Yet More Deficient Thinking

Trumpit -

RE "You are no Cesar Chavez."

:) I'm not sure this is exactly going to be taken as an insult... more of a compliment

>>You are another panderer to the rich and powerful.<<

Not true. I try and stay principled to ideas, not groups. The idea I like to champion is the idea of free/liberty. You do understand the difference, right?

>>...and you become increasing irrelevent to any reasonable, and fruitful discourse. In other words, you are a failure and a troll, just like many others around here.<<

Oh, so that's why you come to the Cafe, because the discourse is irrelevent, not reasonable or fruitful?

>>You failed to dissect my arguement in any meaningful or substantial way, LOwJOe.<<

Let me break it down for you: I was not attempting to dissect your argument. I was mocking your response and pointing out what i dfeel to be your weak intellect. I did this through rhetorical questioning and a tad bit of satire covering what I found to be unmeaningful and substance-lacking replies on your part. Try dissecting that for a bit. And also stop using the word 'troll' to desscribe others when it's a behavior that clearly fits you to a tee.

You failed to dissect my arguement in any meaningful or substantial way, LOwJOe. You are another panderer to the rich and powerful. Fortunately, you will be outvoted from now on, and you become increasing irrelevent to any reasonable, and fruitful discourse. In other words, you are a failure and a troll, just like many others around here.

>>Yet you see the world through rose-colored glasses as if nothing that humans "freely" choose to do is bad.<<

Except when they 'freely' choose to limit their own liberties AND the liberties of those around them through the use of legislators and the 50%+1 democracy sham that leads us down The Road to Serfdom. Those are bad choices for me as one of the less than 50% portion of 'those around them'.

>>I hope he prefers California olives...<<

But when he doesn't will you go all apeshit, troll on his land, and confront him with your emotional hysteria?

>>I think I understand the subtlety, and blindness of your economic argument though.<<

And if there's not any real understanding, there's always a strawman that can be trotted out.

>>If the olive industry dries up in California, the farmers will have to grow a crop more to people's liking...<<

Wait, have to?

>>...or even pave over the fields to build more houses.<<

Going from ag to paving? That's a multi-faceted guy or gal there. S/he could always just sell the land to someone else who may do with it what they like.

>>Where there was once agricultural land there will now be more ugly tract homes to blight the landscape and make some crass developer rich.<<

And for a desiring future (set of) homeowner(s) to have more choices on: where to live, which government homeownership programs to take advantage of, etc.

>>there is no hope for the planet or for your failed theories about how the world works.<<

Speaking of failed theories, let's discuss some of the failed theories that you champion.

"If Mr. Olive spends $500 on a bottle of Chateau Latour ..."

Like Mr. Olive, who is a teacher, not a high-roller on Wall St., does that regularly. Your obtuse and extreme hypthetical betrays that your sympathies lie with the hoity-toity, not with the humble day laborer. You are no Cesar Chavez.

Maybe what Mr. Olive likes is imported Spanish olives, or maybe he prefers California ones. I hope he prefers California olives, frankly, because I live in California and I would like him to support our state's olive industry. I think I understand the subtlety, and blindness of your economic argument though. If the olive industry dries up in California, the farmers will have to grow a crop more to people's liking or even pave over the fields to build more houses.

But the end result isn't necessarily neutral or beneficial. Where there was once agricultural land there will now be more ugly tract homes to blight the landscape and make some crass developer rich. How low people will sink, dig, or pave over to make a fast buck is what is truly disgusting about this. Yet you see the world through rose-colored glasses as if nothing that humans "freely" choose to do is bad. You are wrong, and people, collectively through government, must put a stop to the rich developers and Wall St. bankers until we are all made dirt poor by it, even it all the dirt is asphalted over. Chasing money above all else IS bad, and until you guys that want to sip champagne while other do your bidding get the message, there is no hope for the planet or for your failed theories about how the world works.

Sorry, the link got cut off, the whole 4 lines are the complete address. It's a simple example that some might find usefull.

http://www.moslereconomics.com/

mandatory-readings/


the-innocent-fraud-of-the-trade-deficit-whos-


funding-whom/

http://www.moslereconomics.com/mandatory-readings/the-innocent-fraud-of-the-trade-deficit-whos-funding-whom/

"You seem to send a lot of letters. Does anything ever come of them?"




