Utterly Deficient Analysis

by Don Boudreaux on October 11, 2011

in Balance of Payments, Myths and Fallacies, Seen and Unseen, Trade

Here’s a letter to the Baltimore Sun:

Where to begin to address the Everest of errors that is Peter Morici’s argument that the U.S. trade deficit plays a large role in keeping the U.S. unemployment rate high (“China currency bill: America fights back,” Oct. 11)?

One could note that Prof. Morici seems inexcusably unaware that, save for the relatively few dollars hoarded by foreigners, every dollar in the U.S. trade deficit in fact does return as demand for U.S. output.  Dollars that foreigners don’t spend buying U.S. exports are dollars that foreigners invest in America.  That each of these dollars – returning on the capital-account instead of on the current-account (and, therefore, creating a “trade deficit”) – returns as demand expressed through investments rather than as demand for U.S. exports is irrelevant, as least as far as effects on employment go.  Even dollars that foreigners invest in U.S Treasuries are spent by Uncle Sam and, hence, become active demand that Prof. Morici inexplicably insists is destroyed.

Or one could look at relevant data, as economist Dan Griswold does.  From a study published earlier this year, Mr. Griswold concludes that “since 1980, the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting. Stock market appreciation, manufacturing output, and job growth were all significantly more robust during periods of expanding imports and trade deficits.”

Sincerely,
Donald J. Boudreaux

UPDATE: See also Frank Stephenson’s response to Morici’s truly dreadful op-ed.

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{ 149 comments }

dave smith October 11, 2011 at 10:50 am

And even if the money is hoarded, that money can be easily replaced by the Fed.

And even if the money is not replaced by the Fed, the price level goes down and the real balance effect kicks in.

Don Boudreaux October 11, 2011 at 10:56 am

Yep. Exactly so. But in the in the interest of the brevity demanded by a letter-to-the-editor, I ignored the real-cash-balance effect. It is, however and in fact, an important point to understand in a fuller analysis. IF foreigners were as daft as the likes of Morici and other protectionists believe them to be, then foreigners would in fact continue shipping to us valuable goods and services and demand nothing in exchange beyond little monochrome portraits of dead American statesmen. THAT would truly be the best of all feasible worlds for Americans. Alas, though, foreigners insist on getting real stuff from us Americans in return for the real stuff they sell to us.

Bruce October 11, 2011 at 11:09 am

I seem to recall Milton Friedman making that exact same argument many years ago with respect to our trade imbalance with the Japanese. http://www.freerepublic.com/focus/f-news/1154295/posts

Stone Glasgow October 11, 2011 at 3:57 pm

I don’t understand why you assume most dollars will make their way back to the US. And why complain when the Fed replaces them if that is a legitimate (not theft) action?

Patraclus October 11, 2011 at 4:02 pm

Because the only place you can spend US dollars is within the United States and its territories. Unless they intend to spend them in the very tiny communities that border the US, but they get exchanged for local currency anyway.

Stone Glasgow October 11, 2011 at 4:56 pm

I can spend dollars anywhere my credit card is accepted. Other nations use dollars as their national currency, and investors hold them as investments, worldwide.

Economic Freedom October 11, 2011 at 5:13 pm

I don’t understand why you assume most dollars will make their way back to the U.S.

It’s not an assumption. There is no place else for someone to spend U.S. dollars except in the U.S.

Your question is no different, in principle, from asking, “I don’t understand why you assume that a retailer who sells a pair of Timberland boots for $250 will re-spend that money back into the economy.”

Because people exchange things they have (shoes) for things they want (dollars). And they wouldn’t want dollars unless they were planning on re-spending them . . . just like the buyer of the shoes re-spent the dollars that he had. The Chinese exchange their goods for our dollars in order to re-exchange our dollars for investment opportunities (stocks, bonds, real estate) in the capital structure of our economy. There’s no place else the Chinese can re-spend U.S. dollars except back in the U.S. It makes no difference whether those dollars are spent buying U.S. consumer goods or U.S. producer goods. The dollars re-enter the U.S. economy either way.

Craig October 11, 2011 at 8:22 pm

Businesses in some countries may accept dollars in day-to-day trade, but they are worthless unless and until they are sent back to the U.S. and exchanged for the local currency. Sure, they circulate for a while, but they must come home.

Nickolaus October 11, 2011 at 10:52 am

I’m pretty sure that the Baltimore Sun is now a satirical newspaper, much like the onion.

indianajim October 11, 2011 at 3:28 pm

Unfortunately not; its readers are into whatever they think can keep the hand-outs flowing from the BIG Federal teat they are enamored with.

Bruce October 11, 2011 at 10:55 am

I occasionally hear Prof. Morici on the radio during my drive into work. On many, if not most, occasions, I find his insights very thoughtful even if I am not in total agreement. In my opinion, he is not at all a Krugmanesque political shill. It’s very strange that he has this huge blind spot with respect to trade.

Don Boudreaux October 11, 2011 at 10:58 am

You’re right. He’s no Krugman.

Morici is rather more like a bow-tie-wearing Pat Buchanan with a university faculty position. He’s a old-line mercantilist-populist. Nothing more.

Ken October 11, 2011 at 4:36 pm

A lot of those around yet. I’ve mentioned Karl Denninger before. He’s done instrumental work on the housing debacle, particularly in the area of robo-signing and other apparent abuses of back-letter law, but his policy prescriptions are straight populist protectionism and a “we really mean it this time” regulatory regime, a status quo with (supposed) teeth.

Fred October 11, 2011 at 11:13 am

I thought it was great when you offered to burn his house down on Stossel.
You got an audible snort from me with that one.

Don Boudreaux October 11, 2011 at 11:31 am

Thanks, but I was terrible in that interview. I’m not good in that media.

SpatialOrientation October 11, 2011 at 11:47 am

…but your open letter to him was brilliant! I thought you did quite well on Stossel defending your position. Morici came off as a whiny child because he had no compelling counter to your proposal to destroy his house. He just tried to accuse you of being disingenuous. Usually the sign of a man with no valid argument…

Chucklehead October 11, 2011 at 1:36 pm

I would get brain freeze the moment the segment started. It’s not easy, but he more you do it the easier it gets. You are getting better all the time.

