4 ms·

5 Myths About Sick Old Europe

31 points by danw 19y ago

curi 19y ago
They are proud of a positive trade balance for the EU (of 3 billion, which seems tiny for a 16 trillion GDP). That's silly: http://en.wikipedia.org/wiki/Mercantilism http://en.wikipedia.org/wiki/Mercantilism David Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade. As bullion flowed into one country, the supply would increase and the value of bullion in that state would steadily decline relative to other goods. Conversely, in the state exporting bullion, its value would slowly rise. Eventually it would no longer be cost-effective to export goods from the high-price country to the low-price country, and the balance of trade would reverse itself. Mercantilists fundamentally misunderstood this, long arguing that an increase in the money supply simply meant that everyone gets richer.[20] Countries with trade surplus are giving loans of wealth and capital to other people who are better at actually using stuff. In return for their giving up their stuff they get money, which has only one use: getting some stuff back later. Whereas countries with trade deficits are like new companies that get a loan and go do something useful with it -- they are the ones who are best at using stuff.
- shawndrost 19y ago
  I don't understand; I'm not very educated about economics. If a country has a surplus of money, wouldn't it make sense to invest that in countries that are appreciating, like those with trade deficits? (Investments like real estate, stock, etc don't show up in trade balances, do they?) Then there's no oversupply of "bullion", and I don't see why trade surpluses can't expand indefinitely. In fact, the phrase "oversupply of bullion" doesn't even make any sense when I think about it. Bullion is defined as "that stuff that can be exchanged for anything else", so how can you have too much of it? If these are stupid questions, sorry :)
  - curi 19y ago
    if all you have is money, what do you eat? this isn't a problem, you can buy some food. but if you do, that creates a trade deficit. if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth.
    - kingkongrevenge 19y ago
      > if you never have a trade deficit after a surplus, that would mean your country is full of money Don't be ridiculous. The surplus can be invested overseas to buy up foreign competitors and suck away the profits, creating even more trade surplus. The surplus can be invested in creating higher margin export industries domestically, again growing the surplus.
      - cellis 19y ago
        Hand wavy economics. I love it. The fact is,people, that economics is not a science. Unlike the (more) axiomatic world of physics and math,economic principals hold true much less in the real world. Yet for some reason, people think that they can formulate theories about how economies work in certain situations. This is tantamount to trying to predict which way the wind will blow.
    - shawndrost 19y ago
      "if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth." My original question suggested a way to turn that money into wealth -- buy real estate, stocks, etc in other countries. (This is, from what I understand, what actually happens -- more productive countries buy parts of less productive countries, in effect.) Actually, I think there are only two possible answers to my question: first, that purchases of real estate, etc, are included in any analysis of trade. (This would mean my question is just a misunderstanding of what a "trade surplus" is.) Second, that Hume was wrong, and that a country can maintain a trade surplus. Now that I think about it that way, I'm almost certain the answer is the first.
      - 19y ago
- kingkongrevenge 19y ago
  > giving up their stuff they get money, which has only one use: getting some stuff back later It's not just for "getting stuff back." It's capital. It can be used to buy up or create dividend producing assets. Nations that accumulate capital can invest it, and through the magic of compounding interest and capital investment they can race ahead of competitors. > countries with trade deficits are like new companies that get a loan and go do something useful with it This way of thinking is so at odds with historical reality I need to know where you encountered it. Every great and ascendant nation has run consistent trade surpluses. Nations with trade deficits are either banana republics or headed that way. The US trade deficit is not from imported capital goods. The US imports consumer products. The US now runs a trade deficit with every region of the world. The US has a net trade imbalance in every category of industrial/scientific machinery and high-tech products. Sorry, there is no way to spin trade deficits as positive.
  - binarybits 19y ago
