Targeting the Wrong Deficit

November 6th, 2013 at 11:50 pm

A conversation in my house tonight, lightly edited:

me: Hey, you should check out this oped Dean and I have in the NYT.

wife (interested): What’s it about?

me: It’s about the trade deficit.

wife (warily): The deficit?

me: the trade deficit.

wife: So, not the budget deficit?

me: No, this one’s about lowering the trade deficit.  That would actually be pro-growth, whereas lowering the budget deficit right now hurts growth.

wife (drifting out of room, avoiding eye contact): Oh, hmmm.  I don’t know…the trade deficit seems…you know…kind of obscure.

me: Nuh-uh…come back here…I’ll explain…hey…hello??…you still here???

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11 comments in reply to "Targeting the Wrong Deficit"

  1. Fred Brack says:

    You can’t even get your wife interested, Jared? You, a renowned economist and economics writer/rock star?

    No wonder the electorate and, by extension, Congress can’t bring about sound, sensible economics policies — and why the electorate persists in viewing macroeconomics through the framework of household economics , to the extent the electorate pays any attention at all to macroeconomics. People can’t be bothered.


  2. smith says:

    Oil is still a huge part of our trade deficit. So are closed markets in China and Japan, through legal means and cultural tendencies. Germans selling huge amounts of cars in the U.S. are probably not interested in buying gas guzzling pick up trucks and SUVs. American companies sell to the largest domestic market in the world, so foreign sales are given much less priority. They can hardly bring themselves to adjust the steering column to the right side for Japan.

    But the point of the column is not about increasing trade but why there is a deficit. The thing is, unless we are smart about the issues above, suggested actions to balance trade will rely too much on raising the price of imports. I realize a cheaper dollar should automatically increase exports, but not to the degree needed if we don’t have product. Sneakers and iphones made in China by U.S. companies might increase in sales without increasing jobs.

    It’s possible to have higher priced imports, a lower or zero trade deficit, but no increase in jobs.


  3. foosion says:

    A trade deficit means we are selling US assets (such as treasuries) to foreigners. Perhaps this phrasing will help with those who fear budget deficits.

    The problem is that high unemployment means cheap labor which increases margins and corporate profits and is therefore favored by the corporations which control our economy, politics and media.

    Have you seen the recent articles that Obama wants to increase foreign direct investment? http://www.reuters.com/article/2013/10/31/us-usa-obama-business-idUSBRE99U1BE20131031 Remind me how we can have trade surpluses and foreign investment.


    • smith says:

      The connection seems obvious, cheap labor leads to higher margins, but rarely does it figure into economic discussion. There was one Krugman blog in the past few months that mentioned this, (couldn’t find the link just now) the trade-off of lower sales from unemployment and a sluggish economy vs. higher profits. There has not been an adequate analysis I think as to why this occurs so painlessly for business and the rich, and we don’t descend into deflation (hint: price stickiness, monopolies, oligopolies, inequality, government stabilizers)

      Part of it is segmentation of distress. Just like 90% of people are employed, so pain lands on the unfortunate 10%, businesses in a slow economy produces winners and losers and if your weaker competitor goes out of business, you win. This could mean 90% win, though I haven’t the faintest notion what a real study would produce (grant money please). If there are any papers on this already, let me know.

      “Segmentation of Distress in a Slow Economy”
      How the pain of a recession is concentrated in a small minority of losers which produces winners for the vast majority of businesses and laborers.


      • smith says:

        I think the Krugman blog actually was tilted more towards viewing the bargain by the rich for dysfunctional government and resulting slow economy vs. higher taxes. Thus it didn’t directly address the lower labor costs vs. slower growth, less revenue trade-off.


  4. Naseem Rakha says:

    Being married to one of these economic/policy wonks myself, I can empathize with her reaction. It’s not that we don’t care about these “macroeconomic” issues, it is just that, overall, all this tinkering simply feels like gerbils running around a wheel. All these numbers, all these countries, all their inherent need and greed and obfuscated reasoning. All the lies. And then all the policies built on all the lies. Yes, it is important to get my mind around – but seriously, what am I suppose to do about it? And at exactly what point do we get to get off this never ending contraption? What is the end game, and how do we get there?


  5. Chatham says:

    I seem to remember a lot of handwringing about the trade deficit in the 90′s. Now the most you seem to hear is “we don’t make anything anymore. But that’s because Americans don’t want to buy $50 plastic cups.” Eh.

    Anyway, good article. A question and a comment: 1. Wouldn’t increased inflation lower the trade deficit? 2. New trade theory seems to suggest that businesses will want R&D to be done near production. If we want more of the former we’ll need more of the latter.


  6. wendy beck says:

    I think the average person might get worked up about currency manipulation and unfair trade practices. Many examples can be cited and then the question arises: why don’t we do that? The issue of fairness is one most people, even those with no Econ 1 course (which is all I ever had), can relate to.

    I think the bigger question is why we don’t do anything about it and what are the repercussions of doing anything once we think we should.


  7. Carlos Paviolo says:

    I heard your radio interview where you expressed your doubts about the influence of robotics and automation in job creation/destruction. As a seasoned automation engineer, I can attest that automation helps keeping manufacturing jobs in the USA. No product can be fully automated. Up or down stream of an automated process there are mostly highly paid operators and technicians that provide the inputs and outputs that the automated process needs. We should also take into account jobs that support the automation/maintenance requirements that pay very good wages. Japan, Korea or Germany’s industrial mights are due to the efficient application of automation and robotics into their production chain. My employer produces 99% of our products in a high-cost-of-living area like Orange County, CA and we are able to compete in price (30% below) with multinational competitors that set up their production lines in Mexico or China due to our high level of automation and vertical integration. We have been growing- and hiring- at a 20% rate in the last 7 years.


  8. Kevin Rica says:

    It’s hard to say if this captures the publics imagination. The Times actually didn’t seem that interested. They didn’t open a comments section for this op-ed.

    But an article on Venezuelan boob jobs (not Maduro or Chavez — they are just boobs) garnered almost 300 comments.


  9. Pablo says:

    Fracking and increased energy production will lower trade deficit and create jobs!


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