Don Boudreaux October 11, 2011 at 2:31 pm

Many thanks to all of you. Mucho appreciated.

Bill October 11, 2011 at 11:29 am

An earlier interesting piece by Griswold.

http://www.cato.org/pub_display.php?pub_id=10661

mcwop October 11, 2011 at 11:36 am

Well if the theory on China is correct, and there are massive debt and accounting problems about to appear – then their currency may get cheaper.

http://www.creditwritedowns.com/2011/09/jim-chanos-china-has-tons-of-contingent-debt-via-state-owned-enterprises.html

Don Lloyd October 11, 2011 at 11:38 am

Even if none of the money that Americans spend on Chinese imports returned, the only way that the US would be worse off is if Chinese investments in America were some kind of magic that produced a larger supply of goods and services for domestic consumption than investments from other sources. Maybe the US has a sub-optimal supply of Chinese restaurants?

If the loss of US dollars to the US economy, in the unlikely event it were a net loss, actually occurred, then both the purchasing power and the investing power of the remaining dollars would be enhanced.

There are only two reasons why exports and foreign investments that return dollars can have a possible benefit to the US economy.

1. A need to prevent the prices of imports from rising as China and other countries would otherwise accumulate an ever rising supply of dollars.

2. The jobs that are created for exports and foreign investment are actually costs to the US economy, not benefits, BUT may be necessary because of all the government policies that prevent and kill jobs need to be ameliorated. While some US consumption goods and services are undoubtedly created from foreign investment, the actual exports of goods and services that may result are only benefits to the extent that they enable more imports to the US of consumer goods and services.

If Volkswagen builds an auto assembly plant in South Carolina, for example, and exports all of its output to Europe, then the US is effectively just an outsource location for Volkswagen, with lower wages and land costs. The standard of living in the US will not be increased, but just redistributed, at best. No better than the Fed printing money.

Regards, Don

Andrew_M_Garland October 11, 2011 at 8:35 pm

You say in essence (1): “The actual exports of goods and services that may result from foreign investment are only benefits to the extent that they enable more imports to the US of consumer goods and services.”

You say in essence (2): “If Volkswagen builds an auto plant and exports its output, then the standard of living in the US will not be increased, but just redistributed. No better than the Fed printing money.”

Your statement (1) conflicts with (2). Cars are exported to Europe in exchange for Euros. Those Euros are exchanged for imported goods that are valued more than the costs (salaries and materials) of making the cars.

In (2), cars are sent to Europe in exchange for goods more valuable (to us Americans) than the cars. This supports the jobs and living standards of the American workers. That is production and earnings, not redistribution.

There are two ways to acquire the cheese brie. One way is to make the brie. The other is to build cars, send them overseas, and have Europeans ship the brie to us. The brie is the income from building the cars. If Europeans are more efficient at making brie, and we are more efficient at making cars, then we are both better of trading than making what we can import.

Don Lloyd October 12, 2011 at 12:35 am

“…Cars are exported to Europe in exchange for Euros. Those Euros are exchanged for imported goods that are valued more than the costs (salaries and materials) of making the cars….”

No, a Volkswagen assembly plant in South Carolina is 100% owned by Volkswagen. The assembled cars are transshipped to Europe where EU customers pay Euros to Volkswagen dealers. There is no need for a single Euro to appear in the US.

Regards, Don

Andrew_M_Garland October 12, 2011 at 12:17 pm

I don’t see your reply as an answer to my explanation that “That is production and earnings, not redistribution.”

The production of cars and their export to Europe earns euros. Volkswagen exchanges those for dollars and pays its US workers.The workers receive value from the value they create by building cars. How is this “no better than the Fed printing money.” as you claim?

House of Cards October 11, 2011 at 11:48 am

I like cheap, quality goods from China or anywhere else. I just don’t want any of their contaminated, or (dangerously) defective products making their way over here. I am about to sand an 11 dollar mantel clock made in China. I want to spray paint it a different color. I’m concerned that there is lead in the paint and when I sand it, I will expose myself to lead or put the lead into the environment. I shouldn’t have to worry about such things. The role of the government is to help protect its citizens from such possibilities. We’ve already had the melamine tainted food scandal that killed many dogs and cats, and some people here. The cheap, toxic Chinese drywall made its way into many people’s homes causing big problems. Food imports from wherever must be shown to be safe to consume. Food poisoning is a very bad thing as the recent listeria contaminated cantaloupe reminds us (I believe this is U.S. produce). Yes, it would drive up the cost of imported goods to police and inspect imports more carefully, but I think that is a cost worth bearing.

http://www.washingtonpost.com/business/21-deaths-now-linked-to-listeria-in-cantaloupe-new-deaths-reported-in-indiana-new-york/2011/10/07/gIQApgSTTL_story.html

BZ October 11, 2011 at 12:08 pm

Hi HoC. Surely you can imagine the incredulous boggling expressions on the faces of those of us who read “The government fails on lead paint. The government fails on Drywall. The government fails on produce. Therefore we need more government.”

House of Cards October 11, 2011 at 12:22 pm

Yes, the government under Bush and others miscreants deregulated Wall St., the banking and finance industry, and the rest is history.

Darren October 11, 2011 at 12:52 pm

What do you think “deregulation” means? LESS regulation or NO regulation? One implicit assumption I often see is that all regulations are desireable. I don’t believe this is necessarily the case.

Fred October 11, 2011 at 12:59 pm

I think by deregulation he means laws like the Sarbanes–Oxley Act, signed by Bush in 2002, which created the Public Company Accounting Oversight Board that is tasked with, among other things, regulating and auditing accounting firms.

House of Cards October 11, 2011 at 1:49 pm

Fred forgot this one:
Gramm–Leach–Bliley Act

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

Fred October 11, 2011 at 2:01 pm

A quote from HoC’s link:

It was signed into law by President Bill Clinton

The stupid is strong in this one.

