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Gorgo
SFN Die Hard
USA
5310 Posts |
Posted - 09/21/2007 : 06:38:58 [Permalink]
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Another view:
NYT Is Too Obsessed With Bush Bashing to Think Seriously About the Economy
As the economy slows the Fed usually acts to lower interest rates to boost the economy. The NYT says that this is what the Fed should be doing now, except that it can't because if the Fed lowered interest rates, the dollar might fall. The editorial then blames the Bush tax cuts for this problem.
Okay, Econ 101 time. One of the main ways in which lowering interest rates is supposed to affect demand and stimulate the economy is by lowering the dollar and improving our trade balance. A lower dollar makes imports more expensive to people in the U.S., thereby encouraging people to buy domestically produced goods. It also makes our exports cheaper for people living in other countries, thereby encouraging exports. The link between interest rates and the dollar can't be blamed on Bush's tax cuts, it is basic economics.
In fact, we all should want a lower dollar, unless we think that the country should have a trade deficit equal to 5 percent of GDP forever (which of course we can't). As an alternative to the falling dollar, the NYT proposes that we can correct the trade deficit by increasing savings, especially by taking back the tax cuts. (Actually, the main reason that savings are despressed in the U.S. is the housing bubble, which has boosted consumption. The impact of the tax cuts is much smaller.)
But, the NYT is right that higher savings can reduce the trade deficit. There are two routes through which higher savings can reduce the deficit. Other things equal, higher savings slow the economy. (If we have less consumption, and no offsetting increase in other demand, then we have a weaker economy.) When the economy weakens, we buy less of everything, including fewer imports. In other words, if we throw the economy into a severe recession, we can move towards balanced trade.
Is the NYT advocating a severe recession to cure the trade deficit? It seems that they are, because the other mechanism through which increased saving can be expected to reduce the trade deficit is by (drum roll please ........) yes, A LOWER DOLLAR!
Of course the surging trade deficit predated Bush and the tax cuts. The trade deficit went from just 1.2 percent of GDP in 1996 to 3.9 percent of GDP in 2000. You remember 2000, that was the year when we had a budget surplus of more than $200 billion, about 2.4 percent of GDP. It's a bit hard to blame the huge 2000 trade deficit on a budget deficit in the real world. The bottom line here is that the U.S. (under Clinton and Rubin) had a high dollar policy. They said it was a good thing to have a high dollar -- it keeps inflation low.
Of course, in the short-term, a high dollar is good. Just like a tax cut, it can allow people to enjoy higher living standards by consuming goods that they are not paying for. But, in the long-run, the trade deficits from an over-valued dollar are no more sustainable than tax cuts that lead to bloated budget deficits. The dollar is at risk of falling -- in fact must fall -- because Rubin and Clinton allowed it to rise to an unsustainable level. It's that simple.
There are plenty of good reasons for criticizing Bush's economic policies and especially his tax cuts for the wealthy. But Bush can't be blamed for basic economic relationships. The trade deficit can only realistically be addressed by a falling dollar. We cannot blame President Bush for this fact.
--Dean Baker |
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I know the rent is in arrears
The dog has not been fed in years
It's even worse than it appears
But it's alright-
Jerry Garcia
Robert Hunter
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furshur
SFN Regular
USA
1536 Posts |
 Posted - 09/21/2007 : 06:53:09 [Permalink]
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Jerome said:
Here is some current headlines which, if contemplated over, will bring an understanding that this war was carried out correctly. |
No understanding arrived from your links. Could you spell it out to those of us who do not have your understanding.
My understanding is that this war is ultimately about protecting the oil supply to the US, but that is not what your links are about so, again please enlighten me.
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If I knew then what I know now then I would know more now than I know. |
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Gorgo
SFN Die Hard
USA
5310 Posts |
Posted - 09/21/2007 : 06:56:41 [Permalink]
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My understanding is that this war is ultimately about protecting the oil supply to the US, but that is not what your links are about so, again please enlighten me.