{--Posted by: Corrupt Mayor}

___________

Very reasonable question.

Surely, Professor Boudreaux has some idea of his publication success rate for his frequent letters/comments.

Suspect the rate is very low despite their high quality.

"Editors" (like most people) dislike criticism of their published product.

And since the editors select which letters-to-the-editor get published -- few negative letters pass that filter.

(...but additionally posting them here on the internet is vastly more effective than any success getting them published in the original targeted newspaper)

_______

These numbers are huge by any standard.

They're not big by the standard of the capital stock of the USA, which is what the bondholders will expect the state to confiscate to pay them off. I suspect this will take the form of "fines" in order to get around the 5th Amendment.

... what is the ratio between the growth in the current account deficit and the growth in debt instruments issued by the federal government to finance its budget deficit?

Good question.

'08 GDP growth: $457.1B (3.2%)

'08 Current account deficit: $673.3B


'08 Federal budget deficit: $454.8B

The budget number is for fiscal '08 which ended in September, so it doesn't reflect many liabilities created by the bailouts last year.

We're now talking about a $1.8 trillion deficit for '09, $1.3 trillion for '10 and nothing less than half a trillion for the rest of the decade.

These numbers are only the tip of the iceberg. I worry as much, if not more, about the liabilities being heaped on taxpayers that we hardly discuss, like these pension bonds, and I also worry about nominally "private sector" rents. How many of us knew that mortgage backed securities were such an explosive time bomb only last year at this time? Never mind the incredible shrinking payroll tax surplus.

These numbers are huge by any standard.

>>Do we? The current account deficit as a percentage of GDP is much greater than the GDP growth rate.<<

Don't know. But what is the ratio between the growth in the current account deficit and the growth in debt instruments issued by the federal goivernment to finance its budget deficit?

I believe that this is one of those gray areas where two people can interpret what's being written and each be correct depending on what's being defined as an 'liability' and what one means by 'country'. I think that it is true that when a foreigner holds a USD dominated asset, some U.S. resident or entity has a liability to make good on echanguing that foreign-held asset if the foreigner should decide to redeem it. That is a liability, I think. But this notion that the country is incuring the liability [when a current account increasing event takes place] may or may not be true depending on whether or not the foreign-held asset was issued by the federal government.

This is the way that I understand this, at least. I'd like for someone to correct me if and where I am wrong.

It does not matter to me whether these letters have any results where they are sent. What matters to me is that I am not an economist and I am learning a good deal.

Keep writing those letters. And posting them here.

People know intuitively that if we (either individually or as a country) don't produce enough, then we can't keep buying stuff from abroad.

Perhaps should be:

People know intuitively that if we (either individually or as a country) don't produce enough, then we can't keep buying stuff.

This would be correct except that Americans produce more assets to replenish what is sold off.

Do we? The current account deficit as a percentage of GDP is much greater than the GDP growth rate.

What Prof. Olive says is untrue. I did not switch. I simply, in my comment to Matt, addressed the concern that foreigners buy dollar-denominated equity and real-estate. THAT doesn't matter, but what Prof. Olive says is unambiguously untrue.

Corrupt Mayor's question of whether or not Prof Boudreaux' letter writing ever comes to anything or not was natural enough, but regardless of what any editors may think of them, those letters represent the best writing on current economic and political topics anywhere in the world today, and the best I have seen in my well over half a century of reading such commentary.

Don -

I appreciate the comment to Matt, but note that you switched from "what Prof. Olive says is untrue" to "what Prof. Olive says doesn't matter". Those are two very different things. Prof. Olive is exactly right - the mere act of exchanging $500 for the bottle of wine represented a capital outflow from the U.S. and an inflow of goods. It's an accounting identity. Now obviously no foreign reserves are involved in your example because dollars are accepted in a lot of places, but if the the Frenchman bought an Australian wine he would have to borrow or run down his foreign assets or both to do it, just as Prof. Olive said.