House of Cards October 11, 2011 at 3:03 pm

The stench of libertarian deregulation is strong on this one:

The Glass-Steagall Act was enacted after the Great Depression. It separated commercial banks and investment banks, in part to avoid potential conflicts of interest between the lending activities of the former and rating activities of the latter. Economist Joseph Stiglitz criticized the repeal of the Act. He called its repeal the “culmination of a $300 million lobbying effort by the banking and financial services industries…spearheaded in Congress by Senator Phil Gramm.” He believes it contributed to this crisis because the risk-taking culture of investment banking dominated the more conservative commercial banking culture, leading to increased levels of risk-taking and leverage during the boom period.[126]

-Wikipedia

Methinks1776 October 11, 2011 at 3:06 pm

So long as that’s what Stiglitz believed, it must be true.

Fred October 11, 2011 at 3:14 pm

Boosh is responsible for deregulation resulting from a bill signed by Clinton who is a libertarian.

Learn something new every day I guess.

Patraclus October 11, 2011 at 4:11 pm

Yes he did deregulate the financial industry, but it was more of the government mandating that people who cannot afford huge loans on houses get them from the banking industry, or else face charges of redlining, or having you children terrified by protesters at your house. IF the government hadn’t mandated the banks figure out how to make loans affordable to people who couldn’t afford them, then the problems we are facing would be much smaller. CDS’s backed by bonds Based on mortgage bonds (not actual mortgages) would never have come about.
More government is not the answer to anybody’s problems, it just seems to make things much worse.

House of Cards October 11, 2011 at 6:03 pm

“Less government” is what prompted the repeal of Glass-Steagall Act after 300 million were spent by lobbyists. When more government if needed, I want more government. When less government is need I want less of it. You are brainwashed, I’m sorry to say.

Fred October 11, 2011 at 9:09 pm

When less government is need I want less of it.

An example please.

Fred October 12, 2011 at 8:24 am

How is Boosh the great deregulator when it was Clinton who signed the repeal of Glass-Steagall?

kyle8 October 12, 2011 at 7:03 am

PROVE IT BITCH! I have heard this liberal myth over and over again, and yet financial regulations INCREASED during the Bush years. I see no evidence that any regulations were removed.

House of Cards October 13, 2011 at 12:38 am

You are another profane, loud-mouthed, know-nothing. I don’t respond to such belligerant types. I think you are another lout who is working on getting banned. Keep it up.

Economic Freedom October 11, 2011 at 3:18 pm

So, you are claiming that it’s to the self-interest of a business purposely to taint its products with poison — perhaps as a cost-cutting strategy?

House of Cards October 11, 2011 at 5:45 pm

I tried to maintain my cool when talking to you wing nuts, but it is hard. Listen buster, I ate some Chinese imported candy (White Rabbit) tainted with melamine and I suffered kidney damage as a result. My dogs had eaten melamine-laced dog food, a U.S. brand, using imported ingredients that, of course, was thought to be safe. One dog died a miserable death, and the other one barely recovered and is still sickly. No lawyer would take my case unless I payed their hundreds of dollars an hour hourly fee. This country needs to be overhauled but your way is no way, and I will fight you destructive reationary people tooth and nail until my kidneys give out and I die.

Economic Freedom October 11, 2011 at 6:18 pm

I tried to maintain my cool when talking to you wing nuts, but it is hard. Listen buster, I ate some Chinese imported candy (White Rabbit) tainted with melamine and I suffered kidney damage as a result.

Regrets. Perhaps next time it’ll be tainted with cyanide and you can shuffle off this mortal coil entirely.

Now try answering my previous question. Once more:

Are you claiming that it’s to the self-interest of a business purposely to taint its products with poison — perhaps as a cost-cutting strategy? Are you claiming that businesses grow large and successful by such practices?

(Don’t worry. I’ll keep asking this question after every one of your posts until you reply.)

House of Cards October 12, 2011 at 3:55 am

Have some poisoned trick or treat candy why don’t you? Maybe your kids will find a needle in their Milky Way. Don’t forget to x-ray their bags of candy.

You question to me was prompted by nothing I said, so it is irrelevant to me.

House of Cards October 12, 2011 at 3:58 am

Your threat to stalk me on this blog is cause for banning. I would if I were Don or Russ. You are simply bestial.

Economic Freedom October 12, 2011 at 4:06 am

Your threat to stalk me on this blog is cause for banning.

I’m shaking in my boots. However, you misunderstand me. I’m not stalking you. I deeply respect you!

Now, answer the goddamn question:

Are you claiming that it’s to the self-interest of a business purposely to taint its products with poison — perhaps as a cost-cutting strategy? Are you claiming that businesses grow large and successful by such practices?

House of Cards October 12, 2011 at 4:17 am

I can also tell that you are young, probably in your twenties. You lack maturity as well as evidencing brainwashing. Your understanding of freedom, even true “economic freedom,” is also quite limited. If remains to be seen if your thinking will improve as you mature. The brain chemistry will change over time in most people allowing them to think more critically and pragmatically. Strangely, libertarians seem to make little emotional or insightful progress over time. Psychopaths fail to develop or progress similarly.

Ken October 12, 2011 at 12:05 pm

Pray answer EF’s question, please.

Surfisto October 11, 2011 at 11:49 am

I am a little confused about the Eed using open market operations to change the supply of money and therefore the interest rate and the Fed using t-bills sold to China for the use of government spending. If the Fed is buying to keep interst rates down and selling to China or anyone having the opposite effect?

vikingvista October 12, 2011 at 3:40 am

No matter how many dollars the Fed takes in by selling old bills on the secondary market, they can always ship out that many dollars plus one (or plus whatever they like) on new bills, because the Treasury is always auctioning off another boatload in the primary market, and because the Fed has a money machine.

At least until people stop caring about dollars.

Invisible Backhand October 11, 2011 at 11:56 am

This chart shows that trade deficits are clearly related to unemployment.

http://i.imgur.com/cp7Nj.jpg

When reality doesn’t back up the theory, it’s the theory that has to change, not reality.

This isn’t claiming that trade deficits cause unemployment, but they are linked by some (possibly unknown) mechanism. But you can stop malaria by draining the swamp even if you don’t know mosquitoes carry the plasmodium parasite that cause malaria.

