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What? Huh?


Not ragging on Krugman here. Rather I'm pointing out a little irony in some of the economic arguments we've heard the last few years.

First this:

But with the financial crisis abating, this process is going into reverse. Last week’s U.S. trade report showed a sharp increase in the trade deficit between August and September. And there will be many more reports along those lines.

Wasn't the export sector, lead by a weak dollar, supposed to help the economy? (Of course, my contention has always been, how can you export your way into growth when you've eviscerated your manufacturing base, right?)

And then this:

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

Isn't this what the IMF/World Bank tells developing countries to do in the even of a crisis? We dispense the medicine, but when someone tells us to take the same, well, you know.


Sean Paul Kelley November 16, 2009 - 2:55pm
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Argentina

Worked for them right? They defaulted on $80 bil in 2002 and just got asked to join the G-20. Can we default on ourselves?

Michael Collins November 16, 2009 - 6:03pm
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WTF

Doesn't all these countries know we own them. Oh right that was so last yr. This hang over is coming come soon my own guess is after the 2010 election. Sad, we little people don't deserve this.

jo6pac November 16, 2009 - 8:10pm
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It's the Chinese

who have their currency artificially pegged to the dollar. It's their problem, let your currency float free and see what it is worth. They do not do that and therefore have to buy US dollars.

Why on earth would the US modify their interest rates to accommodate China's artificial predatory pricing of their currency. Krugman is spot on. As far as third world country interest adjustments it is always in the face of high inflation. The US currently has no inflationary issues and therefore no economic reason to raise interest rates.

The export sector by the way is booming right now, growing very fast; its just that the import sector is larger. In fact, retail is up 1.4% this quarter making up 2/3's of the economy. Added to health, government and exports, 4th quarter could beat the third quarter.

The US recovery is stronger than expected - as I have indicated would be the case since at least June - and therefore the Trade deficits will get larger. Weak dollar policy helps in two ways, it will moderate somewhat this spike in demand by making imports more expensive and continue to help the manufacture base in the US. They will continue to talk strong dollar and support a gradual weakening of the dollar.

As far as US manufacture base it is the largest in the world, producing something like 25% of the worlds goods as it has since at least 1969. Of note the size of US manufacture relative to world manufacture has not changed appreciably in almost 40 years.

Scotjen61 November 17, 2009 - 12:36pm
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I didn't say Krugman was wrong. I simply pointed out

that this is the same advice we give to 'developing nations' when they run into problems. So, why should developing nations listen to bad advice?

As for the evisceration of the manufacturing base? Well, how much of it is due to the arms industry? A fair portion. Further, while you are mostly correct that the US maintains almost 20% of global manufacturing. The real issue here is this:

The number of Americans employed in factories has fallen 40 percent since peaking in 1979, according to the Labor Department. . . The economy has lost 7.8 million factory jobs from a high of 19.6 million in June 1979 . . .

Talk about evisceration. Again, I thought the exports were supposed to lead us out of the recession? Sure, they've helped the GDP numbers temporarily. But what about those permanently out of work?

"All men's gains are the fruit of venturing."

-Herodotus

Sean Paul Kelley November 17, 2009 - 1:13pm
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Now that is a problem

The problem of efficiency. It is the same with agriculture and I believe it will be the same in retail eventually (aka amazon). Productivity and the ability to marshal resources in ever more efficient ways is the hallmark of US innovation, but it also destroys jobs. In 1900 we were the worlds breadbasket and we accomplished this feat with 60% of the US workforce. Today we are the worlds breadbasket two times over and we accomplish this feat with fewer than 2% of the US workers. Manufacture in 1955 employed nearly 1/3 of all workers, and today I would be surprised if it were 10%, yet the quantity of goods is much much higher.

I have worked with publishing houses that print, bind, and box books for delivery in factories that run all night long with absolutely no workers. The trucks pull up in the morning and load the boxes that have been boxed, stacked and addressed for delivery at the loading bays. All done with robotics, linked to web based programs for the text and pictures to be printed on the books. The machines themselves are so reliable, about once a week maintenance.

In my view the answer to efficiency is three fold: Tax energy, materials and processes not labor; national health care that removes costs from employers payroll; and reduce the work week to 32 hours.

Europe is well ahead in all three areas, but to remain competitive the efficiency issue has got to be addressed. What do we do when all economic activity can be accomplished with 2% of the workforce as is the case with agriculture?

Scotjen61 November 17, 2009 - 3:18pm
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