Krugman Has His Backside Handed to Him

[c1ue]

Re: Krugman Has His Backside Handed to Him

American companies might want to export but you can't see that they are more likely to use the currency elsewhere when its a carry trade currency? When I float a dollar overseas, it is less likely to come back as a demand for American product. You did not see Triffin's point? Our debt is an export product with little need of being redeemed by labor.

Triffin's point was, to my understanding, a bias - not a natural law.

And my example of Germany in context with the rest of Europe inside the EU shows that reserve currency is by no means the only, or even controlling factor in trade balances.

You are applying it too broadly. I was comparing the wealth of Athens to the wealth of the Peloponnese. When ever you have resource wealth, it may become very concentrated because all it takes is for someone to stake a claim. In a place like Athens, the only wealth resource came from human labor and artisans who will counter balance the aristocrats much more so.

You might try a different quote then, because the passage you posted above speaks to how rich lands bring in invaders. That definitely isn't the problem in the US.

Wall Street does not need to involve main street for its wealth. All it needs is the reserve currency.

In the short term, this is true. In the medium and long term, the failure of the US to maintain its place as the largest economy in the world will absolutely affect reserve currency viability.

American labor was in a much better condition to negotiate

I don't actually think so. The power American labor had in the past was both a collective impact on business performance as well as political power.

The collective impact part has been lost, but it was lost in no small part due to failure to exercise political power to protect its own interests. Again looking at Germany - why is it that in Germany the labor union has a member on the board on all of the largest companies, but in America the labor unions are at best just purses for the Democratic party? And are best known for staging strikes rather than participating in the actual business?

But again, in a country with the world's reserve currency, there is much less need for American industry. We will have a wealthy financial class on the one side and lumpenproles on the other.

Marx's lumpenproles didn't have a vote. Governments, militaries, and police forces in Marx's time were different social strata as well, whereas today this is much less true.

[gwynedd1]

Re: Krugman Has His Backside Handed to Him

Triffin's point was, to my understanding, a bias - not a natural law.

I think then you are mistaken. It is essentially a law, not a bias. It serves as an unearned trade good and generally will follow the laws of trade.

And my example of Germany in context with the rest of Europe inside the EU shows that reserve currency is by no means the only, or even controlling factor in trade balances.

Its "trade" which is not applicable to any one good. Its not either/or. US debt simply functions as another trade good based upon the demand for liquidity for this wealth storage organ.

You might try a different quote then, because the passage you posted above speaks to how rich lands bring in invaders. That definitely isn't the problem in the US.

"Accordingly Attica, from the poverty of its soil enjoying from a very remote period freedom from faction"


Why can't you just read that? You could have read that and thought a little more deeply about what is the rich soil in this case. Rich soil in those times is the classical land rent model of Ricardo. As Henry George has pointed out, rent is a much more general law. Even today you cannot blindly follow what George said because now the economic rent is flowing to finance. It must apply to the reality of today.


Do you understand the fertile soil in this context as being the reserve currency? You think that the other world powers are not gunning for this soil? You are not getting the broader context of rents and unearned income, which is surprising you being a fan of Hudson.

In the short term, this is true. In the medium and long term, the failure of the US to maintain its place as the largest economy in the world will absolutely affect reserve currency viability.

Most probably, much like a well runs dry. I don't suppose you read the passage that made no sense to you that rich soils change masters just like money power enriched copper smiths, silver smiths and gold smiths. The monetization of silver was strongly support by the silver interests and they lost to the finaciers and the gold interests. The rich soil of monetary power changed its faction.

I don't actually think so. The power American labor had in the past was both a collective impact on business performance as well as political power.

Huh? You mean to tell me that the US in the colonial period labor through the 19th century had collective political power? I think not. The power came from their own rents and capital, and I whole heartily agree with Marx on that point. That is why labor in it of itself became more of a power in the 20th century. It is now being sapped again because government now takes the role of personal land and capital resources as a counter balance to rentiers and capitalists, and doing it badly.

The collective impact part has been lost, but it was lost in no small part due to failure to exercise political power to protect its own interests. Again looking at Germany - why is it that in Germany the labor union has a member on the board on all of the largest companies, but in America the labor unions are at best just purses for the Democratic party? And are best known for staging strikes rather than participating in the actual business?

I don't know about Germany in particular, which is as of now much more of a nation state than we are, a country of faction, but I already answered the question above. The US government sapped the need for unions. Its like a comment on your food thread. Providing food destroys the domestic industry of food. So too did the government destroy the domestic industry of labor.