Dan H October 11, 2011 at 12:34 pm

I see another causation vs correlation argument debate coming…

Patraclus October 11, 2011 at 4:12 pm

Are you sure it might not be muriego (or however you spell
I-D-I-O-C-Y)?

colson October 11, 2011 at 1:12 pm

So when are you going to accept reality and stop depending on a poorly done “study” that produces an uninsightful graph? If you had fully read the “study” the graph is drawn from, you’d find reality would show you that it relies on a narrow set of data points that essentially amount to cherry picking data.

By the time you add in historical data (try quarterly over a period of 10 years), your correlation evaporates. But I’m sure you went out and gathered the data from the OECD or some other institution and back checked this before telling us what reality is.

Invisible Backhand October 11, 2011 at 2:44 pm

What study did I get this graph from, and why do you say it’s poorly done?

Andrew_M_Garland October 11, 2011 at 8:47 pm

Yes. What study did you get this graph from?

Invisible Backhand October 11, 2011 at 9:01 pm

I do have the link, but was waiting for colson to explain how it was a poorly done study when he hasn’t seen the study.

Andrew_M_Garland October 12, 2011 at 12:23 pm

To IB,
If you would give the link from the start, there would be no need to play argumentative games. I suspect that you wouild not accept unsourced data, so why expect others to?

Invisible Backhand October 12, 2011 at 2:26 pm
Economic Freedom October 11, 2011 at 2:01 pm

We’ve been through this before. I’ve already posted clear evidence that there is no causal connection between a capital-account surplus and unemployment. Just because MoveOn.org hired you to troll a site that advocates free markets doesn’t mean that you’re incapable of understanding it.

Methinks1776 October 11, 2011 at 2:07 pm

*LIKE*

Invisible Backhand October 11, 2011 at 2:38 pm

What study was that?

Funny story about getting paid to troll (I wish I was). A few years ago Rush Limbaugh was going on about ‘seminar callers’ who took a course in how to ambush him. I thought, ‘Great! I want one!’ Then looked real hard on the internet for one couldn’t find one.

So, please, please, tell me where I can get paid to do this. Provide a real, verifiable source and I’ll check it out.

Economic Freedom October 11, 2011 at 3:28 pm

What study was that?

Check previous posts. The links are all there. All you have to do is make an effort to click on the links and understand the information.

Oooops! I used the word “effort”. Apologies! I know that’s anathema to you and the left, who want everything handed to you on a silver platter because you feel you “deserve it.”

Economic Freedom October 11, 2011 at 3:32 pm

Then looked real hard on the internet for one couldn’t find one.

Well, maybe you should get up off your flabby socialist butt and go to the library. Or perhaps you could check the classifieds in this month’s issue of The Daily Worker. I understand you have a lifetime subscription.

Invisible Backhand October 11, 2011 at 9:03 pm

You forgot to include the next line:

So, please, please, tell me where I can get paid to do this. Provide a real, verifiable source and I’ll check it out.

Economic Freedom October 11, 2011 at 11:39 pm

So, please, please, tell me where I can get paid to do this. Provide a real, verifiable source and I’ll check it out.

Don’t be greedy; you’re already a paid shill. But for more information on honing your craft, ask the political cadre officer who works as your handler.

Invisible Backhand October 12, 2011 at 8:07 am

You’re busted.

Krishnan October 11, 2011 at 11:56 am

Morici is a spokesman for some copier company (I think it is the same guy being spoken about). If so, I imagine Morici is happy that some of the dollars that this company gets by selling in the US comes back to him. I also imagine that he thinks that in THAT CASE, a “trade deficit” (selling goods in exchange for dollars) is good – because HE gets some of that “trade deficit”.

Being an academic does not change the fact that Morici writes gibberish often – and hides behind the position he has – the lame media is only glad to indulge him – as they do the other convenient idiot who was an advisor to Enron.

Rob October 11, 2011 at 12:05 pm

Don,

One small point to nit-pick. You say:

Even dollars that foreigners invest in U.S Treasuries are spent by Uncle Sam and, hence, become active demand that Prof. Morici inexplicably insists is destroyed.

Are you suggesting here that there is no loss incurred by government spending? If that’s the case, why all the fuss about Keynes? Or, is the idea that if the dollars Uncle Sam spends come from foreigners, this is not the same as from domestic taxation? And finally, isn’t there some credence to the idea that heavy investment by foreigners is what drove the housing bubble? So really, it’s not a free lunch as it would appear from your comments.

Don Boudreaux October 11, 2011 at 12:13 pm

Morici’s argument implies that dollars that return on the capital-account permanently leave the stream of demand – that is, that demand is destroyed. While I don’t buy the Keynesian argument that aggregate demand is easily INCREASED by government deficit spending, I also do not believe that such spending DECREASES aggregate demand.

My point is this: A dollar spent directly by a foreigner on (say) a U.S.-made fighter jet returns on the current-account and, hence, does not increase America’s trade deficit. If instead the foreigner loaned that dollar to Uncle Sam, who then spends it on a U.S.-made fighter jet, the U.S. trade deficit increases by a dollar. But in both cases the dollar is in the stream of demand for U.S.-made output. While Uncle Sam’s spending that dollar creates no new demand, nor is that demand – contrary to Morici’s argument – permanently leaked from the U.S. economy.

Plac Ebo October 11, 2011 at 12:06 pm

Professor Boudreaux,

I hear you incessantly pushing the marvels of free trade. But, I’ve never heard you address the costs to society of a high unemployment rate, and the role of government regarding the unemployed. Would you tell us just what, if any, responsibility our government has? Are the unemployed to be discarded by government? Should government provide financial support to the unemployed? Does society benefit by having high unemployment rates? You apparently know the ills of current economic policy. How would you solve our current economic crisis?

Methinks1776 October 11, 2011 at 12:19 pm

Why are you always looking to other people to solve what you perceive to be a problem?

What have you done to help the unemployed? Have you created any jobs? Have you provided any financial support for the unemployed? If you are unwilling, then who are you to tell anyone else they must?

