laws being the most obvious. But also money printing, since the free money goes almost entirely to bid up the price of “assets”, which are often tied to control of capital. But all those laws are man made, and entirely arbitrary. Put in place to serve those who have government’s ear. Which happen to be….. tah-dah, sure as heck not laborers…But rather idle capital owners seeking unearned rent.
OTOH, I can’t think of a single mechanism by which some poor dude in a Chinese village, could even theoretically reduce capital availability for labor in America. Hence no means by which he could reduce the amount of real value an American is able to add per hour of work. Hence no way he is able to effect the salary said American is in a position to demand. Or, more correctly, would be in a position to command, if only American labor and capital markets were free and unrestricted. Rather than rigged for the benefit of the connected idle. Mind you: The connected idle IN AMERICA. Not China.
Some poor dude in Chinese village has nothing to do with anything.
It is bankers, international companies, debt addicted and debt addled politicians that cause what is happening.
Having more capital in total does NOT benefit labor when those who control the capital use it to build factories in China and employ poor Chinese on slave like wages 6 days a week for 12 hour days with suicide prevention netting surrounding the workers dormitories that are right next to factory and make Americans unemployed but still keep them consuming with cash-out-refis, government benefits paid by government taking more debt and all kinds of consumption loans so joe schmoe does not realize what is happening to them.
Having more capital in total does NOT benefit labor when those who control capital use it to buy up politicians like the Koch Brothers have done to half of Republicans and demand that illegal immigration MUST be continued at all cost, NO wall must be built and there MUST be massive amnesty (attempt under Bush in 2004 and 2007, attempt under Obama by democrat and republican gang of six amnesty which passed Senate but was stopped in House after republican Eric Cantor was voted out in a republican primary for supporting amnesty, Marco Rubio lied, lied, lied and lullabied the republican talking heads on Fox News and talk radio into believing the mass amnesty was a good deal).
The capital controlling class has used immigration and especially illegal immigration of tens of millions to keep wages low in US while profits have exploded thanks to continual debt increases enabling massive consumption based on debt.
Without the Fed enabling continual debt increases and Federal government living way beyond it’s means for tens of years bringing in tens of millions of illegals would have CRASHED the consumption levels and CRASHED company profits and CRASHED stock prices since there are NOT enough consumers capable of consuming without increases in debt because wages have been lowered by this flood of tens of millions most of whom send large part of their wages outside of USA to their families and extended families elsewhere.
Likewise US immigration policy has NOT only brought the best and brightest to USA but in fact most immigrants through visa lottery and refugee resettlement and the following family-based immigration where the one who has come has been able to sponsor his parents, his sisters and brothers and their husbands and wives and all of their children has led to cases where one person coming to USA causes eventually about 50 immigrants coming to USA with most being uneducated and ending up in low paid jobs and using welfare.
Controllers of capital have NOT cared that immigration has been like this because even immigrants like this keep the aggregate demand rising and bankers and company leaders have believed that Fed will always bail them out and that Federal government will keep increasing it’s debts so even uneducated and low wage immigrants can be kept consuming with government benefits.
The bill for intentionally keeping wages low through massive low wage immigration and massive illegal immigration is coming due since the debt increases are unsustainable.
Trump is the last hurrah in that Trump is right that illegal immigration is bad for USA and Trump is right that massive low wage immigration is bad for USA and Trump is right that the offshoring of production is bad for USA because massive immigration and offshoring of production have taken away the wealth of America since low wage immigrants lowering wages for all while collecting welfare benefits are NOT good for the economy and offshoring of production is NOT good for the economy and what USA has done should have and would have led to crash in consumption and crash in company profits long ago with only the biggest debt binge and largest debt bubble in history of mankind at all levels hiding what has been caused with immigration policy and offshoring policy.
However Trump is blind to the fact that debt is the problem and debt has enabled both the offshoring and the irresponsible immigration policy and Trump is breaking all records with government debt while giving 700 billions in giveaways to US army, navy, airforce while allowing the Koch Brothers funded Amnesty-First Republicans to deny him 25 billion to build the wall and stop illegal immigration and stop the flow of drugs to USA.
So then, the solution is the allow labor to route around current owners of capital, and buy it cheaper from someone else. In China, or elsewhere. While ending the practice of taxing labor, in order to use the proceeds to protect current capital owners from just the above.
I realize what you are saying rings true as of right now. But there’s nothing natural about that. It’s not as if some halfwit unable to do anything more complicated than laying in a silk bed on Manhattan while being spoonfed freshly printed Fed dollars, is born with some natural control over neither land nor machinery nor productive processes.
In a free economy, control over any unit of capital, flows towards he who can make the most productive use of it. As he is the one who can add the most value with it. Hence can afford to pay the most for it. If it is observed that this is not the case, that capital is instead controlled by idle, deadweight rentseekers, what you are observing is a lack of freedom.
