Mercantilism
en.wikipedia.org
en.wikipedia.org
For example Mercantilism says a country should maximize exports and minimize imports as much as possible.
Meanwhile Milton Friedman, one of the most prominent economists of the 20th century, said that a country that had large amounts of imports with minimal exports was a very successful country. The idea being that such a country was essentially buying things from other countries at minimal cost.
Edit: The following link quotes something he said regarding this:
https://fee.org/articles/milton-friedman-the-way-we-talk-abo...
Edit: Alright, by reading the link, what Friedman means, I think, is that a country still need to export more than import, but should export just the minimum enough to pay for the imports. In volume (so I'd guess manufactured products not commodities).
US has been running a trade deficit for only the past 60 years, since the Nixon shock which is probably very related.
While on paper the US is per capita wealthier today I think that’s more to do with ponzi economics.
It is still the most developed economy but with a healthcare and education expense bigger than any other country while the citizens still need to pay a fortune for it.
there's no such thing. when you import, you send your currency overseas to pay for the goods. There is nothing they can do with your currency except send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies. (otherwise there is this huge growing pile of your currency accumulating overseas which drives down your purchasing power since it's in surplus)
not sure if Friedman said that, but he did know more about econ that me, and what I've said is accurate.
>send it back to you by buying things from you, lending it to you, or making direct equity investments in your companies.
That's true whether one foreign country exists or 10,000.
coutries trade with the US to get USD, but then trade that USD with each other
some countries stack up the USD like saudi arabia, but theyve got a pretty strong partnership with america on defense and foreign investment
USD has no value other than what it can purchase in the US.
Saudi Arabia does not pile up USD, they pile up USD denominated investments.
(basic finance that most people don't realize: When you put money in the bank, and the bank gives you interest, that's not your money in the bank, that's the bank's money. What you own is a certificate entitling you to the stream of interest payments. If you ever want your money back from the bank, you need to give them back the entitlement for the interest payments, and the interest payments will stop.)
the Saudis don't hold US currency, they hold bonds, et al.
Tell me you don't know what a Eurodollar is without telling me you don’t know what a Eurodollar is.
This entire thread smacks of ignorance. I encourage you all to take some basic university level macroeconomics courses before confidently spouting any more falsehoods about how international trade and finance works.
Any currency has value for anyone—or, more importantly, any group of anyones—who gives it value. If a person in Botswana and a person in Namibia want to trade, and they're happy working in USD between each other, then it has value there.
does the paper money of the US confederate rebel states have value? "any failed historical state's currency could have value to the people of Botswana" is not a useful idea.
Yes, I know, POWs used packages of cigarettes for currency, even those that had been passed around so many times that they were mush inside. I took econ too.
When you give money to a bank, the bank owes you money. You are a creditor and you technically own debt (which may or may not give interests). This debt is money.
The money supply is not a uniform things. It goes from actual paper money, through bank deposits which are more or less indistinguishable from paper money all the way to short term deposits and bonds.
Holding deposits and holding safe bonds is not particularly different. It’s more cumbersome to trade but it doesn’t significantly alter the reasoning about what you will be able to do with the dollars you have.
the bank does not owe you the money you put in, they owe you the interest payments.
look up "valuing a perpetuity", study the equations, that's how it works. If somebody owed you the interest payments and the money, your net worth (in regard to this money) would double. They only owe you the original money if you give back your rights to the interest payments.
I did study finance in grad school, I'm not making this up. I am using simplified language to stay focused on the simplicity of what is happening.
Any interest is certainly owed as well since it’s a consideration of a deposit agreement, but both are owed, not just the latter.
> If somebody owed you the interest payments and the money, your net worth (in regard to this money) would double.
Even for deposits, the way this works is that you discount future cash flow on top of your principal to get to your net present value. The NPV of a saving accounts above inflation viewed as a perpetuity is infinite thanks to the magic of compounding interests. Sadly, “in the long run, we are all dead”.
um... no. and it's just PV, there's no net.
look at the pattern of cash flows
Currently you can replace gold with oil: say, Saudi Arabia could literally exchange many things it imports to oil, which can be nominated in USD to accommodate for the fluctuating monetary price of oil, but could be nominated in barrels directly, in a barter trade. They won't see this oil back, even e.g. as plastics made out of it, and they're fine with that.
The US can (so far) replace the gold and oil with USD, in cash, investment, or even credit purchase form, because there's enough demand for US cash as a store of value and a currency to trade with non-US entities, and enough trust that the US is going to service its debt, so it's an investment. The US may (effectively) never receive much of these USDs it sends abroad back; they are still a good deal in an inflationary fiat-currency economy. This pump continues to work as long as things like Silicon Valley, Wall St, and the US military continue to be world-dominating in their respective areas. (And this is one reason why isolationism is a silly policy for the US, toxic for its economy.)