BZ October 11, 2011 at 12:22 pm

Through all his incessant pushing of the marvels of free trade, Dr. Boudreaux has also totally failed to address the evils of cancer, male-pattern baldness, and the cancellation of FireFly and Dollhouse.

Seriously, I take your point Ebo. I don’t know what GMU has those professors doing over there. Probably “teaching”, “grading”, or some other such nonsense. I also would prefer that he spent more time writing for the blog.

Patraclus October 11, 2011 at 4:16 pm

I’m really bummed about Firefly too; Dollhouse, not so much.

Ken October 11, 2011 at 4:41 pm

He hasn’t helped my Playmaker Football team get any better, either (got whooped 38-0 this weekend), nor found 250 respondents for my dissertation.

Rob October 11, 2011 at 5:23 pm

Respondents?

Ken October 11, 2011 at 6:30 pm

Sorry for the lack of clarity — my dissertation concerns the supply chain (B2B, complex product-markets). It’s why 112.3% of marketing academics do consumer research — data’s easier to get on the consumer side. ;)

Invisible Backhand October 11, 2011 at 12:26 pm

I can’t speak for the Professor, but my understanding is Austrian economics is by and for the rentier class (you can call them the investors, the propertied, the super rich, whatever).

So high unemployment is regarded as beneficial because it drives down wages and contributes to the powerlessness of the individual without property.

Foreign trade is good because Austrian is micro-economics oriented, which focuses on what’s good for the giant corporations, and macro is an externality and outside their concern.

FWIW, I’ve asked both DB and RR what they would do about the current problems facing the economy. DB responded with a parable about a car that explodes if you try to drive it, and someone pointed me to RR’s congressional testimony that boiled down to ‘eat right and exercise’. Both of these I interpreted as ‘the government should do nothing’.

http://www.reddit.com/r/CafeHayek/new/

The Other Eric October 11, 2011 at 12:54 pm

Come on, just try and read some Mises and Hayek. It won’t hurt, and you might actually learn something — even help you debunk it all.

I do want to thank you for the foreign trade-is-micro sentence– it was so stupid it made me laugh out loud.

Invisible Backhand October 11, 2011 at 1:11 pm

I never said that, but you’re welcome.

Methinks1776 October 11, 2011 at 1:24 pm

You forgot to mention that Austrian economics also a recommends poor baby stew for health and vitality. There’s nothing tastier that poor babies slow cooked with potatoes and gravy.

Dan H October 11, 2011 at 2:14 pm

Austrians also like to silence dissent by force and send those people that disagree with them to re-education camps. I’m pretty sure those were the Austrians, right?

Economic Freedom October 11, 2011 at 3:44 pm

Very true. We all know that the Austrian economists took seriously Jonathan Swift’s satirical essay “A Modest Proposal” in which he suggested that a good way to end the problem of poverty in Ireland would be to cook and eat the poor. In fact, I think Carl Menger initially dedicated his pathbreaking “Principles of Economics” to the memory of Swift, but was forced to remove it by a nascent leftwing movement in Vienna at the time. It’s a “well known story” and is fondly told and retold at various socialist blogs on reddit.com as part of their collective mythology.

Brad Petersen October 11, 2011 at 1:26 pm

>>”my understanding is Austrian economics is by and for the rentier class (you can call them the investors, the propertied, the super rich, whatever).”

Clearly, you have zero understanding of Austrian economics.

>>”So high unemployment is regarded as beneficial because it drives down wages and contributes to the powerlessness of the individual without property.”

How about you cite a source for this egregious nonsense, you miserable troll.

>>”Foreign trade is good because Austrian is micro-economics oriented, which focuses on what’s good for the giant corporations, and macro is an externality and outside their concern”

I doubt your stupid enough or ignorant enough to actually believe such, which leave room for only one conclusion: You are dishonest to the core.

Invisible Backhand October 11, 2011 at 2:54 pm

Clearly, you have zero understanding of Austrian economics.

Austrian economics is whatever the rich and powerful tell Austrian economists what it is. Or else they don’t get funding from the Earhart Foundation, Hoover institution or Mercatus center. What’s so hard to understand about that?

Want proof? Here’s a brief start:

http://www.tampabay.com/news/business/billionaires-role-in-hiring-decisions-at-florida-state-university-raises/1168680

Methinks1776 October 11, 2011 at 2:57 pm

Koch is spending his own money to fund a chair and he wants to direct how the money is spent? Oooooh! That’s scary. I’m shivering.

Methinks1776 October 11, 2011 at 2:59 pm

Hey, Irritable Bowel, what political views do you suppose I should hold to get my hands on Warren Buffoon’s or George Soros’s money?

Brad Petersen October 11, 2011 at 5:00 pm

Yes, I’ve heard that Von Mises is frantically rewriting Human Action from the grave to add all that wicked laissez-faire stuff Koch is demanding. No doubt Menger, Bohm-Bawerk and Hayek will be doing the same with their books. I hear they all get upgraded coffins out of the deal.

And just imagine if we’d just been able to stop Koch from funding Adam Smith. Why we could have nipped this whole capitalism thing in the bud and blessed socialism would have had the opportunity to impoverish us all.

Economic Freedom October 11, 2011 at 2:13 pm

my understanding is Austrian economics is by and for the rentier class (you can call them the investors, the propertied, the super rich, whatever).

Right. The poor and middle class definitely have not benefitted from cheaper, better, and more available oil, gas, cars, food, clothing, medical devices, books, entertainment, telephones, and electronics. The benefits of those things have only gone to the super-rich — everyone else is worse off. As for your “understanding of Austrian economics,” anyone here can see at a glance that you know absolutely nothing about it, and further: you’re not interested in knowing anything about it. Your purpose here is to shill for the far left.

Invisible Backhand October 11, 2011 at 2:58 pm

Uhm, you’re giving the super rich credit for the entire twentieth century? Isn’t that a bit over the top, even for you?

Also, shills get paid. I don’t.

Methinks1776 October 11, 2011 at 2:59 pm

Useful idiots usually don’t. Get used to it.