Marx's lumpenproles didn't have a vote. Governments, militaries, and police forces in Marx's time were different social strata as well, whereas today this is much less true.

That has nothing to do with it. The merchants had the same voting rights as the proles, none. So its a wash. The difference was in the relative economic power. Once again, seems I agree with the assessment of Marx on that point.

[c1ue]

Re: Krugman Has His Backside Handed to Him

I think then you are mistaken. It is essentially a law, not a bias. It serves as an unearned trade good and generally will follow the laws of trade.

Interesting.

The first time I've ever seen anyone, anywhere call a theory of economics a law.

I must say I disagree. The reserve currency syndrome you speak of was termed by Triffin to be a dilemma - not a law. It is a dilemma because there is a conflict on interest between short term domestic and long term international economic objectives.

Note that this isn't a action/reaction, although it could be termed zero sum.

Implicit within Triffin's commentary was that the owner of the reserve currency could not serve both international and domestic needs at all times, but it doesn't mean the international part wins. It just means the international part, if it wins, will at times cause the domestic parts to lose.

However, the choice as to whether the international part dominates over the domestic part - that is up to whoever controls the reserve currency. I don't think you argue that the US control the US dollar - therefore the ascendancy of international goals to the detriment of domestic US goals is a function of US political choice, not natural monetary law.

Why can't you just read that? You could have read that and thought a little more deeply about what is the rich soil in this case. Rich soil in those times is the classical land rent model of Ricardo. As Henry George has pointed out, rent is a much more general law. Even today you cannot blindly follow what George said because now the economic rent is flowing to finance. It must apply to the reality of today.


Do you understand the fertile soil in this context as being the reserve currency? You think that the other world powers are not gunning for this soil? You are not getting the broader context of rents and unearned income, which is surprising you being a fan of Hudson.

I'm still lost as to the reference. Fertile soil was what was being fought over, you're now saying other nations are fighting over being the reserve currency? Why would they if it is such a bad thing as your depiction of Triffin's dilemma --> law shows?

Most probably, much like a well runs dry. I don't suppose you read the passage that made no sense to you that rich soils change masters just like money power enriched copper smiths, silver smiths and gold smiths. The monetization of silver was strongly support by the silver interests and they lost to the finaciers and the gold interests. The rich soil of monetary power changed its faction.

This relates to the above 'fight' over reserve currency, which is to say, who would want it if it is so bad?

Huh? You mean to tell me that the US in the colonial period labor through the 19th century had collective political power? I think not. The power came from their own rents and capital, and I whole heartily agree with Marx on that point. That is why labor in it of itself became more of a power in the 20th century. It is now being sapped again because government now takes the role of personal land and capital resources as a counter balance to rentiers and capitalists, and doing it badly.

I think the 'collective' as you term it had far more role in daily as well as international policies in the 19th century than today. Labor in the Marxist sense didn't exist until industrialization, but the world wasn't a blank slate before that period.

Just because what little national policy there was, was defined by Washington and New York, does not equate with any significant control over Americans.

I don't know about Germany in particular, which is as of now much more of a nation state than we are, a country of faction, but I already answered the question above. The US government sapped the need for unions. Its like a comment on your food thread. Providing food destroys the domestic industry of food. So too did the government destroy the domestic industry of labor.

The US government, however, is at least theoretically just as responsive to the people as the German government. Therefore if the US government destroyed unions, maybe the American people overall wanted that, or at least didn't care enough to oppose it.

That has nothing to do with it. The merchants had the same voting rights as the proles, none. So its a wash. The difference was in the relative economic power. Once again, seems I agree with the assessment of Marx on that point.

Marx, while he had groundbreaking ideas in economics analysis, also had a lot of blind spots. One huge one is capital vs. money. There are many others, unsurprising given that Marx was writing about society 150+ years ago.

I'd suggest that you look into the economics section to see how economic thought has evolved from Marx/mid 1800s.

[raja]

Re: Krugman Has His Backside Handed to Him

There is an easy technical solution. If by no solution you mean because of a crock filled moat of corrupt politics then, well, we agree.

There are five reasons why people in the US are going to get poorer:

1. Global competition
2. Demographics
3. Decline of natural resource availability
4. Increasing natural disasters
5. Wealth (and power) inequality

Only #5 is possibly solvable, as you say, if corrupt politics was somehow "fixed".
The other four are inevitable, and cannot be solved . . . .

