Pow! Slam! Art Carden wrestles successfully with myths about so-called “trade deficits.” A slice:
In their textbook, Modern Principles of Economics, Tyler Cowen and Alex Tabarrok ask what happens when Walmart buys toys from a Chinese supplier. I decided to test this once by going to my local Walmart and buying an action figure of All Elite Wrestling’s Brody King, which is part of the Jazwares “Unrivaled” collection and a Walmart exclusive. After tax, the figure cost me $21.82. The figure was manufactured in China for a company (Jazwares) based in Florida, represents an athlete who lives in Georgia and works for a company also based in Florida, and was purchased (and taxed) in Alabama. There is value added at every stage and by people around the world, but let’s focus strictly on the share of the figure that goes to the Chinese manufacturer.
What does the manufacturer do with the dollars he earns by selling me (via Jazwares and Walmart) a wrestling figure? He wants the dollars for dollar-denominated transactions. First, he might want to buy American goods and services. In the Chinese context, one of the services they seek to purchase is American higher education. Second, he might want to invest in the United States by (for example) buying new bonds issued by American corporations. Third, he might want to lend to the U.S. government by purchasing new Treasury bonds. In both cases, he might also want to purchase dollar-denominated assets, such as existing stocks and bonds. Fourth, he might want to increase his dollar reserves for several reasons. The US dollar is the world’s reserve currency; it is famously stable and widely used for transactions in the United States.
Fifth and finally, the Chinese manufacturer might want to sell the dollars to someone who wants to do any of these things.
How does the transaction affect the balance of payments? The trade deficit widens because we imported the figure. That receives considerable attention, but I think the attention the trade deficit receives is overstated. In the long run, countries pay for their imports with their exports. Additionally, the dollars “come back” to the United States as foreign direct investment. The current account deficit (the trade balance) is identical to the capital account surplus.
Matthew Lau is correct: “Protectionists live in economic wonderland.” A slice:
In recent years, the White House’s Protectionist-in-Chief has turned much of the political landscape into an upside-down Wonderland. Among the things that are now topsy-turvy is that the Republican Party increasingly practices socialism, while actual socialists, at least on international trade, champion freer markets.
Under socialism, government owns the means of production, which the U.S. government increasingly wants to do. In June, through $750 million in investments, it took minority equity stakes in two semiconductor companies. In July, through up to $874 million in additional funding, it took minority equity stakes in six more and increased its ownership of a seventh. The Cato Institute counts 30 companies in the federal government’s expanded corporate portfolio. “Republicans warning that communists are taking over the Democratic Party might first ask why their own administration is so eager to have the government acquire pieces of private companies,” Cato analyst Tad DeHaven suggested.
Not every argument is equally strong. Still, “What Happened to Liberal Democracy?” is a book for these times, when many Americans sense that the nation is at an inflection point. Acemoglu’s answer is neither despair nor nostalgia. It is a rallying cry to return to liberal democracy, the system that turns individual freedom into prosperity for all. Right, left or center, the tasks laid out are for everyone: Invest in your community, demand institutions that answer to their citizens and defend the freedoms of people you disagree with.
David Henderson on Hayek on power.
Shiv Parihar decries the economic ignorance of proponents of legislated minimum wages. Two slices:
This issue is personal for me. The jobs that these policies kill once helped keep me alive.
At 5, I was living in a Utah shelter at the height of the Great Recession. My single mother had little education or experience, but she needed work. Low-wage, entry-level positions were her path into the job market. She didn’t have a job that paid $15 an hour until 2023. If the minimum wage had been $15, she might not have had one at all.Minimum-wage jobs were even more helpful to my father. He was a high school dropout who had been to jail. Had the minimum wage been $15, far fewer employers would have been willing to gamble on an applicant like him, especially one with a child to take care of half the week.
Utah has never raised its minimum wage above $7.25 an hour, the current federal floor. That isn’t much. But for my family, it was the difference between dinner and an empty stomach.
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The well-intentioned supporters of minimum wage hikes think of themselves as battling for everyday Americans, and I’m sure that can feel good. But hundreds of thousands of the poorest Americans have stories like mine. The fight for $15 is a fight against us.