Economic Freedom October 11, 2011 at 3:56 pm

Uhm, you’re giving the super rich credit for the entire twentieth century? Isn’t that a bit over the top, even for you?

I never mentioned the super-rich as causing anything. The class of the “super-rich” is an effect of the market, not its primary cause. But it’s certainly true that nationwide rising standards of living aren’t caused by charities, whether funded publicly or privately. Intentional giving (which would include taxing and redistributing by government) doesn’t cause the wealth of nations. There are market mechanisms involved. Obviously, you’re in denial over the whole thing — that some people entered the class of the super-rich because they were unintentionally able to provide the poor and middle classes with better and cheaper goods, including both the necessities and the luxuries of life simply by pursuing their economic self-interest. You seem to hate the “unintentional” aspect of it. Your position: “How dare John D. Rockefeller get to pursue nothing but his own greedy self-interest in becoming a billionaire and yet, by doing so, unintentionally make fuel oil so cheap that the poor could now afford a ‘luxury’ like shoes! Only by giving directly and intentionally to the poor as charity would it be an example of the poor being helped.”

Read Thomas Sowell’s “A Conflict of Visions” for more insight on the free market’s unintended benefits via the pursuit of nothing but self-interest.

Also, shills get paid. I don’t.

So you claim.

Invisible Backhand October 11, 2011 at 8:34 pm

I want to get paid! Show me the money!

Economiser October 11, 2011 at 9:34 pm

> I want to get paid! Show me the money!

Try creating something of value. You’ll get paid and maybe even create jobs. It’s win-win!

Invisible Backhand October 11, 2011 at 9:44 pm

So now I’m lying about not getting paid or getting paid?

Economic Freedom October 11, 2011 at 11:47 pm

So now I’m lying about not getting paid or getting paid?

Lefties will lie about anything, since a fact (like history) always has a political, propagandistic purpose, and must be tailored to fit the agenda of “promoting the common good.”

If you’re not getting paid for your shill work, it seems to me your handlers are unfairly withholding wages that are owed to you — either that, or it’s an exploitative “unpaid internship.” You should file a complaint with your local labor-relations board.

Economic Freedom October 11, 2011 at 3:12 pm

my understanding is Austrian economics is by and for the rentier class (you can call them the investors, the propertied, the super rich, whatever).

It’s clear to everyone on this board — and perhaps others at which you troll — that you have NO understanding of Austrian economics, let alone any other school of economics. Have you read Menger? Bohm-Bawerk? Wieser? Mises? Kirzner? Rothbard? Hazlitt? Wicksteed? No. You just have lots of opinions about things you know nothing about. That’s the usual modus operandi of the far left, and I’m sure your fellow trollers on this site and others are duly impressed.

I see, also, that you’ve changed your tune about Austrian economics:

http://johnquiggin.com/2011/09/28/midweek-message-board-2/

“I think Austrianism has been hijacked by the rich and powerful (Koch, Earhart Found, Scaife) to hire economists and set up foundation to crank out economic opinion that is exactly what they want to hear: get rid of taxes, get rid of regulations, get rid of unions, deny climate change etc.

Basically, I think it’s nothing more than a well funded propaganda campaign.”

If it’s been hijacked by the rich and powerful, then tell us about your understanding of non-hijacked Austrian economics; those parts of it that are not being funded by Koch, Earhart, Found, and Scaife.

Invisible Backhand October 11, 2011 at 8:49 pm

“Earhart Foundation”

I don’t see how that I have “changed my tune” since it dovetails with what I’ve said here.

What those dead prophets from your holy scripture said is no more important than what’s in the Bible. Any cult can find whatever they need in the bible or in pick-a-name dusty volume. How many times are you going to parrot what’s good for the billionaires and bad for you before you figure out you are a chump?

Economic Freedom October 11, 2011 at 9:16 pm

I don’t see how that I have “changed my tune” since it dovetails with what I’ve said here

No, it does not dovetail with anything. Here — on CafeHayek — you’ve dismissed all Austrian economics per se; there — on the quiggin site — you qualified your dismissal by asserting that it has been “hijacked” by wealthy special interests.

In that case, tell us what you know about non-hijacked Austrian economics — the economics of Menger, Bohm-Bawerk, et al., — before such hijacking by wealthy special interests occurred. Surely you must know something about it in order to make the claim that it has been hijacked.

Invisible Backhand October 11, 2011 at 9:34 pm

NYPA.

Economic Freedom October 11, 2011 at 11:49 pm

NYPA

Tell us what you know about non-hijacked Austrian economics before such hijacking by wealthy special interests occurred. Surely you must know something about it in order to make the claim that it has been hijacked.

Economic Freedom October 11, 2011 at 5:59 pm

Both of these I interpreted as ‘the government should do nothing’

I agree with that. Government should do nothing, because anything it tries to do (stimulus packages, Fed quantitative easing, trade restrictions, minimum wage hikes, etc.) will make the economy worse.

Warren Harding did nothing during the Great Crash of 1920. Result? The economy turned around in about a year and was soon roaring again. Hoover and FDR did the opposite of nothing during the Great Crash of 1929. Result? More than ten horrible years of economic depression that didn’t end until after WWII.

The more government intervenes in the economy, the worse the economy becomes; the less government intervenes in the economy, the better it becomes. But those are only the lessons of economic history and economic theory. They both mean nothing compared to the towering edifice of leftist rhetoric and ideology.

Invisible Backhand October 11, 2011 at 8:52 pm

You are parroting the government should do nothing for you, while the government is serving the rich everyday in every way. Like in my previous post, figure out that you are a chump.

Economic Freedom October 11, 2011 at 9:07 pm

You are parroting the government should do nothing for you

Government can’t do anything for me that I can’t already do for myself. All I really want from them is that they arbitrate disputes I might get into with honest men via courts, and apply deadly force on my behalf in disputes with those dishonest men who might want to hurt me or my property. Actually, being a licensed handgun owner, I can handle most of the latter by myself, but I think it’s better for me and for everyone else if we socialize the cost of ammo via police and military.

