Category Archives: Economics

Miscellaneous economy stuff

Some Thoughts on our Trade Imbalance

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Phil Gramm and Donald Boudreaux had an extensive op-ed in last Thursday’s Wall Street Journal. I have a couple of thoughts on their piece.

Overall, they presented a typical argument regarding international trade balances, and it was sound as far as it goes. However, I’ve never seen an argument for or against US trade deficits/surpluses that take into account the dollar as the world’s reserve currency.

For international trade, how much, really, are local currencies traded for dollars in order to purchase American goods and how much are local dollars traded for foreign currencies in order for Americans to buy foreign goods? How much of those currency exchanges are really just taps of the foreign nation’s dollars held as reserves and similarly replenished into those reserves through ordinary trade-of-goods-and-services exchanges? In other words, how much to buyers and sellers themselves do the currency exchanges and how much of those currency exchanges are actually done from government to government out of government reserve holdings?

Maybe a lot is government to government, maybe a little, but the question needs answers.

Also this:

Has the expansion of global trade “hollowed out” US manufacturing, as Joe Biden claimed in 2022? No. US industrial production today is more than double what it was in 1975, the last time we ran a trade surplus.

What is produced by today’s “industrial production” compared to that of 1975? Or immediately after WWII? That never gets specified. Nor does “industrial production” ever get normalized to account for changes in technology and manufacturing techniques.

A similar definition disconnect exists for services.

Until those specifications are made, claims of industrial production or services changes in either direction are meaningless.

Reciprocal Tariffs

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National Economic Council Director Kevin Hassett says that negotiations are underway with a variety of nations regarding tariffs.

Reciprocal tariffs are absolutely a high priority for the president, [they] have been forever. You know, our trading partners charge us way more in tariffs than we charge them. And it’s something he talked about before[.]
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And there’s got to be a lot more action on it today[.]

A lot more action. Recall that, during his first term, President Donald Trump (R) offered the G-7 nations and EU a tariff-free trade zone. All of those nations and the EU blew him off.

It’s time to renew that offer: let tariffs reciprocally drop to zero and create a true free trade zone. See if those nations, and especially the EU are serious about doing honest business with us. American producers will have no trouble competing in that zone.

It Could be made to Work

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President Donald Trump (R) wants a sovereign wealth fund for “promot[ing] fiscal sustainability,” “establish[ing] economic security for future generations, and promot[ing] United States economic and strategic leadership internationally.” This is a slush fund with a gussied up label.

It could work, nonetheless, under a very narrow Critical Item-level set of circumstances.

• slush fund dollars can be loaned only, not committed as grants or investments
• slush fund purposes and scope clearly defined and limited
• scope and types of enterprises to which slush fund dollars may be loaned clearly defined and limited
• slush fund loans to be made at annually adjusting rates equal to the prime rate plus 12.75%, which is roughly comparable to today’s credit card interest rate markup
• slush fund loans to be repaid in full within two years
• principle to be returned to the slush fund; interest payments to be sent to Treasury for the explicit purpose of paying down the national debt
• bankruptcy can be used to discharge slush fund loans, but only via liquidation bankruptcy

Those are stiffly limiting criteria for a Federal government slush fund, but the WSJ editors are correct in every respect in their concerns about the dangers of such a fund. Setting up such a device under these criteria is likely a pipe dream chasing a chimera, but the idea is worth serious consideration: under these criteria, the idea could work; alternatively, the idea could be put to rest for a useful period of years.

NGOs and Funding

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Non-government organizations—are they non-governmental, or are they not?

President Donald Trump (R) has ordered all Executive Branch Departments and agencies to review their funding of non-government organizations (NGOs). His order has this:

The United States Government has provided significant taxpayer dollars to Nongovernmental Organizations (NGOs), many of which are engaged in actions that actively undermine the security, prosperity, and safety of the American people.

It’s time to stop Federal transfers of taxpayer monies to NGOs. Emphasize—enforce—that “non-” part. Being affiliated with government—even if only through government financing of part of their operation—denies the “non-” part of their designation.

If us average Americans think an NGO’s activities are appropriate, we’ll support it voluntarily with our own, direct, donations. If we do not, we should not be dragooned into supporting it anyway by having our tax dollars shunted off to it.

Not that Complicated

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In a Wall Street Journal article centered on why 3% inflation isn’t close enough to 2% inflation, even for government work, there was this bit:

Anticipating the public’s reaction is tricky, not least because economists still argue about why people hate inflation so much in the first place. In textbook models and in many real-world instances—including during the 2020s—wages tend to catch up to prices, so inflation doesn’t, over time, erode the purchasing power of the average worker’s paycheck.
Even so, inflation makes people feel that they are falling behind….

It’s not that complicated.

This is a case where opportunity costs become real and realized costs. Wages do catch up over time, but during that time, people keep right on aging. By the end of the inflationary period, the time behind them has in concrete terms eroded their purchasing power. The opportunities to do the things they’d wanted to do are lost forever. The abilities to do many things for themselves or with family and friends may no longer possible as they now may no longer be young enough to do them, depending on when in their lives the inflation struck them. The opportunities to acquire many of the things they wanted to acquire are permanently lost as they have less time left in which to enjoy those acquisitions, or in the case of a larger house to better accommodate a growing family, some if not all the children have left the nest and the larger house no longer is useful to them.

Over that time, too, and beyond it, wages don’t necessarily exceed the inflation, so catch-up, practical, useable catch-up—the ability, for instance, to expand savings to get back to where folks would have been had their savings regime not been interrupted by the inflationary period—does not exist.

Inflation makes people feel like they’re falling behind, because during the inflationary period they are falling behind. Then people remain behind because even with after the fact rises in wages, their opportunity to catch up is so heavily limited, and especially is the time available in which to catch up much more tightly constrained.

All of this especially is the case for folks on the lower rungs of our economic ladder. They start out with narrow margins for things like savings and acquisitions of highly useful things—that larger home, for instance, or a car to replace the increasingly expensive to maintain beater—much less to do or acquire things are fun to do or to have. In the best of times, they have trouble keeping up; with the losses from an inflationary period, they only fall farther behind, with no hope of recouping even that arrearage.