> Well, I suppose, if you want to frame it that way. But using that
> scenario, I don't see that manufacturing a table increases wealth,
> unless you do send it overseas.
>
> But if my dentist takes porcelain, plastic and other raw materials, and
> makes me a mouth full of crowns, he's brought something into existence
> that didn't exist before. And if it improves my self-confidence, I may
> go out and get a better job just because of it. I increased his wealth
> and he increased my wealth, though not in a global context. And a
> dentist is really a service provider, not a manufacturer.
(I'll ignore that bit about improving your confidence--you're
reeeeeaaaaching a bit too far on that one! I don't think any
economists are doing charts on the productivity factor of nice smiles;-) )
Do the math: you had a thousand dollars and the dentist had some
porcelain and plastic. He does the work, you give him the thousand
dollars. Net increase, in wealth: ZERO. (taking the sum total between
the two of you)
If you have some lumber, worth $100, and you plane it, fit the
dovetail joints, sand it, lacquer it--now it's worth $1000. Net
increase in wealth: $900.
From an economist point of view, manufacturing increases wealth,
service doesn't.
Which is not to say that you can't sell services to China, for
example, but it's just not a significant element. You would have to
sell over 1 BILLION dollars a day of programming to the Chinese,
repeat, PER DAY, to bring the books into balance. I don't think
that's going to happen, do you?
> As for trade deficit, I confess it's always been a mystery to me why
> this is important. I don't see why it's important to keep this in
> balance, in the broad scheme of things. I would imagine, for example,
> that Japan has a huge trade surplus-- that is, they import much less
> (value) than they export. And yet, until recently, they had one of the
> most tremendous economies in the world. And I kinda doubt that the fall
> of their economy is caused directly by their trade deficits.
Actually, Japan is a GREAT example. We are following in their
footsteps exactly. They USED to be great manufacturers and exporters.
Then they decided that they would tranfer their manufacturing to the
other Asian tigers (as their standard of living increased, the other
countries offered cheaper labor). Next, when their economy started
going down the toilet, they embarked on the path of printing money,
and offering lower and lower interest rates in order to "grease the
wheels" of their faltering economy. Eventually they were giving away
money practically interest-free. Sound familiar?
When you were young, the USA was the worlds greatest creditor nation.
As recently as the 1980s we were still in the black. Now, we are
the world's largest debtor nation, by miles!
I believe the amount now owed to foreigners is something like 3 or 4
TRILLION dollars. It's increasing at over a BILLION dollars a day.
(There's that trade deficit you were asking about).
If you really don't think this is a problem, then why don't we ALL sit
down and watch tv all day, and drink beer and watch our big-screen
tvs. We can just print up more money, as required, and buy whatever
we need. I'm serious--if piling up a deficit isn't a problem, then
we're nuts to knock ourselves out at jobs.
Here's the problem: If I go to my neighbor and buy his lawnmower, and
say, "Mike, I'll give you an IOU for $100, ok?", he might well go
along. He might even trade my IOU to his brother, to buy his old 486
computer for a firewall. The next day I go to my neighbor again, and
buy something else, for an IOU. Etc, etc....
Depending on how much my neighbor likes me, sooner or later, there
WILL come a time when he starts having doubts about these IOUs. It
turns out that I won't redeem the IOUs, because I have nothing of
value. The only thing that Mike can do with my IOUs is trade them to
others. And his brother, and others, won't take them at face value
any more either!
At some point, your currency starts to plummet. In the history of
man, no country has had a fiat currency (ie, not backed by anything)
that did not eventually self-destruct. (and reach a value of zero)
So, I would suggest to you that one reason to worry about a printing
press, consumer-driven economy is because of the "reckoning" that WILL
come some day. I imagine it will be so painful that the 1929+
depression will look like a picnic.
But perhaps an even more compelling reason is the immorality (there's
that word again;-), of piling up all this debt which will be paid (in
one way or another) by children who had no responsibity for it.
Then, too, we can start talking about all the unfunded pensions that
will be needed in the immediate future--it's depressing! If you don't
think that the problem is as severe as I think, that's ok--we can
agree to disagree.
John
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