Needless to say, that we socialize the cost of ammo does not imply that we should also socialize the cost of milk, meat, bread, shelter, clothing, education, healthcare, and retirement.

How’s the shill business doing?

Economic Freedom October 11, 2011 at 9:18 pm

Warren Harding did nothing during the Great Crash of 1920. Result? The economy turned around in about a year and was soon roaring again. Hoover and FDR did the opposite of nothing during the Great Crash of 1929. Result? More than ten horrible years of economic depression that didn’t end until after WWII.

Methinks1776 October 11, 2011 at 9:32 pm

while the government is serving the rich everyday in every way.

Well, then, what are you waiting for, Irritable Bowel? Go get rich and your problems are over.

anthonyl October 11, 2011 at 9:23 pm

Connect the dots between micro-economics and giant corporations. I don’t know how you draw that line.

Invisible Backhand October 11, 2011 at 9:50 pm

Why not? micro goes up to the level of the firm, and by staying out of macro they stay out of fallacy of composition territory, by ignoring it.

http://neweconomicperspectives.blogspot.com/2009/08/teaching-fallacy-of-composition-federal.html

Sam Grove October 11, 2011 at 9:47 pm

Evidence of cluelessness.

Tell us why Fox news refuses the acknowledge the campaign of Ron Paul if the corporate masters are so keen to have a libertarian regime.

Your entire comment is just so wrong.

Invisible Backhand October 11, 2011 at 9:55 pm

Evidence of cluelessness.

Evidence of street smarts, which is why you don’t recognize it I Am Sam.

Economic Freedom October 11, 2011 at 11:52 pm

Evidence of street smarts

Yeah. Sesame Street.

HaywoodU October 11, 2011 at 12:29 pm

First of all, he has over and over and over and over expressed what he believes. You could do some quick searches and find the answers you are looking for on Cafe Hayek.

Lastly, as an aid in your research, he would say that government should not be in the business of setting wage scales because it prices people out of the market. But I bet you already know that he would say that and just don’t like it.

Darren October 11, 2011 at 1:00 pm

I’m pretty sure F.A. Hayek supported some kind of ‘safety net’, though he didn’t get into specifics. I think this was in The Constitution of Liberty, though I expect he mentioned it other places. I don’t think this is really a major issue. It’s more a matter as to what form such a safety net would take and how far it should go. For some, such a safety net would provide a comfortable living without having to do any work. For others, it would be the bare minimum required to survive. Then there’s everything in between.

Economic Freedom October 11, 2011 at 7:36 pm

I’m pretty sure F.A. Hayek supported some kind of ‘safety net’, though he didn’t get into specifics.

Hayek started out as a socialist. He did an about-face after attending the Mises seminars, at least as far as his technical economics was concerned. Although he agreed with Mises as a matter of empirical fact that capitalism provides the greatest wealth for the greatest number, he disagreed that this was an adequate moral defense. He was acquainted with Rand and Atlas Shrugged, though he also never adopted any sort of “rational selfishness” defense of capitalism. Essentially, he remained a socialist in his ethics — perhaps he believed that capitalism in economics was the best means of achieving socialism in morality.

Invisible Backhand October 11, 2011 at 8:54 pm

He did an about-face after attending the Mises seminars

Help me out on my history, was this about the time Koch hired him to come to America, and promised him he could get Social Security? It was in a prominent article about Hayek that oddly was not mentioned here at Cafehayek.

Economic Freedom October 11, 2011 at 9:09 pm

Still waiting for your response regarding the “non-hijacked” part of Austrian economics.

“Got shill?”

Invisible Backhand October 11, 2011 at 9:56 pm

NYPA.

Still waiting to hear where I can get paid.

Economic Freedom October 11, 2011 at 11:54 pm

NYPA.
Still waiting to hear where I can get paid.

Still waiting for your response regarding the “non-hijacked” part of Austrian economics.

“Got shill?”

Seth October 11, 2011 at 2:10 pm

“the role of government regarding the unemployed.”

I can understand the desire to have government clean up its own messes, but in this case, that’s like handing the bull a broom to sweep up the china shop.

Jim October 11, 2011 at 12:19 pm

Where would one find the percentage of imports that are raw materials for assembly in USA? That number is sure to be large.

So if we tariff imports, we only cut off our nose to spite our face.

The question of imports rises everywhere and is how I found this website. I was seeking to understand protectionism since it seems so irrational to me.

Bill October 11, 2011 at 12:36 pm
mcwop October 11, 2011 at 3:57 pm

We import a lot of oil, but export a lot of refined oil products (we are good at refining). Almost in equal amounts I believe. Too bad we cannot build more refineries easily.

Jim October 11, 2011 at 4:33 pm

Thanks Bill.

dsylexic October 11, 2011 at 12:28 pm

the whole trade deficit statistics is useless.the whole credit for the ipod goes to china -where it gets assembled but if we would do a value added/accrued trade stats,i am pretty sure,china is a very marginal capturer of value.most of the money accrues to americans.they are no longer factory workers,but now are mostly in the service sector -retail,marketing,design,software etc.
so essentially the factory workers of america are blaming their own brethren in the service sector for their woes.
so we need to recognize this psuedopatriotic b/s

Chucklehead October 11, 2011 at 12:53 pm

This is just a second salvo in the third world wide currency war, which began with QE2. Everyone is trying to devalue their currency and export their unemployment. Arab spring was in part a result of the first salvo, as food and fuel prices rose across the world. Unintended consequences can not be controlled, and currency wars never end well.
Currency War I (1921-1936)
Currency War II (1967-1987)
Currency War III (2010-?)
http://amzn.to/oj44AK

Will October 11, 2011 at 2:17 pm

I like Prof. Stephenson’s term “hyprocrite capitalism.” So many people do not practice what they preach. Many critics of capitalism are quite wealthy because of capitalism. After all, everyone responds to incentives and are self interested.

Economic Freedom October 11, 2011 at 3:35 pm

“hyprocrite capitalism.”

In other words, “socialists.”

Chucklehead October 11, 2011 at 4:56 pm

Statists, or Facists.

