Trump: economic genius or dunce? (derail from Ocasio-Cortez thread)

Just because I can't let stuff like this go...

Actually, yes it was. Ce specifically said "goods deficit" and that's what it was, per her link (the BEA) and yours. Well, okay, it was actually $811.2 billion...

But of course, that doesn't make Trump's statements any less wrong.

And I get the larger point, that when talking about trade deficits, one can't simply cut out some sectors; it all matters. And I agree. Still, a deficit of $568 billion is...a deficit of $568 billion.

That's not a good thing, imo.

Now, in your rebuttal to deficits specific to Germany idea, you quoted from Politifact. Specifically, this:


That, I think, is mostly correct in the moment (there comes a point where any bilateral deficit becomes problematic, based on size relative to a country's GDP, but obviously that's a ridiculously large number; I suspect Venezuela might be approaching it with some countries). But I just want to be clear here: bilateral trade deficits are not the same thing as the overall trade deficit.

As to the latter, I realize not everyone is familiar with economic history, and I'm not going to write a 50-page essay here, but understand that there are many parallels between the history of the English economy and that of the USA: from its growth and rise to the top from trade and industrialization, to it (London) becoming the financial capital of the world, to its movement away from goods to a service and consumer economy, to the roles the above played in the rise of other economies who would challenge the supremacy of England.

From the nineteenth century onward, England was the champion of free trade. And why wouldn't it be? The deck was severely stacked in its favor for over a hundred years, in this regard, because of its overseas holdings and connections, because of it's military supremacy, and because of its rapid industrialization (and all of the infrastructure that went with it).

Obviously, the world wars had a huge impact on all of this, but then the wars impacted most ever European power. Still, I would argue that a snapshot of the English economy in the years before WWI indicates the future, with or without the World Wars. It was, of course, "grand to be an Englishman in 1910." England was at its apogee in those years, mostly because it was the master of capital. It had surrendered its lead in industry and was running goods deficits year in and year out. But in service and in capital, it was still number one. Yet, those metrics couldn't make up for the goods deficit, which was largely spurred on by a consumer economy, which had become accustomed to a high standard of living (in general), replete with luxury goods from all over the world.

And the Crown--along with the aristocracy--was also running deficits. Indeed, much of the aristocracy was in debt. But the capital flowing in and out of England made this all seem easily manageable.

Yet, the rest of the world wasn't standing still, at all. New York was slowly but surely rising as a world financial center. Germany, the US, and other countries had manufacturing bases and access to resources that easily eclipsed those of England. And as the wealth pf these others increased, they began moving into the service and capital markets, as well.

Are trade deficits a problem? Yes, they are. They indicate a long term weakness. How long is "long" remains an open question, of course. And New York is still the financial capital of the world. But it has competition. And the surplus in services trade the US currently enjoys, that's not an automatic thing at all. That surplus is driven by medical tourism (people coming to the US for medical treatments), intellectual property transfers, and financial services, in order of size.

All of that said, federal government policy--on trade or anything else--isn't a panacea at all to trade deficits. And such deficits are less of a cause than they are an indicator, not only of economic shortcomings, but also of the behavior of the citizenry (and of the various state governments, along with the feds). We--all three groups, in general--spend waaaaaay too much money. We--all three groups, in general--accumulate waaaaaaay too much debt. And Donald Trump's vision is no better--in some ways its worse--than those who came before him, than most of those who oppose him, since almost none of them want to address the real problems.

And all of THAT said, it is still the case--imo--that at an international level, we've been too willing to surrender advantages or give advantages to other countries, mostly to placate them, to preserve the assumed status quo. I think Trump's idea to subsidize farmers is ridiculously stupid. But at the same time, I don't think the US needs to simply accept the policies of other countries that damage or potentially damage US interests, comparatively speaking.

Michael Douglas, Wall Street?