[BadJuju]

Re: Krugman Has His Backside Handed to Him

Only #5 is possibly solvable, as you say, if corrupt politics was somehow "fixed".
The other four are inevitable, and cannot be solved . . . .

1. Global competition cannot be solved per se, but it can be addressed. Like wealth inequality, it is going to take good politics.

2. The United States actually has good demographics compared to most countries. The boomers skew things a bit, but overall, the population is young and has a good replenishment rate. Massive amount of land-to-people ratio. Most western countries are aging disproportionately and not replenishing at a good rate. China and India have way too many people. And China has serious population imbalances.

3. The decline of natural resources is a problem; however, it does not take into account that increasing efficiency offsets resource declines. Not to mention that you are discounting the combination of existing resources to create new resources or the exploitation of existing resources for new industries that are otherwise unused. Furthermore, the US is a very resource rich country. The issue of resource scarcity is also solved if we eventually start extraterrestrial operations for resource exploitation. Although the dumb ass US is doing all it can to reduce our space advantage when we should be capitalizing on it.

4. Definitely a problem, but not one without a human solution of creating less fragile systems and geoengineering.

[Penguin]

Re: Krugman Has His Backside Handed to Him

Triffin's point was, to my understanding, a bias - not a natural law.

And my example of Germany in context with the rest of Europe inside the EU shows that reserve currency is by no means the only, or even controlling factor in trade balances.

I have to point out that perhaps the example of Germany is more in line with proving the case that currency regimes DO matter. What you have in Europe is essentially a currency peg that prevents devaluation to balance trade flows. Germany, being a more efficient and technologically based economy is running ongoing and chronic trade surpluses with its currency partners. Politics and Euro policy being what it is there was no way to balance trade.

No one can with 100% certainty say exchange rates affect trade to X dimensions. And when you try to pin them down on it the defenders of the current regime try to talk Forex instead of individual trades of the given trade partners. What you can say with 100% certainty is that it does matter and it does matter a lot.

To say otherwise is to say that price doesn't matter.

There are certainly other matters at work. No one can deny that. But to say price doesn't matter is to jump a shark that puts one rudderless in terms of economics. At least that is how it seems to me but I've been wrong before this.

Will

[raja]

Re: Krugman Has His Backside Handed to Him

1. Global competition cannot be solved per se, but it can be addressed. Like wealth inequality, it is going to take good politics.

Say you and I live in a small town, and you operate a pizza parlour. I decide to open up another pizza parlour down the street. You are going to get poorer, because the demand for pizza is relatively constant. It's just math.

Of course, there are solutions . . . you could send the mob after me to blow up my place. Or you could secretely put cocaine in your pizza, making everybody addicted.
But there are no practical solutions.

Think about Japan and the car market. Before Japan moved in, American carmarkers got all of the business. Now Japan has half the car market. Expand those principles to the global economy.

2. The United States actually has good demographics compared to most countries. The boomers skew things a bit, but overall, the population is young and has a good replenishment rate. Massive amount of land-to-people ratio. Most western countries are aging disproportionately and not replenishing at a good rate. China and India have way too many people. And China has serious population imbalances.

"Back in 1950, as the baby boom was just getting started, each retiree's benefit was divided among 16 workers. Taxes could be kept low. Today, that number has dropped to 3.3 workers per retiree, and by 2025, it will reach--and remain at--about two workers per retiree. Each married couple will have to pay, in addition to their own family's expenses, Social Security retirement benefits for one retiree."

That is a huge and unsolvable

Yes, you could "solve" it politically by taking money from somewhere else, but the net effect is that poverty increases, because even though you can rob Peter to pay Paul, somebody's getting poorer. Or, you could euthanize the old people when they turn 70

3. The decline of natural resources is a problem; however, it does not take into account that increasing efficiency offsets resource declines. Not to mention that you are discounting the combination of existing resources to create new resources or the exploitation of existing resources for new industries that are otherwise unused. Furthermore, the US is a very resource rich country. The issue of resource scarcity is also solved if we eventually start extraterrestrial operations for resource exploitation. Although the dumb ass US is doing all it can to reduce our space advantage when we should be capitalizing on it.

Again, there are solutions, but as far as I understand it, none that will fully allow us to maintain our present standard of living.
Think about the great lengths extractors have to go to in order to maintain supply such as oil wells in the deep ocean, fraking. Think about the increase in personal autos in China from the 1980s when there were 5000 personal automobiles, to now --"The China Association of Automobile Manufacturers announced that auto production and sales may exceed more than 10 million this year."