Will October 11, 2011 at 5:26 pm

You could claim they are “wolves in sheep clothing” because they actually just pretend to hate capitalism because they can make money by selling anti-capitalism products.

muirgeo October 11, 2011 at 3:57 pm

“Where to begin to address the Everest of errors that is Peter Morici’s argument that the U.S. trade deficit plays a large role in keeping the U.S. unemployment rate high…” Don

“Well … there you go again…” Ronald Reagan

Well maybe begin with the current highest longest increase in unemployment we currently are seeing after 10-15 years of our new Free Trade agreements. You think shipping 58,000 factories overseas has nothing to do with it?

And amazingly I’ll be called flippant for asking why reality is so contrary to your claims.

mcwop October 11, 2011 at 4:18 pm

Please provide your solution. And be careful if it includes a free floating Chinese currency, because free floating means it could increase in value, but also decrease exacerbating the trade deficit. So please share you seem to know the problem, thus you must know the solution. Also remember tariffs are a two way street too. China can slap them on the things they buy from us. They can also sell our debt driving up interest rates, debt is part of trade too.

Also read my post above how the trade deficit is calculated in the context of an iPhone.

muirgeo October 11, 2011 at 6:20 pm

mcwop,

One very easy solution is to NOT give tax benifits for companies to off-shore their production. Does it make sense to you to give tax benifits to off shore prodcution? It doesn’t make sense to me but the pwoerful have been able to keep these kind of favorable laws in place to the benifit of multinationals over small businesses.

http://www.usatoday.com/money/perfi/taxes/2008-03-20-corporate-tax-offshoring_N.htm

Mcwop October 11, 2011 at 10:31 pm

I agree we should lower the corporate tax rate to zero, which might encourage companies to locate here. Did you peruse the article in the link? It states that companies put there businesses in places with lower corporate tax rates. So that is not a tax break IMO.

Bruce October 11, 2011 at 4:28 pm

any explanation for why the 10-15 year lag? Is it not more likely that the current state of the economy has its origins in the economic actions of the last 28 months as opposed to midway through the last decade?

muirgeo October 11, 2011 at 6:24 pm

Those 58,000 thousand factories took that long to move. As incentives and competition more and more favored offshoring more and more companies left. Also we were able to survive that long by replacing lost wages with deficit spending and spending our equity. At some point the debt became too great and the system came crashing down. Indeed the Fed keeping rates low only delayed the inevitable. But here again low interest rates are what the bankers wanted so they could loan ever more money and pull out ever more priciple and equity from those of lesser means.

Methinks1776 October 12, 2011 at 8:01 am

When competition precludes a company from maintaining factories in high cost countries like the United States the choice isn’t to remain in the United States or to move to a lower cost country. The choice is to shut down entirely or move to a lower cost country.

Nobody ever forced you to take a loan you couldn’t afford. Stop blaming other people for your overspending.

muirgeo October 12, 2011 at 8:30 am

Again I said incentives… What incentives changed to make it more competitive to ship capital and production over seas?

Labor cost have been way higher in this country in the past and people kept their factories here and they thrived as did the rest of the economy.

So the problem isn’t competition… its incentives. We decided to give incentive that reward large corporations over small businesses and workers… and that has made all the difference.

Ken October 12, 2011 at 12:12 pm

Any fixed cost favors large businesses over small businesses.

Regulatory compliance costs are fixed costs.

Attempting to “level the playing field” by exempting “small businesses” has at least two potential negative consequences:

One is the imposition of an incentive against growth. Who gets hit hardest by a regulation that exempts firms with fewer than 15 employees? The poor schlep who needs to hire that 15th employee to meet demand.

Another, perhaps less prevalent, is gaming the system. It’s not easy to do in most industries where there are returns to scale, but it isn’t impossible. Have you ever heard the term, “Mississippi Christmas tree?”

Stone Glasgow October 11, 2011 at 4:57 pm

The trade deficit doesn’t exist; an iPod is not a Chinese product, and selling an investment to China is no different than selling a tractor to China.

muirgeo October 11, 2011 at 6:28 pm

Stone ,

Do you realize some 40 to 60% of our imports are products “we” made overseas and then imported them back to US consumers.

Basically, what you have is factories going to the immigrants rather then dealingwithillegals coming into the factories.

A big portion of the iPod is assembled in China and those are basically lost wages for Americans. You don’t get richer by not being productive and spending down your asstts to buy things.

Methinks1776 October 11, 2011 at 9:33 pm

So?

Mcwop October 11, 2011 at 10:33 pm
muirgeo October 11, 2011 at 6:41 pm

“… “since 1980, the U.S. economy has grown more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to periods when it was contracting.”

You say that but here is the trade deficit trend….

http://www.census.gov/indicator/www/ustrade.html

…and jobs ae not coming back.

Economic Freedom October 11, 2011 at 8:55 pm

From your linked census article:

Goods and Services Deficit Decreases in July 2011

The Nation’s international trade deficit in goods and services decreased to $44.8 billion in July from $51.6 billion (revised) in June, as exports increased and imports decreased.

The so-called “trade deficit” decreased. That’s a decrease in capital accounts and an increase in current accounts. You should be doing the Snoopy Dance.

muirgeo October 11, 2011 at 6:46 pm

Here’s two very reasoned alternative views by some experts on our trade with China.

http://www.msnbc.msn.com/id/37560195/#44763042

Methinks1776 October 11, 2011 at 9:33 pm

Did you say “experts”? Well, then they must be right.

Economic Freedom October 11, 2011 at 11:57 pm

“Experts at MSNBC” is an oxymoron, isn’t it?

Ken October 12, 2011 at 12:14 pm

“Reasoned” pretty much is, with respect to CREEP…I mean, MSNBC.

anthonyl October 11, 2011 at 9:05 pm

If we ignore all the static about wheather trade is good for economy or not just think about how much poorer, in terms of stuff, we would be if we didn’t trade at all. How can anyone even survive without trade? Why would anyone want to deny another the freedom to trade. What is the point of weaving complex intellectual arguments about what level of free trade should exist? People trade to make their lives better why would this change depending on the other parties nationality? People trade and any effort to hamper it makes us all poorer.

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