Hence, the solution is, (as it always is): Apply More Freedom. Freedom for anyone to, at will, route around whatever restrictions anyone may try putting up against the natural attraction between the most productive units capital, and the units of labor that can make the most productive use of them.
What’s good for the’CONSUMERS’ is NOT necessarily GOOD for the average wage worker whose income/wage growth is virtually stagnant?
The consumer in the top 10% has the advantage of both their ‘mobile’ capital’ (exploiting labor via global arbitrage) and also ‘cheap’ IMPORTS in the name ‘free’ global trade! The consumer in the bottom 90% has NO SUCH advantage!
The guy who is getting STUCK is the average Joe/Jane in the main street, majority among the bottom 90%! Rest of the arguments is hogwas and trying to deflect the real issue – Capital vs Labor!
OK so it benefits .1% of labor. Make it 1% if you like. Even 10% but I assure you it is nowhere close to that. But it hurts 99%, especially those at the low end of the scale and those on fixed income.
Only idiots (or the beneficiaries) like this deal
It is clear there is NO point in USA starting to grow Bananas and subsidize them and protect them with Tariffs.
It is clear there is NO point in USA starting to produce Titanium and protect that with Tariffs.
However it is a completely different thing to claim that USA benefits from China dumping cheap steel on USA (produced in China in a way that destroys environment much more than US produced steel would).
China’s steel dumping to US is enabled by their mercantilistic economic model and their control of value of Yuan and the bad conditions and slave like wages under which most Chinese work.
USA had large steel production but it was largely shut down due to cheap Chinese imports, lots of cities lost all of their well paying jobs and this would have led to a drop in consumption and company profits in USA but it was all papered over by Fed which enabled banks to give more and more debt to people and even unemployed people could get cash-out-refis and Fed also enabled together with banks the continued debt explosion of US government where unemployed people were paid benefits from debt of US government.
You are right that the problems started with the closure of the gold window since this enabled ever-increasing Fed created distortions in markets and economy.
Now Fed has papered over and hidden the destruction that has been caused by illegal immigration of tens of millions, legal immigration of tens of millions low wage workers and massive offshoring of production to China, Mexico, Vietnam and elsewhere.
Without Fed and banks inflating the money supply and creating ever increasing piles of debt everywhere and enabling USA running massive deficits and and increasing government debt already to over 20 Trillion the USA consumer would have been tapped out and consumption would have crashed so only Fed made it seem like Americans could buy Chinese produced “cheap” solar panels and other Chinese produced crap that stops working in about 6-12 months too often.
No job due to production moving to China, NO money to consume unless one gets welfare or make-believe job in government doing nothing.
Low wage due to tens of millions legal low wage immigrants and tens of millions of illegal immigrants competing for jobs, NO money to consume unless one gets welfare in addition to working or one can get more debt.
Government gives welfare and make-believe jobs funded by more debt which is enabled by Fed and banks and large part sold to China.
Banks give more debt and government gives welfare to working people all enabled by Fed,
Moving production to China (profits for companies), low wage costs(profits for companies from lowering wages due to illegal immigration and legal low wage immigration in tens of millions) welfare (through government debt increases), government make believe jobs (through government debt increases) and Fed and bank enabled debt consumption binges (debt increases from student loans to auto loans to credit card balances and renovation debts and cash-out-refis all the way to home loans and mortgages) and bubbles in real estate (due to the loan bubble in mortgages) and artificially high stock market (due to high profit margin because moving production to China and keeping consumption in USA up due to debt) make it seem everything is fine but it is really NOT fine.
Fed and China are like drug dealers selling drugs to America until USA dies.
Basically, it boils down to CAPITAL vs LABOR
The mobile CAPITAL can go any where in the world, seeking profit in exploiting global labor arbitrage, with no regard to welfare of average wage working workers of ANY COUNTRY, including good ole USA!
The WAGE workers (majority of bottom 90%) cannot compete with the MOBILE capital of globalists and the top 10% who hold 80-90% of Bonds & stocks in USA. The average wage worker whose wage growth is stagnant is getting the short end of the shaft in this ‘sham’ war of tariffs (apparently NOT good for globalists!) Don’t forget the subsidies of various kind, in both countries!
Whom are you kidding, Mish?
Interesting that academics call it Gross Domestic Production — but they spend most of their effort measuring Consumption, not Production.
Outside of the realm of over-simplified algebra, we all know that it does not matter how cheap the import is, we have to exchange something we produce for it. In the simplified world of academic theory, we exchange a real good or service of equivalent value. In today’s unsustainable world, we exchange IOUs for imports. It is blinding obvious that this cannot last. No Way!
The only avenues to make the international trade system sustainable are (1) for the US to import less, which will cause chaos in China, Germany, etc, possibly leading to war; or (2) for the US to produce more domestically, and exchange some of that real production for imports.
The 18th Century call for the unilateral elimination of tariffs on imports would obviously accomplish neither of those approaches.
“The 18th Century call for the unilateral elimination of tariffs on imports would obviously accomplish neither of those approaches.