Yeah, I'm aware of pretty much everything you're linking to. And some of it is--again--about bilateral deficits, which aren't quite the same thing, as I thought I explained. But I'm not arguing the simplistic "trade deficit BAD" point of view at all. I'm arguing that:

1) A trade deficit in the long term--that means pretty much year in, year out--isn't a good thing. It can't be, just as having a deficit every year in the government (not the same thing as the national debt) can't be a good thing.

2) Our trade deficit in conjunction with current conditions is a bad thing. Because again:


In all seriousness, are you reading what I'm writing, because you're responding to me like I'm saying "Go Trump! He's 100% right!" when I'm not saying that at all. I mean you also said that your point stands, I guess in response to the trade deficit in goods. Yet I said this:
So yeah, Trump is pulling stuff out of the air, i.e. his statements are wrong, but then so was yours re ce's statement.

...and I do know that you don't endorse Donald Trump. I know you don't think he's an economic genius. But I do think you're being just a trifle nitpicky here about the points I'm making.

It seemed to me that c.e. was doing what Trump does -- taking isolated stats out of the air and citing them without any context, claiming they're bad. And it's more complicated than that, as demonstrated by my cites, which were intended to provide that context and the view many economists hold with regard to them.

It's possible I'm deluded and all those people are too, but what they are saying makes sense to me. As I said, I freely acknowledge my own lack of expertise. (I will note that I held the views I hold long before Trump came smashing into the china shop, so fwiw, I might or might not be wrong, but this isn't about my being all anti-Trump.)

Close. It's actually from the far more concise and powerful "money speech" as it's often called. A 2,500 word economic primer, defense of both free minds and free markets, and a prescient and cogent analysis of the route society has followed over the decades since it was first written.

Within it you can even parse the outline of a rational moral philosophy grounded in man's nature rather than the fevered dreams of a religious hierarchy.

Since it's been a while, I highly recommend a re-read.  

Or you can hear it here.

Disagree. This thread is a spinoff because I essentially disagreed with the idea that Trump is an economic illiterate in the same vein as Ms. O-C. From my perspective it seems that simple disagreement cannot stand. So I'm going to quote myself:

"Again, I think Trump is approaching this stuff just he would if he was operating as the head of his own company. His approach isn't sophisticated. Indeed, it's downright meat and potatoes. Like the soybean stuff. China threatens to stop buying (its attempt to counter Trump) and Trump responds with a "fine, I'll pay the farmers out of my own pocket" (and of course it's not really his pocket).

Again: Trump just approaches this stuff like the narcissistic prick that he is."

It's not an either-or thing, it's not either Trump is an economic genius or he's clueless.

Well, I can't speak to ce's motive, but the fact of the matter is that the stat she cited was correct. And it does mean something, even in isolation. But again, I understood the point you were making there--that trade is not limited to goods--and think it's fair, insofar as you certainly did add more context (and Trump's errors remain errors, regardless).

But you know, context is what I'm providing here as well. Saying "trade deficits aren't bad" may be true, if taken alone, out of any other context (it would be a relatively neutral statement). But in context--with regard to current and historical conditions of the US--is it still true? Again, state and federal governments that have massive debt, high debts at an individual level, consistent trade deficits, year after year, what does that all add up to? Debt, debt, and debt. How is this possibly a good thing?

Some of the stuff you've cited makes sense to me, as well. For instance, the bilateral stuff makes perfect sense. The fact that we have a trade deficit with Germany is absolutely meaningless on it's own. Imagine I owe you $50 for services rendered (lawyer services). Does that mean I'm in financial difficulty? No, of course not. Maybe Don owes me $50 for a Gadsden flag I sold him. And maybe you owe Don $50 for fixing your wifi. Saying "omg, Rob is in financial peril because he owes Cass $50!" would be absolutely wrong.I'm actually in fine financial shape (assuming this is the totality of my obligations). But then, what if it isn't? What if there are a ton of other people out there who I owe money to. Maybe overall, I owe people $500 in goods and service and they owe me just that $50. Now, my balance sheet would be -$450, as opposed to $0. Obviously, this last stat is far more meaningful than just my $50 debt to you, right?