    http://en.wikipedia.org/wiki/Trade_surplus http://en.wikipedia.org/wiki/Trade_surplus "Milton Friedman, the Nobel Prize-winning economist and father of Monetarism, argued that many of the fears of trade deficits are unfair criticisms in an attempt to push macroeconomic policies favorable to exporting industries. He stated that these deficits are not harmful to the country as the currency always comes back to the country of origin in some form or another (country A sells to country B, country B sells to country C who buys from country A, but the trade deficit only includes A and B). In fact, in his view, the "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation." It's worth keeping in mind that trade is not a race or competition. It doesn't hurt us in any way if Europe accumulates wealth quickly. I think the idea that trade deficits are bad and trade surpluses are good is largely an artifact of the way we talk about it. It wouldn't sound as scary if Lou Dobbs talked about "America's looming capital account surplus," even though a capital account surplus is logically equivalent to a trade deficit. Right now, foreigners are buying up a small share of our capital goods and sending us consumer goods in exchange. At some point in the future, those same foreigners will sell the capital goods and use them to purchase consumer goods from us. In an of itself, neither situation is something to be concerned about.
nextmoveone 19y ago
I lived in Germany for 7 months last year. Everything looks good to me, they have a very strong consumer market as opposed to what I've seen here in the States.
- kingkongrevenge 19y ago
  As ridiculous as things have got here with the welfare state and the size of government, the problem is much worse in Europe. There is just no way they can continue to afford the government payrolls and social benefits they have. The US has a chance of navigating out of the failing socialist systems. The cultural heritage of individual independence and government mistrust means it's possible. But Europeans exhibit nothing but obstinate rigidity, even with a more serious problem. It's a ticking fiscal time bomb.
  - ardit33 19y ago
    Europe is not just one thing. There are many countries in europe that have very different labour laws and regulations. South\Eastern Europe is now the place with the most growth, like an "up and comming" neighborhood, and you can get away with a lot more there. Back home, most of my friends that have "starter" jobs, are actually doing it under the rug. Go to work, regurarly, get paid, but they don't officially result in the payroll of the company (to avoid all the obligations that come with it). After a couple of years of work, once you gained some experience you move there, or somewhere else in a more stable status. I am assuming a startup will probably be the same. First years it will all be under the rug. Remember, laws are made to be broken to a certain extent, but they also prevent large companies from treating employees just as a disposable thing, with no rights, no vacation, no health care, no paid maternity leave as you have in the US. Sure some large companies do provide them, but some don't (ala Walmart), and this nation leaves it's citizen under the mercy of capitalism (which just wants you healthy enough to perform your duties). Remember, Europeans work to live, Americans live to work.
    - davidw 19y ago
      Where's home? Working under the table is a horrible way of doing a startup, because you have no legal grounds to go on, and certainly can't do equity that way. Sounds a lot like Italy, where the high price of doing business forces things underground, thus giving people no legal redress should they have problems. Yuck.
cmars232 19y ago
What about taxes in Europe compared to the US?
- bjelkeman 19y ago
  I have lived in California & Massachusetts as well as the UK and Sweden. Sweden has the highest taxes in the world according to the Economist. With that comes cheap healthcare for all. My experience is that it is better than both UK and the US healthcare I have been exposed to. Yet the US pays $6100/capita/year for healthcare compared to Swedens $2800/capita/year. And in the US not everyone is covered. In addition to that we have free schooling, and Swedish schools are not bad, not as good as the top US ivy league, but better than the average US state university. We have very low CO2 emissions, partially due to geography, but also due to extensive investments by local government on biofuel district heating networks. We also have good public transport. Sweden is about the same size as California, but has a superior public transport infrastructure, despite only having 9 million people (compared to 34 million in CA). Nearly all of the Swedish transport system was publicly funded. On top of this Sweden is consistently ranked among the top countries for standard of living. Despite all the taxes. Now, just like others have said, there is a big difference between different countries in Europe. Bigger than most who have never visited imagine. But high taxes does not automatically mean crappy lifestyle.
tx 19y ago
The article is right and wrong at the same time, mostly because the topic is complex and there is no way to properly lay it out on just two pages. They did not mention a few crucial differences between two economies such as military spending for example. For those interested in the subject I highly recommend the following book: "United States of Europe". That book tries to carefully compare US and EU as two major competing nations/economies.
- davidw 19y ago
  > mostly because the topic is complex and there is no way to properly lay it out on just two pages Way more complex. You're absolutely right. I think I could write a book about it... > United States of Europe I didn't like it very much. It's kind of superficial, and I think he actually gets a lot of things wrong.