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It's about the U.S. not allowing others to have control over the major oil supplies of the world. The U.S. doesn't need Iraq or Iran's oil. They just need to make sure someone who might undermine their (and I mean their, not yours and my) interests don't get any control over it. |
I know the rent is in arrears
The dog has not been fed in years
It's even worse than it appears
But it's alright-
Jerry Garcia
Robert Hunter
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JEROME DA GNOME
BANNED
2418 Posts |
Posted - 09/21/2007 : 07:08:24 [Permalink]
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Originally posted by furshur
Jerome said:
Here is some current headlines which, if contemplated over, will bring an understanding that this war was carried out correctly. |
No understanding arrived from your links. Could you spell it out to those of us who do not have your understanding.
My understanding is that this war is ultimately about protecting the oil supply to the US, but that is not what your links are about so, again please enlighten me.
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Central universal economic control. The argument can be made as to the advantages or disadvantages of this idea, but this is the goal. You are correct about the oil. Oil is a tool of control.
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What a man believes upon grossly insufficient evidence is an index into his desires -- desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way. - Bertrand Russell |
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JEROME DA GNOME
BANNED
2418 Posts |
Posted - 09/21/2007 : 07:15:10 [Permalink]
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Originally posted by Gorgo
Another view:
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Trade deficits are a false scare tactic used to confuse the public or espoused by those not understanding economics.
Everyone on these boards runs a trade deficit with their local grocery store. This trade deficit is beneficial to both parties involved. |
What a man believes upon grossly insufficient evidence is an index into his desires -- desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way. - Bertrand Russell |
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BigPapaSmurf
SFN Die Hard
3192 Posts |
Posted - 09/21/2007 : 07:27:25 [Permalink]
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| I pay my for my groceries, thank you. And if you'll notice the trade deficit wasnt mentioned in the first post. |
"...things I have neither seen nor experienced nor heard tell of from anybody else; things, what is more, that do not in fact exist and could not ever exist at all. So my readers must not believe a word I say." -Lucian on his book True History
"...They accept such things on faith alone, without any evidence. So if a fraudulent and cunning person who knows how to take advantage of a situation comes among them, he can make himself rich in a short time." -Lucian critical of early Christians c.166 AD From his book, De Morte Peregrini |
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Gorgo
SFN Die Hard
USA
5310 Posts |
Posted - 09/21/2007 : 07:36:46 [Permalink]
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Trade deficits are a false scare tactic used to confuse the public or espoused by those not understanding economics.
Everyone on these boards runs a trade deficit with their local grocery store. This trade deficit is beneficial to both parties involved.
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Since I know nothing about economics, I'm not sure if that means you agree or disagree with Dean Baker. |
I know the rent is in arrears
The dog has not been fed in years
It's even worse than it appears
But it's alright-
Jerry Garcia
Robert Hunter
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furshur
SFN Regular
USA
1536 Posts |
Posted - 09/21/2007 : 07:49:03 [Permalink]
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Jerome said:
Here is some current headlines which, if contemplated over, will bring an understanding that this war was carried out correctly. |
I said:
Could you spell it out to those of us who do not have your understanding. |
Jerome said:
Central universal economic control. |
How has the conduct of this war contributed to a central universal economic control? On the surface it would seem that this war is doing the opposite - that is it is causing wider divisions in the world socially and economically.
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If I knew then what I know now then I would know more now than I know. |
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JEROME DA GNOME
BANNED
2418 Posts |
Posted - 09/21/2007 : 07:55:57 [Permalink]
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Originally posted by BigPapaSmurf
I pay my for my groceries, thank you. And if you'll notice the trade deficit wasnt mentioned in the first post.
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Yes, of course you pay for your groceries. You are running a massive trade deficit with the grocery store. This is a good and natural thing, it is beneficial to both parties involved in the trade. There is nothing inherently "bad" about a trade deficit.
Sorry, I was responding to the article that Gorgo posted. |
What a man believes upon grossly insufficient evidence is an index into his desires -- desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way. - Bertrand Russell |
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JEROME DA GNOME
BANNED
2418 Posts |
Posted - 09/21/2007 : 08:04:45 [Permalink]
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Originally posted by Gorgo
Since I know nothing about economics, I'm not sure if that means you agree or disagree with Dean Baker.
