Here’s a letter that I sent yesterday to the New York Times:
Bob Herbert insists that manufacturing in the U.S. is a mere shadow of its past proud self – and that this alleged decline of America’s “industrial base” is the result of too many Americans concentrating on finance (“An American Catastrophe,” Nov. 21).
The facts speak very differently.
First, the real value of U.S. manufacturing output today is four times what it was during the alleged golden years of American manufacturing might, the 1950s, and more than twice what it was in 1980.
Second, in 1959 the percent of gross value added to U.S. GDP by nonfinancial corporate businesses was about 53 percent; in 1980 it was about 55 percent; today it’s about 50 percent – hardly evidence that the financial sector is growing cancerously and destroying or crowding-out Americans’ capacity to produce non-financial outputs.*
Sincerely,
Donald J. Boudreaux
* The figures in the penultimate paragraph of my letter are calculated from table B51 – and the figures in the final paragraph are calculated from tables B1 and B14 – found here.
Share
Podcast RSS Feed
Full EconTalk Text
{ 180 comments }
← Previous Comments
If Assets – Liabilities= Equity, and liabilities exceed assets, how is equity not negative? The equation still “balances,” yet equity is still negative. (Or if liabilities exceed equity, assets are still negative. The equation “cancels out” or “balances,” but the situation has obviously declined.
The irony is that I think this is as static a view of the current-account deficit as is Krugman's view on the slicing of the GDP, yet no one's understanding is nuanced enough to appreciate this.
If the current account can come from the private sector, how can it not also then come from the public sector? I did not know that accounting identities discriminate in such a manner. One learns something new every day.
The beauty of it is that he is correct EXCEPT in a situation where a de facto pyramid scheme exists, as with the American dollar. Man, vindication never came this easy.
And internal debt is nearly as much a problem, since it creates imbalances and distortions, the only government solution to which is monetizing the debt, which surely would end in disaster (interesting how similar internal and external debts really are).
“Nobody worries about the balance of payments between company A and company B.” Accounts payable and accounts receivable? “Nobody worries about the balance of payments between bank X and borrower Y.” Chortle. Snicker. Giggle. Guffaw.
Oh, I'm sorry, I didn't realize that barbers, Walmart employees, McDonald's burger-flippers, mechanics, couriers, waiters, retail employees, apartment locators, etc., were all internationally tradeable. God, MY BAD! Where did I go wrong? The exception repudiates the rule!
I forgot to mention baby-sitters, bus drivers, taxi drivers, valets, barristas, bartenders, personal music instructors, and truck drivers. What an ignoramus am I! Woe is me!
If these factories are relocating to another (in many cases, NOT to a “less expensive”) country or to a “less expensive” (what a crude, un-nuanced term) part of our own country, then that only indicates, not some differential in wages per se, but a competitive cost advantage, or, really, a competitive advantage in the use of the factors of production, specifically in the productivity to be had by capital goods. If wages are equal between Japan and America, and jobs move to Japan, then that means, ceteris paribus, Japanese workers are more productive and more efficiently use capital goods, and this will eventually result in a rise of their own wages relative to our own. Ideas are internationally tradeable, but how is it that we are outsourcing not only software programming, but software design (in other words, “ideas”)?
Macroeconomics…Wasn't that an apparition conjured up by Keynes? Isn't it a false distinction in the field, based on misconceptions and fallacies and irrelevant or inapplicable aggregates? Do you believe in an amorphous and mathematically manipulable K that doesn't recognize the complex, temporal structure of production? And how have I not adequately demonstrated my grasp of the concept of currency and foreign exchange?
You make the “barter” accusation of me, because you fail to grasp the fundamental “barter” or “exchange” nature of economics and its facilitation by the medium of exchange also known as money!
You must be a fan of Aesop's “Just So Stories.”
Again, the budget deficit is not a strictly internal phenomenon; why is this obvious untruth repeatedly stressed. Who do you think is the primary lender to our government? FOREIGNERS, namely, THE CHINESE. How can this not affect the current account? Nothing you have said refutes or comes close to contradicting anything I have asserted.
“Money we owe ourselves”…So the Chinese possess no American T-Bills? So we can merely inflate our self-debt away? Wow. Didn't realize it was that simple, even if we did truly “owe ourselves.”
“Protectionists focus on the horrors of imports being greater than exports, implying that if market forces continued unchecked, Americans might wind up buying everything from abroad, while selling foreigners nothing, so that American consumers will have engorged themselves to the permanent ruin of American business firms. But if the exports really fell to somewhere near zero, where in the world would Americans still find the money to purchase foreign products? The balance of payments, as we said earlier, is a pseudo-problem created by the existence of customs statistics.”