31 points by danw 19y ago

curi 19y ago

They are proud of a positive trade balance for the EU (of 3 billion, which seems tiny for a 16 trillion GDP). That's silly: http://en.wikipedia.org/wiki/Mercantilism http://en.wikipedia.org/wiki/Mercantilism David Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade. As bullion flowed into one country, the supply would increase and the value of bullion in that state would steadily decline relative to other goods. Conversely, in the state exporting bullion, its value would slowly rise. Eventually it would no longer be cost-effective to export goods from the high-price country to the low-price country, and the balance of trade would reverse itself. Mercantilists fundamentally misunderstood this, long arguing that an increase in the money supply simply meant that everyone gets richer.[20] Countries with trade surplus are giving loans of wealth and capital to other people who are better at actually using stuff. In return for their giving up their stuff they get money, which has only one use: getting some stuff back later. Whereas countries with trade deficits are like new companies that get a loan and go do something useful with it -- they are the ones who are best at using stuff.

shawndrost 19y ago
I don't understand; I'm not very educated about economics. If a country has a surplus of money, wouldn't it make sense to invest that in countries that are appreciating, like those with trade deficits? (Investments like real estate, stock, etc don't show up in trade balances, do they?) Then there's no oversupply of "bullion", and I don't see why trade surpluses can't expand indefinitely. In fact, the phrase "oversupply of bullion" doesn't even make any sense when I think about it. Bullion is defined as "that stuff that can be exchanged for anything else", so how can you have too much of it? If these are stupid questions, sorry :)
- curi 19y ago
  if all you have is money, what do you eat? this isn't a problem, you can buy some food. but if you do, that creates a trade deficit. if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth.
  - kingkongrevenge 19y ago
    > if you never have a trade deficit after a surplus, that would mean your country is full of money Don't be ridiculous. The surplus can be invested overseas to buy up foreign competitors and suck away the profits, creating even more trade surplus. The surplus can be invested in creating higher margin export industries domestically, again growing the surplus.
    - cellis 19y ago
      Hand wavy economics. I love it. The fact is,people, that economics is not a science. Unlike the (more) axiomatic world of physics and math,economic principals hold true much less in the real world. Yet for some reason, people think that they can formulate theories about how economies work in certain situations. This is tantamount to trying to predict which way the wind will blow.
  - shawndrost 19y ago
    "if you never have a trade deficit after a surplus, that would mean your country is full of money that it never converts into useful wealth." My original question suggested a way to turn that money into wealth -- buy real estate, stocks, etc in other countries. (This is, from what I understand, what actually happens -- more productive countries buy parts of less productive countries, in effect.) Actually, I think there are only two possible answers to my question: first, that purchases of real estate, etc, are included in any analysis of trade. (This would mean my question is just a misunderstanding of what a "trade surplus" is.) Second, that Hume was wrong, and that a country can maintain a trade surplus. Now that I think about it that way, I'm almost certain the answer is the first.
    - 19y ago
kingkongrevenge 19y ago
> giving up their stuff they get money, which has only one use: getting some stuff back later It's not just for "getting stuff back." It's capital. It can be used to buy up or create dividend producing assets. Nations that accumulate capital can invest it, and through the magic of compounding interest and capital investment they can race ahead of competitors. > countries with trade deficits are like new companies that get a loan and go do something useful with it This way of thinking is so at odds with historical reality I need to know where you encountered it. Every great and ascendant nation has run consistent trade surpluses. Nations with trade deficits are either banana republics or headed that way. The US trade deficit is not from imported capital goods. The US imports consumer products. The US now runs a trade deficit with every region of the world. The US has a net trade imbalance in every category of industrial/scientific machinery and high-tech products. Sorry, there is no way to spin trade deficits as positive.
- binarybits 19y ago
  http://en.wikipedia.org/wiki/Trade_surplus http://en.wikipedia.org/wiki/Trade_surplus "Milton Friedman, the Nobel Prize-winning economist and father of Monetarism, argued that many of the fears of trade deficits are unfair criticisms in an attempt to push macroeconomic policies favorable to exporting industries. He stated that these deficits are not harmful to the country as the currency always comes back to the country of origin in some form or another (country A sells to country B, country B sells to country C who buys from country A, but the trade deficit only includes A and B). In fact, in his view, the "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation." It's worth keeping in mind that trade is not a race or competition. It doesn't hurt us in any way if Europe accumulates wealth quickly. I think the idea that trade deficits are bad and trade surpluses are good is largely an artifact of the way we talk about it. It wouldn't sound as scary if Lou Dobbs talked about "America's looming capital account surplus," even though a capital account surplus is logically equivalent to a trade deficit. Right now, foreigners are buying up a small share of our capital goods and sending us consumer goods in exchange. At some point in the future, those same foreigners will sell the capital goods and use them to purchase consumer goods from us. In an of itself, neither situation is something to be concerned about.

