3 ms·

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/Mercan

by 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.
    - curi 19y ago
      if you're buying things (real estate, stocks, etc) from other countries -- ie, trading with them -- that has to count towards any reasonable definition of trade surplus/deficit. so, i think we agree, even though kingkongrevenge considers it ridiculous.
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.

by curi 19y ago

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.
  - curi 19y ago
    if you're buying things (real estate, stocks, etc) from other countries -- ie, trading with them -- that has to count towards any reasonable definition of trade surplus/deficit. so, i think we agree, even though kingkongrevenge considers it ridiculous.

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.