by Мастер » Tue Aug 16, 2011 10:45 am
The man on the street seems to think all kinds of things; some of those things are even true!
Last time I checked, the value of goods manufactured in the United States was larger than the value of goods manufactured in China. The big difference was, those things manufactured in the US tended to be high-value, technologicially sophisticated stuff, whereas much (although not all) of Chinese manufacturing is cheap stuff.
One of the consulting firms is predicting that within a few years, the cost advantage to manufacturing in China relative to the US will have disappeared. This prediction is based on extrapolation of productivity growth and wage growth in the two countries. Wages in the US will still be much higher, but productivity in the US is also higher. So the forecast is, the cost advantage will disappear. We'll see if this prediction comes true.
Another thing the man on the street knows is that the US runs a trade deficit because of unfair trade practices, mostly perpetrated by those who refuse to recognise that good jobs are for white-skinned people, not yellow and brown subhuman animals. Let's think that one through. What is called the "National Income Equation" for a closed economy (no trade) is
Y == C+I+G
Y == National Income
C == Consumption
I == Investment
G == Government Spending
That which is produced (Y, "National Income") may be consumed (C), invested, (I), or spent by the government (G). No other choice. If the government wants to spend more, then there are only three ways to do it - increase production (Y), decrease consumption (C), or decrease investment (Y). No choice. It can't expend resources that don't exist.
Now, when we have an open economy, there is another term, NX (net exports), which could be negative.
Y == C+I+G+NX
Now if the government wants to spend more, for example, with the same level of production (Y), consumption (C), and investment (I), there is way to do it - import goods. For example, some of the people who used to work producing consumption goods can be hired by the government to do whatever the government is doing instead. Now there are fewer consumption goods produced before, but they can be imported instead. Negative NX == trade deficit.
In the US in the 1970s, the savings rate was close to 10%. Before the recent financial crisis, it was slightly negative.
Y == C+I+G+NX
Y is the amount of stuff produced by Americans; C is the amount consumed by them individually, and G is the amount consumed by the government. A couple of years ago, we had
Y < C+G
Investment continued - new buildings are going up, new factories being built, etc. Where does it come from, since everything produced is being consumed, by either individuals or the government? It is imported. Deficit.
The US runs a trade deficit because Americans spend (either themselves, or through their government) more than they earn. It has nothing to do with how fair trade is. If they keep on spending all their money, look to more crying about the wicked perfidious Chinese. Unless some other suitable scapegoat is found.
They call me Mr Celsius!