“
If accompanied by the equally 18th century call for using proper money, rather than simple certificates of confiscation, it would accomplish both virtually overnight.
When money is scarce for everyone in a country, if the country’s population in aggregate imports more than they export for log enough, they run out of money. And will then have to export more than they import, in order to have a single buck left with which to import anything. So trade flows are self correcting. Always. Inevitably. Tariffs have exactly nothing to do with it.
But when there are some in the country for whom money is not scarce at all, as quadrillions a second is simply printed up for them in exchange for nothing at all, the country can continue to run trade deficits indefinitely (more accurately, for as long as foreigners can be suckered into accepting monopoly money in exchange for real goods), now matter how destitute broke hence unable to afford anything at all, those who are not privy to unscarce money become.
And furthermore, those who get all the free money they could possibly use, will not just import. They’ll also spend it domestically. Bidding up prices on everything from living space to production space to salaries for doctors to costs of medicines etc., etc. Leaving domestic producers incapable of competing with foreigners in the production of almost anything. Resulting in the domestic population becoming nothing more than manservants for those who gets money for free, while all production of competitive goods and services get offshored. Again, little to none of which has anything to do with tariffs.
Agree wholeheartedly! In the simplified model (which implicitly assumes sound money), there can be no sustained trade imbalances.
Unfortunately, sound money is an elusive concept. Two historical cases worth considering. First, Spain following the discovery of the New World and the looting of Indian gold; the resulting inflation in Spain severely damaged the Spanish economy. Second, China’s 19th Century decision to accept only silver for its exports; when England ran out of silver, they invaded China to create a market for opium among the Chinese people.
There is a lot of room for reasonable debate — but the general take-away from history is that unbalanced trade is not sustainable and will lead to nasty problems. Of course, it is ordinary people who usually pay the price for those nasty problems.
The general solution to the problem of being invaded, is a rifle behind every blade of grass. Along with some choice other kit….. Which also happens to be the general solution to the problem of too invasive and extractive a government…..
Sound money and freedom go hand in hand. As the only motivation for changing to unsound money, is specifically to allow the government to grow unconstrained, to where they usurp freedom.
So instead of focusing on cheering on government to get even bigger and more invasive, via tariffs and other means of redistribution; the focus needs to be on returning to sound money. Singlemindedly and unwaveringly. Without even a millisecond of concern given to whatever Hobgoblins the privileged drag out out their closets to scare people into blinking. Remember, freedom is the highest possible good. Period.
Even if, for some weird reason, every man woman and child who ever lived, should happen to die the most gruesome death as a direct and preventable result of freedom, freedom is still the highest possible good. That’s the proper, and only proper, attitude. For anyone not destined to himself be a slave, and render his country nothing but a slave plantation. Besides, Hobgoblins are all imaginary anyway.
And when sound money, and it’a attendant restriction in confiscation via the printing press, leads to the government no longer being able to afford a military of it’s current size? Make up for the difference by ensuring government is simultaneously too small and restricted, to prevent individuals and local militias from picking up whatever slack there may be.
When government can’t confiscate your stuff due to lack of printing press, and can’t confiscate it at gunpoint due to lack of an asymmetric advantage in arms, then you have a properly limited government. And a free country. For everyone else, there’s slavery. And only slavery.
GDP is irrelevant to the Joe Sixpack on Main Street. GDP has been rising for a long time, but real wages are flat. The S&P has gone up incredibly, but real wages are flat. Obviously, all that value is bypassing the majority of Americans and ending up in the hands of a very small minority.
Trade is not the cause of that issue. Look at the Federal Reserve and rent seeking crony capitalism big businesses and their government partners.
And offshoring of production to China, India, Vietnam etc. and importation of tens of millions of illegal immigrants to lower wages and importation of tens of millions of low wage legal immigrants to lower wages.
why don’t you get mad at greedy companies? nope gotta blame the brown people.
I am mad at the greedy companies, greedy bankers and greedy and spineless politicians if you have not noticed.
I understand that tens of millions of illegal immigrants have wanted to come to USA and millions still want to come to USA but the POLITICAL CHOICE of allowing tens of millions of illegal immigrants to come to USA has been a stupid political choice and it needs to be reversed and all further immigration of illegals has to be stopped and all those illegals who have committed crimes or live on government/state welfare need to be sent back and there should be absolutely NO amnesty of ever giving any illegals citizenship even if some of them are allowed to stay.
The simplest way to punish those companies who have used and abused illegal immigrants would be to make e-Verify mandatory for all new and existing employees and put a 1 million dollar fine per illegal employed.
If a greedy American employs 2 illegal immigrants to landscape his garden cheaply then send FBI on site and arrest the guy and those illegals and fine the guy 2 million dollars and take away his house and leave him with 1.5 million in unpaid fines and nobody in that state will employ illegals ever again.
Mish, you listed I = Imports in the list after the equation (you have both investment and imports as I) but have it correct as M in the table after (M = Imports).
Thanks