re: Your Discomfort Means It's Working

You will own nothing and like it

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That is not, in fact, the equivalent of my argument

That is a literal straw man.

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My apologies. I thought your argument is that our trade deficits are somehow strengthening our economy via the "savings consumers received" by purchasing lower cost foreign goods. As I said yesterday, if that is your argument, and if Milton Friedman was here and tried to make that argument today, you would both be incorrect. My analogy demonstrated why such "savings" are non-existent, and how our long running twin deficits are, as of this moment, having a serious negative impact on our economy.

Your quote earlier in this thread by Friedman was taken from his 1980 book "Free to Choose", which was published very early in our twin deficits misadventure. In 1980, our trade deficit was $13 billion dollars, or ~0.5% of GDP. In 1980, our Federal debt was ~$900 billion dollars, or 30% of GDP. Here's a quote from Friedman's accompanying film series, "Free to Choose", also from 1980:

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"What we needed in this country is free competition. As consumers, buying in an international market, the more unfair the competition the better. That means lower prices and better quality for us. If foreign governments want to use their taxpayers money to sell people in the United States goods below cost, why should we complain? Their own taxpayers will complain soon enough and it will not last for very long.”

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But the trade deficits did last for very long, and they widened and they cost us manufacturing jobs that would help our economy and our budget deficits. For whatever reason, be it foreign subsidies, currency manipulation, tariffs, unequal regulation, or all of those in concert with our incompetent governance, 45 years later we are still running trade deficits, in fact massive twin deficits and our central bank has starting monetizing public and private debt to keep our unpayable debt from crushing our economy. Our foreign trade deficit is ~4% of GDP, and our Federal debt is $37 trillion dollars, or, ~125% of GDP. Those numbers are rising rapidly. Maybe Milton Friedman might revise his theories if he were here in 2025, and admit that, for some reason, this trade imbalance is not transitory and unfair trade, to the extent that it exists, is not working to our benefit as he envisioned in 1980. We're funding our trade imbalance with unaffordable debt and by selling off assets. Neither mechanism is sustainable.

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Buying goods made elsewhere for cheaper allows the money saved to flow to more productive domestic economic avenues, which is why we've done do well under "globalization"

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As I said earlier, no money is saved, because jobs are lost, and our trade deficit is funded by more borrowing that we can't afford and by selling off US assets. This is your fallacy and it won't continue because it can't continue.

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Because we got richer and the USD became more dominant.

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Nope, we got poorer. Debt to GDP is soaring. We've been monetizing debt to avoid defaults.

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Only by including variables extraneous to the discussion, hence, strawman.

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What are the extraneous variables? We're funding our external trade deficit with debt. We're paying with lost jobs. That's why our economy needs constant fiscal stimulus and debt monetization. Inflation doesn't make us richer and it won't help our economy.

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USD became more dominant

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USD has been propped up by our trading partners to benefit their own production. That's one form of currency manipulation.

98

Number of posts by this poster since 7:03am this morning.

WTF!!!

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You and I have a different definition of thriving

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These same people now acting like everything was fine until Trump changed it spent the last 4 years telling us we were in for a downturn that even Trump couldn't fix. They called us cultists for thinking Trump could turn around Biden’s bad economy. A few months later, they're calling us cultists for thinking there's a problem with the economy.

Like with all TDS victims, "facts" change on a regular basis in order to align with the talking point of the day.

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Well some are lost but we gain better ones.

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Then why is our debt to GDP rising? We exchanged low paying jobs for high paying jobs and..., proceeded to quadruple our debt/GDP in 45 years? And rising fast. Seems like a bad tradeoff.

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The interest rate you interjected

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In order to prop up the dollar, foreigners buy our debt instead of sending our excess dollars back home. In other words, they lend us money to buy their stuff, just like your credit card company lends you money to buy stuff. We pay foreigners interest on that debt, just like you pay interest on your unpaid CC balance. Only difference is that America never pays down our cumulative trade imbalance, it gets bigger every year.

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This is a more worrisome issue with a country like China who has a top-10 debt:GDP without the advanced economy (and a devalued currency)

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China holds the worlds largest supply of foreign exchange reserves. They have large internal debts but they're a creditor nation, unlike the US.