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He is mixing realities with false fears. He should have explained that a trade deficit is not a problem that needs to be solved. He states that a country can't run a trade deficit forever. This is 100% incorrect. His argument concerning tax cuts causing the devaluation of the dollar is correct. The dollar devalues when there is a larger supply of dollars and the goods (wealth) stays the same or does not increase at the same rate as the increase of dollars. This is the most common cause of inflation in America since 1913.
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What a man believes upon grossly insufficient evidence is an index into his desires -- desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way. - Bertrand Russell |
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furshur
SFN Regular
USA
1536 Posts |
Posted - 09/21/2007 : 08:05:20 [Permalink]
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| Trade deficits are a false scare tactic used to confuse the public or espoused by those not understanding economics. |
I don't worry about trade deficits too much. However this is an indication that the cost of manufacturing goods (in the US for instance) is so high that the goods we consume are being manufactured overseas which results in fewer jobs here. Additionally, if we were to go to war with China they could cut off the supply of high end gym shoes.
| Everyone on these boards runs a trade deficit with their local grocery store. This trade deficit is beneficial to both parties involved. |
I don't run a deficit with my grocery store. Unless you mean I don't sell stuff to the grocery store, but that would be an absurd comparison.
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If I knew then what I know now then I would know more now than I know. |
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JEROME DA GNOME
BANNED
2418 Posts |
Posted - 09/21/2007 : 08:11:26 [Permalink]
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Originally posted by furshur
How has the conduct of this war contributed to a central universal economic control? On the surface it would seem that this war is doing the opposite - that is it is causing wider divisions in the world socially and economically.
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The divisions seen are a product of the changing structure of the world. Change usually causes turmoil and consternation; and human nature tends to find someone to blame. The war is only one step in the process. The conclusion of the war; 10 to 15 years from now, will see a middle east looking economically like Europe and North America. |
What a man believes upon grossly insufficient evidence is an index into his desires -- desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way. - Bertrand Russell |
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JEROME DA GNOME
BANNED
2418 Posts |
Posted - 09/21/2007 : 08:22:27 [Permalink]
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Originally posted by furshur
I don't worry about trade deficits too much. However this is an indication that the cost of manufacturing goods (in the US for instance) is so high that the goods we consume are being manufactured overseas which results in fewer jobs here. Additionally, if we were to go to war with China they could cut off the supply of high end gym shoes. |
The cost of manufactured goods in the U.S. is directly related to inflation caused by the influx of too much money by the FED.
I don't run a deficit with my grocery store. Unless you mean I don't sell stuff to the grocery store, but that would be an absurd comparison.
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It is not a comparison, it is the same thing. An individual in America choosing to buy a product produced in another country is creating a trade deficit for the mutual benefit of the traders. The cumulative result of many people doing this is a national trade deficit. There is nothing bad about this.
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What a man believes upon grossly insufficient evidence is an index into his desires -- desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way. - Bertrand Russell |
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furshur
SFN Regular
USA
1536 Posts |
Posted - 09/21/2007 : 11:23:30 [Permalink]
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| The divisions seen are a product of the changing structure of the world. Change usually causes turmoil and consternation; and human nature tends to find someone to blame. The war is only one step in the process. The conclusion of the war; 10 to 15 years from now, will see a middle east looking economically like Europe and North America. |
I completely disagree. In 10 - 15 years most of the middle east will be under direct control of the major powers and poor or it will just be poor. I would assume that as oil begins to run out that the OPEC nations will allow price will spiral ever higher and the major powers will not sacrifice their economic welfare.
And how does your statment relate to the central universal economic control you talked about?
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If I knew then what I know now then I would know more now than I know. |
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BigPapaSmurf
SFN Die Hard
3192 Posts |
Posted - 09/21/2007 : 11:30:30 [Permalink]
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| Yep, its gonna take a lot of fireworks to fix the oil problem. |
"...things I have neither seen nor experienced nor heard tell of from anybody else; things, what is more, that do not in fact exist and could not ever exist at all. So my readers must not believe a word I say." -Lucian on his book True History
"...They accept such things on faith alone, without any evidence. So if a fraudulent and cunning person who knows how to take advantage of a situation comes among them, he can make himself rich in a short time." -Lucian critical of early Christians c.166 AD From his book, De Morte Peregrini |
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GWB's Legacy: The failure of the almighty dollar