nextmoveone 19y ago

I lived in Germany for 7 months last year. Everything looks good to me, they have a very strong consumer market as opposed to what I've seen here in the States.

kingkongrevenge 19y ago
As ridiculous as things have got here with the welfare state and the size of government, the problem is much worse in Europe. There is just no way they can continue to afford the government payrolls and social benefits they have. The US has a chance of navigating out of the failing socialist systems. The cultural heritage of individual independence and government mistrust means it's possible. But Europeans exhibit nothing but obstinate rigidity, even with a more serious problem. It's a ticking fiscal time bomb.
- ardit33 19y ago
  Europe is not just one thing. There are many countries in europe that have very different labour laws and regulations. South\Eastern Europe is now the place with the most growth, like an "up and comming" neighborhood, and you can get away with a lot more there. Back home, most of my friends that have "starter" jobs, are actually doing it under the rug. Go to work, regurarly, get paid, but they don't officially result in the payroll of the company (to avoid all the obligations that come with it). After a couple of years of work, once you gained some experience you move there, or somewhere else in a more stable status. I am assuming a startup will probably be the same. First years it will all be under the rug. Remember, laws are made to be broken to a certain extent, but they also prevent large companies from treating employees just as a disposable thing, with no rights, no vacation, no health care, no paid maternity leave as you have in the US. Sure some large companies do provide them, but some don't (ala Walmart), and this nation leaves it's citizen under the mercy of capitalism (which just wants you healthy enough to perform your duties). Remember, Europeans work to live, Americans live to work.
  - davidw 19y ago
    Where's home? Working under the table is a horrible way of doing a startup, because you have no legal grounds to go on, and certainly can't do equity that way. Sounds a lot like Italy, where the high price of doing business forces things underground, thus giving people no legal redress should they have problems. Yuck.

cmars232 19y ago

What about taxes in Europe compared to the US?

bjelkeman 19y ago
I have lived in California & Massachusetts as well as the UK and Sweden. Sweden has the highest taxes in the world according to the Economist. With that comes cheap healthcare for all. My experience is that it is better than both UK and the US healthcare I have been exposed to. Yet the US pays $6100/capita/year for healthcare compared to Swedens $2800/capita/year. And in the US not everyone is covered. In addition to that we have free schooling, and Swedish schools are not bad, not as good as the top US ivy league, but better than the average US state university. We have very low CO2 emissions, partially due to geography, but also due to extensive investments by local government on biofuel district heating networks. We also have good public transport. Sweden is about the same size as California, but has a superior public transport infrastructure, despite only having 9 million people (compared to 34 million in CA). Nearly all of the Swedish transport system was publicly funded. On top of this Sweden is consistently ranked among the top countries for standard of living. Despite all the taxes. Now, just like others have said, there is a big difference between different countries in Europe. Bigger than most who have never visited imagine. But high taxes does not automatically mean crappy lifestyle.

tx 19y ago

The article is right and wrong at the same time, mostly because the topic is complex and there is no way to properly lay it out on just two pages. They did not mention a few crucial differences between two economies such as military spending for example. For those interested in the subject I highly recommend the following book: "United States of Europe". That book tries to carefully compare US and EU as two major competing nations/economies.

davidw 19y ago
> mostly because the topic is complex and there is no way to properly lay it out on just two pages Way more complex. You're absolutely right. I think I could write a book about it... > United States of Europe I didn't like it very much. It's kind of superficial, and I think he actually gets a lot of things wrong.