All of this is very separate from "does it matter" - which is the point you raised in your response. You may not think it does.

But since these things affect the value of currencies, and since some people have assets denominated in a variety of currencies, I think it matters to them.

The current account balance also says something about the structure of a country's production - whether it is export or import based - which may say something about that country's ability to weather a recession (the prospect for an export oriented economy like China's weathering a global recession is considerably worse than their prospects of weathering a regional recession, for example).

So maybe it all doesn't matter to you - but I think you write off the concerns about the current account to easily for others' tastes.

Last year, net international investment by the U.S. declined by two trillion dollars according to the IMF.

This decline only indicates that foreigners invest in the U.S. more than U.S. citizens and corporations invest outside of the U.S. In theory, the U.S. could become richer at the same time; however, since the current account deficit has been much higher than the U.S. GDP growth rate for years, this theory seems unlikely. Apparently, we're selling assets faster than we're generating them.

Of course, some people in the U.S. are always becoming richer. From my personal perspective, it makes no difference whether my creditor is foreign or domestic. My net equity position is the same regardless; however, my true net equity involves many liabilities that I don't freely accept.

My problem with the current account deficit is not that I don't like foreigners. My problem is that I don't like U.S. statesmen and their proprietors selling entitlement to the fruits of my labor without my consent.

For example, Bloomberg here reports on the incredibly unfunded pension liabilities of state and municipal governments. When states can't meet their pension obligations what do they do? Raise taxes? No. They sell bonds. Asking the legislature to raise taxes is too difficult politically, but they can sell bonds without asking.

Since states are on the hook for these obligations, state pension funds can just sell these bonds until they can't service the debt anymore, then a bankruptcy court can order the legislature to raise taxes, and everyone's ass is covered.

Who buys the bonds? Europe and Japan are ahead of the U.S. on the population aging front by a decade or more and China's population aging problem is more acute in the out years, so I suppose the market for bonds is very healthy.

State pension funds and other pension funds in the U.S. sell bonds to pension funds in Europe and Japan, and that increases the current account deficit. Don't tell me that's healthy for me. I'm not a state employee.

He also hasn't been reading The Economist very carefully. Admittedly, that publication has used a kitchen sink approach in explaining the boom and bust, but one of the plates it threw into the sink on several dish washings was the right one, namely the Fed's easy monetary policy after 9/11.

The reason I think it matters is that people mistakenly think that if Americans keep buying French wine, and finance the purchase by selling off assets, then at some point the party must end.

This would be correct except that Americans produce more assets to replenish what is sold off. (To me, this is the key point that is misunderstood when discussing the trade deficit.)


People know intuitively that if we (either individually or as a country) don't produce enough, then we can't keep buying stuff from abroad. But, they are mislead into thinking that a trade deficit implies we are consuming more than we produce.

I think professor Olive has egg on his face.

Here is an Onion video on outsourcing that cracked me up.

Matt,

What conceivable difference does it make -- or should it make -- to American X if some dollar-denominated asset is held by American Y or Foreigner Y? What I (an American) should care about is whether or not the factory across town (or in California, or in Singapore) is run efficiently. The nationalities of the owners or the creditors of the factory are economically irrelevant.

Moreover, such language as Prof. Olive uses suggests to those unfamiliar with trade theory that a U.S. current-account deficit reduces the capital stock in the U.S. But just the opposite is true. A higher U.S. current-account deficit might (although not necessarily) mean that American citizens, collectively, own fewer assets. But it does NOT mean that the American economy has lost investment or capital. And the latter is all that I care about, as my own well-being depends chiefly upon the productivity of the economy of which I am a part AND on the prudence of my own economic and investment decisions.

When thinking about international economics, it's very important to lose the "we."

It is true that there is no reduction in Americans' holdings of foreign assets, but there is a reduction in Americans' holding of domestic assets in the transaction you describe.

Of course, this is not a problem (because Americans can produce more assets), but I think it would be helpful to explain this.

Whether anything "comes of them" or not, keep those letters and cards comin'!

You seem to send a lot of letters. Does anything ever come of them?