Of course, trade deficits are not debts in this sense. But they do impact the current account deficit (increasing it, obviously). Now, that may or may not matter--having a current account deficit--too much. It depends on how high it is. And high current account deficits are lowered how? One way is by selling US Treasuries to foreign governments (like, say, China). And again, that may or may not be a problem. But there comes a point where foreign investments in a country might dry up, where other countries might balk at buying such securities, unless at a steep discount (which of course increases debt service dramatically).

The point is, there are a lot of moving parts to all of this. And in and of itself, a trade deficit isn't automatically bad news. But I think that very obviously, the big picture for the United States says otherwise right now. The fact that the US economy is humming along in the moment doesn't even matter. Indeed, increased consumer confidence may actually drive up debt--all three kinds--even more.

Pardon, but I very clearly noted that trade deficits were not debts in the sense of owing someone money. That example seemed to be the easiest way to explain bilateral trade deficits and why they don't mean anything on their own--as Cass has correctly noted--but can mean something (do mean something) in the larger picture.

Yes and no. A country's balance of payments--which is the total of the current account (trade deficits/surpluses), the capital account (which is generally small and includes things like debts written off and land transfers), an the financial account (which totals investments and the like going in both directions)--is supposed to equal zero (hence the balance). It generally doesn't in actual practice.

Well no, that's not quite right. Yes, all of these things are interdependent to some extent, but not in a "one is no more significant than another" sense.

The "balance" in the balance of payments doesn't just happen. The US trade deficit--in goods and services--is not magically equaled by capital inflows (and capital inflows is really an inadequate term). The deficit is equaled--mostly--by the monies and other instruments use to pay for the goods and service and by the simple sale of US securities and money to foreign governments and investors.

If one doesn't have a trade deficit, but instead has a surplus, one gets to buy those securities (to be sure, countries like China have to buy them in order to keep their economy stable, but for countries like Germany, it means owning marketable securities that also earn interest, along with both the government and citizens likely having a more money in the bank, so to speak).


I can't believe that piece is in the Harvard Business Review. From the bit you quoted:

That's just wrong. There's no chicken/egg question here. If there's no demand for a given good/service, then there's no trade. China doesn't ship crap here to offset monies coming in, it ships crap here and gets paid for that crap. And his argument about the role of services is flawed as well, given what is behind that surplus, as I noted upthread. That guy has lost himself in an effort to argue the "trade deficits aren't a problem" view.

But you know, I get that view, the argument that trade deficits aren't necessarily a problem. I agree with it. But again: context. The argument I'm making is that continued trade deficits for the US right now and going forward are a problem, because of the rest of the picture. The federal government is in debt. State governments are in debt (some are in serious jeopardy, like Illinois and Connecticut). The citizenry in general is in debt. One could argue that all three are essentially living beyond their means. And the trade deficit is reflective of all of this, as a matter of course, because it has become a given; it's habitual. And because there are limited reserves among these these three groups, the trade deficit can't help but create more debt.

Is it possible that conditions could change, such that the trade deficit is no longer a problem? Maybe, but such a change would almost certainly result in a decrease or even elimination of the trade deficit.

For instance, I think we can all agree that the US citizenry carries an unhealthy amount of debt (though maybe I'm wrong, maybe some see no problem with this). I know I try to teach my children to not buy stuff that they can't afford (something I tell myself, but I don't always listen). Wouldn't it be great if citizens stopped racking up debt and became more secure financially, saved more for their retirement, and for emergencies (medical or otherwise)? It would take a lot of pressure off the government. And it would also take a huge bite out of our consumer economy, wouldn't it? If millions of US citizens weren't willing to go into debt to buy the latest iPhone, then...we wouldn't import those millions of iPhones, which would in fact decrease the trade deficit.

True enough, these are not simple things, though. They're not metrics than can simply be "adjusted" to make things better, contrary to Trump's apparent point of view. But then, many people arguing against Trump in these regard--many pols--make the same fundamental errors themselves, when it comes to other metrics and policies (those who argue to the minimum wage, for instance).