4. Definitely a problem, but not one without a human solution of creating less fragile systems and geoengineering.

"Creating less fragile systems and geoengineering" would help, but it is by no means a solution. Besides we wouldn't have the money to do it even if it were possible. Here are some natural events that would cost billions: New Madrid earthquake decimates Memphis; a solar storm of the magnatude of the 1859 storm, which would knock out the electric grid, most computers and create huge social upheaval; volcanic eruption on the magnitude of Krakatoa causes world wide famine due to blocked sunlight globally; other big earthquakes affecting large cities. There are many other disasters, with albeit lower likelihood, that could occur.

[c1ue]

Re: Krugman Has His Backside Handed to Him

Germany, being a more efficient and technologically based economy is running ongoing and chronic trade surpluses with its currency partners.

This would be more credible except that Germany's trade balance with China is fundamentally very different than that of the US. Surely you're not going to say that there is a currency peg between the euro and RMB?

	German trade deficit with China		U.S. trade deficit with China
	percent of GDP	billions of dollars	percent of GDP	billions of dollars
2004	0.4	9.7	1.4	162.3
2005	0.6	17.4	1.6	202.3
2006	0.7	20.4	1.7	234.1
2007	0.8	26.4	1.8	258.5
2008	0.7	25	1.9	268
2009	0.3	10.8	1.6	226.9
2010	0.4	12.4	1.9	273.1
	German exports to China		U.S. exports to China
	billions of dollars	dollars per capita	billions of dollars	dollars per capita
2004	25.9	313.9	34.4	113.3
2005	26.1	316.1	41.2	134.3
2006	33.8	410.3	53.7	173.3
2007	40.5	491.3	62.9	201.2
2008	50.1	608.5	69.7	220.9
2009	52.2	635.3	69.5	218
2010	71.1	865.9	91.1	285.6
Sources: Global Trade Atlas (trade data), United Nations (population data), and staff

Source: http://www.usitc.gov/journals/german...alance1_12.pdf

You can see from the above that not only does Germany have a far lower trade deficit with China in both absolute and relative terms, the behavior of said deficit is also much different: the 2008 GFC more than halved the German trade deficit with China even as the US' trade deficit fell only 20%, and the US returned to pre-GFC levels in just 1 year even as Germany deficit remains at much lower levels.

Thus while it is very true that Germany's overall surplus balance of trade is due to its inclusion within the EU, it is also true that Germany's balance of trade with China behaves very differently than that of the US' balance of trade with China - even more so given the euro's rise in the above period both against the dollar and the RMB.

[Penguin]

Re: Krugman Has His Backside Handed to Him

No I wouldn't say that at all.

But I would offer that this is the type of situation I would expect given that Germany imposes the same VAT scheme that China does. They only need to fight through the wall of informal tariffs and trade barriers while the US has to fight through those as well as the nominal VAT rate of 19%. Germany reciprocates with a VAT of 17%.

America's nominal import tax rate? 1.4%

Price matters.

Will

[lektrode]

Re: Krugman Has His Backside Handed to Him

America's nominal import tax rate? 1.4%

Price matters.

wonder if most of the diff tween germany and the US is that we shop at walmart (300bil worth/2011)
and they dont?

[Penguin]

Re: Krugman Has His Backside Handed to Him

wonder if most of the diff tween germany and the US is that we shop at walmart (300bil worth/2011)
and they dont?

Not sure but it is something to ponder.

They for sure believe that manufacturing is something to protect and nurture. There could not be more difference in how our two nations treat what I consider to be the backbone of a healthy economy. American leadership seems to take perverse pleasure from ensuring that US manufacturers and workers play uphill in global trade.

One thing I will guarantee with absolute certainty: The service economy meme where we import finished goods and in return export PowerPoint presentations and critical path management schedules is as vacuous and doomed to failure as the finance economy meme where we import finished good in exchange for freshly printed FRNs and synthetic CDOs.

Over and over I hear about the benefits of free trade and over and over I see us go into global trade agreements that by their very nature ensure a chronic and ongoing trade deficit. And I cannot for the life of me understand how economists can look into the teeth of the fruits of a few decades of this madness and insist that everyone will benefit from it.

Will

[lektrode]

Re: Krugman Has His Backside Handed to Him

Not sure but it is something to ponder.

