From: curt@ekhadafi.austin.ibm.com (Curt Finch 903 2F021 curt@aixwiz.austin.ibm.com 512-838-2806)
Newsgroups: tx.politics,alt.politics.clinton
Subject: Re: Trade Imbalance
Date: 18 Aug 92 16:12:22 GMT
Distribution: usa
Organization: IBM AWD, Austin

These are the words of john strong, not me.  Just another blowhart 
without internet access.
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> Someone posted a message stating that our trade deficit was "much ado about
> nothing."  I disagree strongly.  Perhaps, this person does not understand
> what this conditions means (who really does?). I have an extremely
> oversimplified explanation for anyone who is interested:

Yes, a trade deficit *is* of concern, provided that "concern" is not
considered to be a prescription for a lot of economically-illiterate
jingoistic demogogery otherwise known trade protectionism.

> Consider that the USA has a finite number of dollars to go around.  When we
> buy imported goods, a number of those dollars go out of the country and they
> are not available for Americans here to spend or get paid or save.  Now, 
> when a foreign country buys our goods, a number of those dollars come back
> here to Americans to spend, get paid, or save or invest. Can you see that
> if more dollars go out than come in (a trade deficit), there is less money
> here for us? 

One has to use the proper accounting terminology to speak about these
things accurately, and I am unable to provide the correct terms, but
I *can* tell you that you need to distinguish between the export of
capital and the export of "dollars" per se. It is misleading to talk
about a "finite number of dollars", because the number of dollars is
determined by the Federal Reserve, and they are constantly expanding
(by about 6-8% annually, if the Fed is being responsible, or more if
it is bowing to political pressure to help someone win an election).
Then you have the issue of the exchange rate of the dollar vis-a-vis
the currency of the country you trade with. If that country gets
enough dollars then the value of the dollar relative to that country's
currency will go down and equilibrium will occur, albeit at terms
of trade less advantageous to us. But even poor terms of trade have
advantages. A cheap dollar helps exporters for example. Countries
often try to keep the value of their currency low.

It would be somewhat more accurate to talk about a fixed amount of
*capital*, because even though the amount of capital changes just
like the amount of money, it can't grow by government fiat the way
money can. It grows if and only if the economy is healthy. The
distinction is relevant, because governments regularly change the
money supply to deal with "exchange rate crises", but they can't
wave a magic wand and change the "capital supply".

In any case, we do not, as you suggest, "need" paper dollars here, so
that people can get paid or invest. Even if we assume that what you meant
to say was that we shouldn't export our capital, your statement is horribly
oversimplified. By far the most important ingredient for healthy export
industries in today's competitive global economy is a *liberal* import
policy, ie. a *non-restrictive* import policy. The countries (like Latin
American Banana Republics) that practiced "import substitution" in the 70's
(ie. insisting of the use of "local content" where available instead of
allowing manufacturers to import foreign parts) are precisely those
countries that *strangled* their export industries. Societies don't just
import whiskey and other consumer goods. They import cheap computer
memory chips, for example. Those chips get put into hundreds of thousands 
of products that are reexported at prices that would never have been
competitive in *international* markets without the use of those cheap
*imported* computer chips. There are quite literally countless examples
of this.

> Taken a little further, when those imported goods break or wear out or
> whatever, what then? We have "exported our wealth" so where will we get
> the money to replace those goods?  

This is silly. If my factory wears out an imported machine tool then
that probably means that the tool was used, ie. served its intended
purpose. If a foreigner was able to supply the tool cheaper (or better)
than a domestic manufacturer, that *enriches* our country. It also
forces the domestic manufacturer to shape up to international standards.
Trade is the only hope, the only *prayer*, of a healthy modern economy
in 1992.

> Comments?
> 		Bye, Judy.
> 

-- 
curt@aixwiz.austin.ibm.com (Curt L. Finch) | AIX NFS/NIS Field Quality 
My views are unrelated to those of IBM     |        Austin, TX
FICA is a massive wealth transfer from young middle class to old middle class.