Money, e.g. gold, has a very special quality: it's accepted in exchange for any goods. It's the ultimate "narrow waist" of goods exchange. This gives money a very special status among commodities.
As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos. With few exceptions, importers have to sell their local currency on the market, exchange it for the exporter’s currency, and pay for the goods with that.
Some exporters will accept the importer’s currency as an accommodation, but they’ll just sell the currency to exchange it for their own, because they have to pay for everything at home with the local currency. If I were a U.S. exporter, I couldn’t pay for my groceries with Euros.
If you’re going to argue any more on this subject, please come armed with reputable references.
I would advise you to kindly take the L here and please stop trying to weasel your way around being wrong. People make mistakes; it’s how they respond when being confronted with their errors that demonstrates their character.
>you: As a general rule, this is false. Mexican importers do not pay for U.S. goods in pesos
initial conditions: americans have only dollars. mexicans have only pesos.
american sellers demand to be paid in dollars. any mexican who wants to buy american goods must convert their pesos to dollars. where do they get dollars? see initial conditions, they must get them from americans by sending their pesos overseas.
it's that simple.
now, when you run these economies with several million people importing and exporting in both directions, sure, there would be dollars in mexico and pesos in america. but why would you complicate a simple analysis with all of those other transactions when the simple case influences the outcome in the right direction and makes it easy to see what's happening?
This thread is over. I asked you to come back armed with references to support your claims and instead you continue to spout nonsense. Currency exchange simply doesn’t work the way you describe, full stop.
currency exchange can work many different ways, but it can't violate thermodynamics or fundamental laws of physics. It also cannot violate the axioms of math, which is what I described.
If a Mexican wants dollars, they need to buy them from somebody who has them. Even if there are billions of dollars in Mexico, if Mexico is exclusively importing from the US forever (which are the conditions of the question above) those billions of dollars will be transferred to the US and Mexico will run out of that supply of dollars and will have to find some new way to get them from the US.
https://en.wikipedia.org/wiki/Gold_standard
https://en.wikipedia.org/wiki/Bretton_Woods_system
https://en.wikipedia.org/wiki/Jamaica_Accords
It might be that what you’re talking about is the balance of trade, which is related to, but not the same as currency exchange. But if that’s what you’re talking about, those are the words you should be using.
it's not that I am talking about balance of trade, it's that the orignal question was about balance of trade:
owebmaster 3 days ago on: Mercantilism https://news.ycombinator.com/item?id=43589882
>and what does Milton Friedman say about a country having enough money to import without export?
he didn't say "a person", he said "a country", that's balance of trade.
so I explained why, by looking at currency exchange, we see that a country cannot engage in perpetual importing without export
you say:
>The exporter will acquire dollars from a currency trader who will sell dollars to them in exchange for pesos at the current market rate plus some premium.
if a country contains no exporters, only importers, the market for dollars or pesos will continue to tilt more and more in one direction. You don't need to model a world market of currency trade to see this, imagine a market with no currency traders (a service industry) but instead a market where you have to do-it-yourself exchange of currency. you will see the same impossible situation of currency flow all in one direction that it essentially consists of printing money till it's worthless
we don't even need currency at all, I could base my argument on barter, but he said "a country having enough money" and money brings currency into the question.
If a country massively imports raw materials and exports a low but steady volume of high level finished products, as long as the raw materials are reasonably cheap it will be a winning strategy.
A country importing high technology goods and balancing that with raw resources will potentially be in a worse condition if raw materials stay a commodity or deplete.
”And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.”
With that said. He appears to be arguing for colonialism. Take stuff from others and pay a pittance for it.
There's also the tautological paradox where price is defined by trade, so the trade balance will always be equal by any measure, if country A exports 1T bushels of wheat and country B exports 1 computer chips, we subjectively know who is winning in the exchange, but it will tally up to equal values in the balance sheet.
And that most trade is generally positive sum is also a quite reasonable take that we seem to share.
That said, even if a trade is positive for both parties, the surplus/profit of a trade might not be (and mathematically almost never is) 50/50.
In the example outlined 1B wheat for 1 computer chip might be positive for both countries, but everyone would agree that the exporter of 1 chip is getting the better end of the positive sum trade.
> Todd G. Buchholz, in his book New Ideas from Dead Economists, says, “An insolent natural scientist once asked a famous economist to name one economic rule that isn’t either obvious or unimportant.” The reply was “Ricardo’s Law of Comparative Advantage.”