They for sure believe that manufacturing is something to protect and nurture. There could not be more difference in how our two nations treat what I consider to be the backbone of a healthy economy. American leadership seems to take perverse pleasure from ensuring that US manufacturers and workers play uphill in global trade.

One thing I will guarantee with absolute certainty: The service economy meme where we import finished goods and in return export PowerPoint presentations and critical path management schedules is as vacuous and doomed to failure as the finance economy meme where we import finished good in exchange for freshly printed FRNs and synthetic CDOs.

Over and over I hear about the benefits of free trade and over and over I see us go into global trade agreements that by their very nature ensure a chronic and ongoing trade deficit. And I cannot for the life of me understand how economists can look into the teeth of the fruits of a few decades of this madness and insist that everyone will benefit from it.

Will

+1
couldnt have said it better mesself will - brilliantly put, as well!

hows the ipod accessory biz coming along? (eye note yer 'avatar' pic looks familiar - same guy?)

[Penguin]

Re: Krugman Has His Backside Handed to Him

+1
couldnt have said it better mesself will - brilliantly put, as well!

hows the ipod accessory biz coming along? (eye note yer 'avatar' pic looks familiar - same guy?)

Thank you very much. I admit to being a bit over my head at times here but I'm trying to learn.

Not sure where you've seen my avatar but I am a lowly engineer. I don't even own an ipod, lol. That photo of me was taken last year (or was it year before last?) while I was doing some hiking in the New River Gorge. I was born and raised right along that ancient old lady and still consider it my home.

Will

[c1ue]

Re: Krugman Has His Backside Handed to Him

No I wouldn't say that at all.

But I would offer that this is the type of situation I would expect given that Germany imposes the same VAT scheme that China does. They only need to fight through the wall of informal tariffs and trade barriers while the US has to fight through those as well as the nominal VAT rate of 19%. Germany reciprocates with a VAT of 17%.

America's nominal import tax rate? 1.4%

Price matters.

Perhaps you can provide some data which supports your viewpoint - which apparently is now that import taxes are the driving factor.

VAT isn't automatically credible per se because that is common across all of the EU, and exists in as disparate a range of nations as Canada and Spain.

Import barriers also aren't automatically credible per se either, because Japan has the highest 'informal' import barriers anywhere as well as a cultural bias against China/chinese goods, is a major exporter, and has a large and rapidly growing trade deficit with China. This deficit in fact reached a record high in 2011:

http://www.jetro.go.jp/en/news/relea...120223142-news

The EU has has a highly harmonized import regime, thus I'd like to see more details on what you term informal Germany only trade barriers vs. what France, the Netherlands, Spain, and so forth see.

[Penguin]

Re: Krugman Has His Backside Handed to Him

Perhaps you can provide some data which supports your viewpoint - which apparently is now that import taxes are the driving factor.

VAT isn't automatically credible per se because that is common across all of the EU, and exists in as disparate a range of nations as Canada and Spain.

That isn't my opinion at all.

My opinion is the the entire VAT tax structure was designed to subsidize exports and penalize imports against those who do not deploy a like system. My opinion on currency exchange is that China uses a currency peg which is designed to increase exports and penalize imports. My opinion is that both have been overwhelming success stories... for America's trading partners.

And our lack of a response has been a dismal failure of American politics and economic thought.

These two factors don't account for the trade deficit in its entirety. What is does do is explain in large part how the trade deficit has been achieved AND maintained. Currency manipulation is a way to keep your labor costs down and your population less able to purchase abroad. VAT schemes were designed with the intent to allow our trading partners to subsidize exports and penalize imports. Taken together with a total lack of respect of intellectual property and a wall of informal and formal trade barriers they round out a mercantilist's wet dream.

But that is just my opinion. I'm interested in hearing yours.

Do you believe it is reasonable to dismiss both those major issues as irrelevant? I want to know how an export tax approaching 20% and active currency pegs don't affect price and therefore the balance of trade. Is this what you are putting forth? I know wage arbitration was a fact of life. No way we bring 2 Billion people into the labor force and not see a downward force on labor. But to dismiss these two factors as in no way making the problem worse and preventing a self correcting cycle is something I am not sure I have heard outside of right wind radio and some extreme anarchist websites.

Will

PS: I thought about this and have to admit that I have heard economists suggest that import tariffs placed on American goods and currency pegs do not affect our trade balance.... but it not been often. And it hasn't always been a right wing economist either.