Horatio Parker
Veteran Member
One doesn't exclude the other.
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Does the "trade deficit" really harm the economy? or cause higher national debt? When was any nation ever harmed by a trade deficit, historically?
- Thread starter Lumpenproletariat
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One doesn't exclude the other.
Well, if you believe in supply curves (which I assume you also believe generally slope up) and you believe in demand curves (which I assume you also believe slope down) how is it that you disbelieve there is a price which equilibrates supply and demand?
Horatio Parker
Veteran Member
Your example depended on tax restrained govt spending. That's not how it is in the real world.
barbos
Contributor
I am no nobel prize economist but I think trade deficit is equivalent to national debt.
The video I posted showing deadweight loss on subsidies did no such thing. The deadweight loss comes from buyers consuming more than they would at market price because their effective price is lower and sellers offering more for sale than they would at market price because their effective price is higher. It would seem impossible to argue this would not be the case with subsidies. This is what subsidies what subsidies do. This is what subsidies are.
Horatio Parker
Veteran Member
Watch it again. It's the first screen after the introduction. Point 3.
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It's part of the national debt.
Point 3 is two separate points a) they are paid for by govenrment; and b) they create a deadweight loss.
I think they are saying they are paid for by government to differentiate them from taxes, where the government collects. Nothing in the video depends on who is paying for the subsidy. The economic analysis of the deadweight loss occurs at 4:45 and the video makes the point that "the cost to the suppliers of supplying those units exceeds the value to the demanders of those units." This is entirely independent of who pays for the subsidy. Of course, if the government imposes additional taxes to fund the subsidy there is deadweight loss from that as well.
Horatio Parker
Veteran Member
It says, literally, "Subsidies must be payed for by taxpayers". And the narrator repeats it.
I think value in this context assumes equivalent demand at a higher price i.e. without subsidy, as if without govt there would still be a market. It makes theoretical sense, but not very realistic. The entire exercise seems to me to have a political purpose: to teach that govt intervention in markets creates inefficiencies and is therefore "bad". But govt and markets are integrated. There would zero chance of ever achieving efficiency without govt.
Again, my intended point was our society would be better off if workers sidelined by trade were employed, by the govt if necessary. In the classic sense of your video, that would create inefficiencies in the labor market. But that inefficiency would be offset by important social factors: a healthier, more prosperous, more productive society. Efficiency is a goal to an end: correct allocation of resources.
RVonse
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I was almost going to see your side of this discussion until you pulled out your trade list.
If you are trying to show that successful the countries do not place tariff on their products then that list does a very POOR job it. For example, we see the high protectionist country China which we know has been experiencing a booming economy over the past 10 years compared to the US. There are very few if any countries that have experienced the kind of GNP growth that China has. And there are also no other countries better than China who have lifted themselves into superpower status. No other countries in the world can afford the state art mag lev transportation in their main cities.
Then we see the low protectionist countries Greece and Italy who are much worse off than the US. They represent countries that are so poor, they will probably get kicked out of the European union and leave a large portion of their populations in the gutter.
Based on wealth and prosperity, China is better than the US and it is way way better than Greece or Italy today. Yet they appear on your list in the opposite order.
This is their definition of what a subsidy is. I repeat again, this has nothing to do with the deadweight loss. The deadweight loss is caused by the different effective price being experienced by the seller and buyer.
Everything being assumed is right there in front of you. Supply curves slope down, Demand curves slope up. If there is a $1 subsidy, the effective price to the seller is $1 more than the effective price to the buyer. This results in units demanded that cost suppliers more to supply than buyers value. It's all pretty clearly explained, and since you accept the existence of supply and demand curves I don't know why you can't accept this. It directly follows from them.
Horatio Parker
Veteran Member
As I said, the assumptions are the problem.
Govts are not revenue constrained.
Govts are not revenue constrained.
barbos
Contributor
Only part? I think the only way for a country to to have trade deficit is to "export" money in the form of national debt.
So it's the same thing.