Quoting Rothbard is pretty, but he misses the point, or at least, I think you miss the point concerning Rothbard. Rothbard says that these arguments imply that “(free) market forces continue unchecked,” but what is free-market about our central bank colluding with a foreign central bank? And “where would Americans find the money to purchase foreign products”? I know where! A de facto world currency, a world reserve currency, that's where! This is perfectly consistent with what I have talked about; his assumption isn't simply a fiat-currency system, versus a gold standard; his assumption is an ordinary fiat-currency system, versus a fiat-currency system that is the DE FACTO WORLD RESERVE CURRENCY AND WORLD FIAT CURRENCY SYSTEM, I.E., THE DOLLAR. It's the same as claiming that Rothbard would not expect a bust when the banking system of a fiat-currency country systemically and artificially issues credit above and beyond the real money supply. You have proved NOTHING.
The Federal Reserve always has a “balance of payments” when it artificially increases credit and the money supply above what is natural; it simply prints more money or issues more money to compensate for any “deficits” or “losses.” But this is merely in monetary, accounting terms. In REAL terms, that is, in terms of wealth and sustainable growth, this still amounts to recession and a loss of wealth, to malinvestment and a period of liquidation. Banks may never fail under the Federal Reserve, but the economy sure does, and that is what I am talking about.
The fact that we are the de facto world currency entirely changes the game, and that is the point that many have missed. It makes it more akin to a fractional-reserve banking system confined to a single country.
When the Chinese, Japanese, and Arabs dump the dollar, technically, arithimetically, and accountingly speaking our “balance of payments” will “cancel” or “equal” out, but does that cause to disappear the hyperinflation, loss of wealth, and economic chaos that will ensue? You're confusing accounting reality with economic reality, concluding that since it works out as an accounting identity that it has no real negative impact in economic terms.
If Assets – Liabilities= Equity, and liabilities exceed assets, how is equity not negative? The equation still “balances,” yet equity is still negative. (Or if liabilities exceed equity, assets are still negative. The equation “cancels out” or “balances,” but the situation has obviously declined.
The irony is that I think this is as static a view of the current-account deficit as is Krugman's view on the slicing of the GDP, yet no one's understanding is nuanced enough to appreciate this.
If the current account can come from the private sector, how can it not also then come from the public sector? I did not know that accounting identities discriminate in such a manner. One learns something new every day.
The beauty of it is that he is correct EXCEPT in a situation where a de facto pyramid scheme exists, as with the American dollar. Man, vindication never came this easy.
And internal debt is nearly as much a problem, since it creates imbalances and distortions, the only government solution to which is monetizing the debt, which surely would end in disaster (interesting how similar internal and external debts really are).
“Nobody worries about the balance of payments between company A and company B.” Accounts payable and accounts receivable? “Nobody worries about the balance of payments between bank X and borrower Y.” Chortle. Snicker. Giggle. Guffaw.
Oh, I'm sorry, I didn't realize that barbers, Walmart employees, McDonald's burger-flippers, mechanics, couriers, waiters, retail employees, apartment locators, etc., were all internationally tradeable. God, MY BAD! Where did I go wrong? The exception repudiates the rule!
I forgot to mention baby-sitters, bus drivers, taxi drivers, valets, barristas, bartenders, personal music instructors, and truck drivers. What an ignoramus am I! Woe is me!
If these factories are relocating to another (in many cases, NOT to a “less expensive”) country or to a “less expensive” (what a crude, un-nuanced term) part of our own country, then that only indicates, not some differential in wages per se, but a competitive cost advantage, or, really, a competitive advantage in the use of the factors of production, specifically in the productivity to be had by capital goods. If wages are equal between Japan and America, and jobs move to Japan, then that means, ceteris paribus, Japanese workers are more productive and more efficiently use capital goods, and this will eventually result in a rise of their own wages relative to our own. Ideas are internationally tradeable, but how is it that we are outsourcing not only software programming, but software design (in other words, “ideas”)?
Macroeconomics…Wasn't that an apparition conjured up by Keynes? Isn't it a false distinction in the field, based on misconceptions and fallacies and irrelevant or inapplicable aggregates? Do you believe in an amorphous and mathematically manipulable K that doesn't recognize the complex, temporal structure of production? And how have I not adequately demonstrated my grasp of the concept of currency and foreign exchange?
You make the “barter” accusation of me, because you fail to grasp the fundamental “barter” or “exchange” nature of economics and its facilitation by the medium of exchange also known as money!
You must be a fan of Aesop's “Just So Stories.”
← Previous Comments
Comments on this entry are closed.