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And our public debt has little to do with our trading deficit.

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Fiscal deficit , or stimulus as we like to call it, increases consumption. It essentially pushes demand ahead of supply. Thus, part of that consumption is an increase in imports, which have been rising faster than exports. Thus, widening trade deficit. Jobs sent overseas means lower tax revenues, which means higher budget deficits. They both affect the other.

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We need to address that by cutting federal spending across the board

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To paraphrase John Lennon, "You say you want to cut federal spending, We'd all love to hear the plan"

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If I have to spend more on lower-tier goods, I have less to spend on higher-tier goods.

I want money flowing to our higher-margin, more valuable production than subsidizing lesser valuable, low-margin, inefficient production.

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SFP, you make a number of poorly rooted assumptions there.

E.g. Apply your thesis to my Porsche 911.

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Regardless:

• You incorrectly assume imports are lower-tier goods

• You incorrectly assume import savings are spent on "higher-tier" US products

• You incorrectly assume savings are invested domestically at all, rather than in more affordable low-end imports.

• You incorrectly assume ensuing job losses and economic dislocation are nonexistent and/or irrelevant in the economic equation

• You incorrectly ignore the fact that trade deficits drain wealth

• You incorrectly ignore issues associated with secondarily weakened domestic industries

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You incorrectly assume imports are lower-tier goods

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In the context of the discussion ("bring manufacturing back") that's pretty much guaranteed

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You incorrectly assume import savings are spent on "higher-tier" US products

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And investment, yes. Where else is the money going? What are American consumers spending it on?

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You incorrectly assume savings are invested domestically at all, rather than in more affordable low-end imports.

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Then our domestic high-end and service economies would be shite, and the opposite is true. If your argument was true, our trade deficit would be much larger, also.

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ou incorrectly assume ensuing job losses and economic dislocation are nonexistent and/or irrelevant in the economic equation

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This is only true if we ignore the job/income gains elsewhere (which you did above)

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You incorrectly ignore the fact that trade deficits drain wealth

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"Drain" is framing. That's what happens when you're rich, the most productive economy, the best manufacturing country, and you have the most dominant currency.

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You incorrectly ignore issues associated with secondarily weakened domestic industries

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This sounds like the "national security" argument.

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Different issue. Fedgov likes to spend money.

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They love to spend money, especially during downturns when they want to stimulate consumption, which then widens our trade deficits.

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Most of the areas we need to cut (Medicare/Medicaid) fund the non-productive elderly class.

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It's a problem. The poor and the elderly are consumers too. We could definitely cut them off of govt healthcare. Result, collapse in consumption by those two groups, and by most other groups who suddenly realized that they have to save a hell of lot more money for retirement. I guess by your arguments above, you consider countries that save rather borrow and spend to be getting poorer.

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The 2008 crash response

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Result of too much consumer debt. Solution, less consumption, eliminate govt risk backstops for high risk (or any) borrowers. Is that what you had in mind?

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Covid account for a YUGE chunk of that borrowing.

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Direct result of a prolonged economic shutdown. I supported a two week break to "flatten the curve", until it became obvious that availability of ventilators didn't make any difference in outcomes. I did not support closing the economy for a year and printing $3T dollars because I knew, and posted on TD, that it would be inflationary and ramp up deficits. It was bad policy, and Trump should have never allowed the medical establishment to lead us down that road.

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Making our economy less productive is going to help this, how? The shrinking non-governmental GDP is going to cut our tax receipts. Our economic growth will be inhibited by relying on less productive and expandable economic output. Even within your argument, devolving our economy makes no sense and exacerbates the problem.

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I've said to you before that we are on a road to economic failure. I actually sat down and gameplanned all of these scenarios out in 2010. Told my family we were headed for trade wars, shooting wars, revolutions, defaults on debt and obligations, hyperinflation or depression, or both. Do nothing and we progress toward economic failure. Do something, and we get worse before we, maybe, get better. Do I have answers, no. But I do know that doing nothing is a very bad idea.