Lumpenproletariat
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What can go wrong if the trade deficit goes "too high"? What's the limit? How high is "too high"?
If that were true, then an increase in the trade deficit in a given year would cause an increase in the national debt at that time. And yet, in the late 1990s we had major increases in the trade deficit but NO increase in the national debt (i.e., virtually no increase).
When the national debt is calculated, the trade deficit plays no part in the calculation. The figure is the same regardless what the trade deficit is.
But that "exported" money is not debt. It is not figured into the official national debt which the U.S. owes.
If you owe someone $1000 and then buy something from them for $1000, you still owe them only $1000. That debt does not increase by $1000 simply because you buy something from them. The trade is something separate, or an additional transaction, but it's not debt.
If the seller now holds "money" in some form from you, i.e., an additional $1000 in currency or bonds or assets of some kind, that is not debt, because there is no repayment requirement, no interest, and no possibility of default.
Whereas the debt has terms of repayment and a default date.
Just because someone holds U.S. "dollars" in their possession does not mean the U.S. government is in debt to them. The only "debt" is their entitlement to spend those dollars when they choose.
With the national debt there is a "Doomsday Scenario" if it gets too high or if the nation defaults on it. This puts a limit on how high the debt can go.
But there is no limit on how high the trade deficit can go if the lenders (exporting nations) keep selling to the importing nation(s).
We know what can go wrong if the national debt gets out of control, but there is nothing that can go wrong with the trade deficit no matter how high it goes.
Those "lenders"/exporting nations can decide when to reduce this selling to the "debtor" nation. When they change their practice, they'll have no choice but simply to spend those dollars, one way or another. It's really their problem, not a problem for the importing nation(s).
If that were true, then an increase in the trade deficit in a given year would cause an increase in the national debt at that time. And yet, in the late 1990s we had major increases in the trade deficit but NO increase in the national debt (i.e., virtually no increase).
When the national debt is calculated, the trade deficit plays no part in the calculation. The figure is the same regardless what the trade deficit is.
But that "exported" money is not debt. It is not figured into the official national debt which the U.S. owes.
If you owe someone $1000 and then buy something from them for $1000, you still owe them only $1000. That debt does not increase by $1000 simply because you buy something from them. The trade is something separate, or an additional transaction, but it's not debt.
If the seller now holds "money" in some form from you, i.e., an additional $1000 in currency or bonds or assets of some kind, that is not debt, because there is no repayment requirement, no interest, and no possibility of default.
Whereas the debt has terms of repayment and a default date.
Just because someone holds U.S. "dollars" in their possession does not mean the U.S. government is in debt to them. The only "debt" is their entitlement to spend those dollars when they choose.
With the national debt there is a "Doomsday Scenario" if it gets too high or if the nation defaults on it. This puts a limit on how high the debt can go.
But there is no limit on how high the trade deficit can go if the lenders (exporting nations) keep selling to the importing nation(s).
We know what can go wrong if the national debt gets out of control, but there is nothing that can go wrong with the trade deficit no matter how high it goes.
Those "lenders"/exporting nations can decide when to reduce this selling to the "debtor" nation. When they change their practice, they'll have no choice but simply to spend those dollars, one way or another. It's really their problem, not a problem for the importing nation(s).
Horatio Parker
Veteran Member
There are other sectors besides foreign. Not all deficit spending is trade. Most of the ND is domestically held.
barbos
Contributor
We are talking about "trade deficit" not "deficit spending".
Horatio Parker
Veteran Member
Are you? "National debt" includes all sectors.
Is the entirety of the national debt due to trade? No.
Horatio Parker
Veteran Member
That's true. The answer lies in the boom in private credit at that time. The private sector was in deficit. And in 2000 we had a recession as a result.
barbos
Contributor
But all trade deficit ends up as national debt. And all national debt to foreign countries is due to trade deficit.
Horatio Parker
Veteran Member
But what? You're not contradicting anything.
barbos
Contributor
No, it's you who is not contradicting