>
> The English economist David Ricardo (1772–1823) postulated this: If you can do X better than you can do Z, and there’s a second person who can do Z better than he can do X, but can also do both X and Z better than you can, then an economy should not encourage that second person to do both things. You and he (and society as a whole) will profit more if you each do what you do best.
Point being - this foundational law would seem to trump any interest in mistakenly attempting to optimise for inputs vs outputs to your nation.
EDIT: From his book 'Eat The Rich: A Treatise on Economics' (1998)
And I'd argue that there are properties of nations that make them distinct from individual humans or even companies.
The relative autarky possible for a country is much higher.
I've read a similar position by a libertarian Hayek I think in "I pencil", but I never did buy the argument, the idea that a pencil is the product of global trade, I don't buy, you can make national pencils without a sweat.
Adam Smith didn't understand that people would trade even if one of the peers was better at every single thing. He got lots of stuff right, and even some things that took until the 19th century to make into mainstream economics. But not this one.
The theory of comparative advantages is a very unintuitive idea. There's a reason that it took until the 20th century for economists to notice it.
It is, obviously, possible. Pencils are about as simple as it gets. But it is hardly a no-sweat process. It made international news when China declared itself capable of producing a ballpoint pen using only native tech and materials. It was a point of significant pride to the Chinese government at the time - as well it should be, it was something of a manufacturing and policy tour-de-force.
https://www.washingtonpost.com/news/worldviews/wp/2017/01/18...
Maybe you should produce X and Z.
Not because it's difficult to identify emissions generated in order to produce those goods subsequently exported (it would be arduous to do so, but not infeasible), but because absent that particular manufacturing effort for those specific exports, what would that nation state instead be doing with those resources / what emissions would they be generating in the pursuit of domestic consumption needed to replace the income from those exports.
Are tariffs a veiled carbon tax?
They aren't conserving what we already have (they're cresting new policy and abandoning trade partnerships already built).
They also aren't supporting free trade. Maybe that isn't technically conservative, but its always been my understanding that free trade was a pretty big part of American conservatism (at least in recent decades).
To which I conclude, this is apparently what the Republicans are offering up as their form of populist policy
The left/right split doesn't make sense here (as you said). Liberal/conservative really doesn't fit either, the waters have gotten too muddied and many arguments I've seen made that should fit under a liberal banner get categorized as Libertarian or even Anarchist.
Specifically, a past state where foreign companies were unable to outcompete domestic ones [1].
It's also a policy going against internationalist norms (which encourage you to free trade even if it seems to be hurting you), and toward nationalist ones [2].
[1] A lot of people who like tariffs have a sense that our free trade policy was an honest attempt to play an honest game where a rising tide would lift all boats. But that didn't happen; instead of a win-win, foreign companies won big by cheating, and we lost. (And we did lose, at least if you ask just about anyone in the Rust Belt.)
For example, tariffs of their own; subsidies; IP theft; currency manipulation; various abuses of their people with low wages; bad working conditions; low or non-existent safety / environmental standards; and totalitarian governments willing to shoot anybody who complains about any of the above.
Trying to play fair to lift everybody's boats when everybody else is pouring water from their boat into yours isn't a recipe for success. It just makes you a sucker sunk by the cheaters -- too honest for your own good.
[2] Again, there's a sense of grievance. Our past policies were honestly trying to unselfishly help the world, and other countries selfishly took advantage of us. So we're done being suckers; it's our turn to be selfish. If other countries don't like us being selfish now, well, they should have thought of that instead of being so selfish themselves before.
Rightly or wrongly, that's really how the current administration thinks about many other countries. That attitude came out loud and clear in the Signal messages they accidentally sent to that journalist: https://www.youtube.com/watch?v=YHU5HDQL6F0
The problem with any of these narratives is it burns decades of good relationships and allows our enemies, for lack of a better word, to fill any void that is left over. I’m sure China is trying to woo the EU right now as we speak, and I couldn’t blame the EU for not taking some of their possible proposals, as they now need to replace hundreds of billions of dollars of trade overnight
Free trade with western/ US aligned countries actually works extremely well. China being the largest of the bad actors (but hardly the only one) is problematic, so I understanding targeting that, but not our historically close Allies
But on the other hand, the US's entire industrial base has fallen into complete ruin and needs to be rebuilt. Broad tariffs will help with that.
I see both sides of the issue, and I'm not really sure which is right. But the political leadership has made its choice; now the rest of us are along for the ride.
Personally I'm skeptical it will work out exactly as hoped, but I'm still decently optimistic it will put us in a better position than we had before.
One good thing is that everyone's now on notice: Taking advantage or over-relying on the US now has consequences. It's no longer an all-benefit, no-risk strategy.
Undoubtedly there will be short-term pain but that's the price of fixing the disastrous neoliberal trade policies that destroyed the Rust Belt.
Interesting when the US has benefited more from this system than almost anyone else.
You have massive economic growth compared to almost all developed countries and (according to your words) don’t even have to work for it. Can hardly blame the rest of the world for US government/etc. failing to fairly distribute the value US is extracting from the global economy.
It won’t, unless they’re sustained for a long time, longer than Trump will be president and even then I’m not sure. It won’t be like it was in any case.
If anyone actually cares about undoing the externalized costs of businesses moving their manufacturing overseas it should be to invest in re-training, re-education, fostering R&D and targeting industries we can have global advantages in. Get people working on things that will sustain themselves without major trade interventions.
The entire premise of helping our industrial base is extremely hollow and doesn’t really hold up to scrutiny. Especially since this isn’t being followed with any reforms or subsidies that will do anything to help. There’s no talk of it coming either. It’s hand waved away.
At any rate, why does it matter? What non critical manufacturing benefits from being in the US? What benefit does the US get if any of this non critical manufacturing comes back? Why not invest in new industries to take its place? Invest, retrain, reskill, retool. Those should have been the mantras. Not bad trade policy. Not throwing away the rules based order on effectively a whim.
>One good thing is that everyone's now on notice: Taking advantage or over-relying on the US now has consequences. It's no longer an all-benefit, no-risk strategy.
It never was, not really. There’s no evidence that our faithful (re: the EU, Canada, Mexico, Japan, Taiwan etc) were getting all the benefits without giving up something in return, in some manner. Our close allies always maintained symbiotic relationships with the US.
The biggest of which is the USD status as reserve currency. That gives the US such immense power that it’s easy to forget just how big a deal it is. It was also technology sharing, intelligence sharing, trade, international finance etc.
It’s not a good thing this is breaking down
As for the Rust belt. I hate to be the bearer of bad news but it’s not going to recover. There’s no chance it ever meaningfully does, but doubly so because there is no plan, no funding. Nothing.
I don’t understand any of this unfounded confidence
> I don’t understand any of this unfounded confidence
Usually when I post about political topics here, I'm full of skepticism, devil's advocacy and cynicism. But today, I'll reveal my true colors: I'm secretly an optimist.
I really, truly believe that human progress has a generally positive trajectory. That technology will continue to progress. And such progress generally improves peoples' lives and makes a positive impact on the world.
Our society used to have things figured out. We used to have a social narrative that made sense. I truly believe that we can set up a society where success and opportunities are available to anyone who's willing to make an honest effort.
Why? Because I'm an optimist. Because we already did it.
Observing the sustained, long-term backward progress, shrugging, and saying "Well, that's just the way things are now" is something that I do not understand and do not accept. The idea that that's truly the way of things seems wrong and counterintuitive.
Both objectively so: It seems to go against the model backed by most of human history, that the trajectory of progress is generally forward.
And subjectively so: If there is truly no path forward, that set of affairs isn't just an intellectual curiosity. Living in a world where that's true is a genuinely frightening prospect.
Let me just emphasize how absurd it is. Our society solved the problem of routing good economic opportunities to most people and then one day we just stopped doing that.
The solution's so obvious it's a farce. Just go back to what we were doing before! Global trade used to be expensive, and a lack of global trade seems to be a big piece of the puzzle as to why the economy was the way it was back then. To me, making global trade expensive again seems like a perfectly reasonable thing to attempt!
Global trade became cheap with the advent of modern container ships and their containers. This happened well before the decline of the industrial base in the 1980s
It really came from lack of investments in the sector and poor industrial policy.
Over the past few decades, the rest of the world has managed to develop and compete.
In regards to making global trade expensive again….the policies that the United States is pursuing won’t make global trade more expensive. It will just make trade with the United States more expensive. The other countries will continue to trade with each other cheaply and will continue to gain prosperity and continue to advance.
It is possible we may see a world in which the United States has stagnated to not compete with the rest of the world. And a world where maybe the dollar has been replaced with the euro or some other currency as the reserve currency. If that is the case…well things won’t be too good for Americans to say the least.
Lost due to lack of redistribution not because of foreign companies outcompeting everyone.
US won, its economy was basically built on exporting dollars and effectively buying “free” stuff with it. Almost any other country besides the US that had a similar fiscal policy would have already imploded. Instead you got to export your inflation to the rest of the world and even that wasn’t good enough…
That might need to get updated within a few years...
Not so well when you have a fiat currency that's also the world's reserve currency...