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View Diary: United States Trade Deficit: The 800 Pound Gorilla (46 comments)

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  •  That balance is a good thing is an illusion. (4+ / 0-)
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    aguadito, cal2010, Habitat Vic, katiec

    The principle arose out of double-entry book keeping, which presumed that if something was counted two ways and the sums came out the same, the count was more likely to be correct.
    Also, balance refers to a static point in time -- i.e. no motion. This is the point that accountants not only prefer, but the only one they have figured out how to capture. Which is why they like it.
    But, the reality is that the system of exchange and trade is dynamic -- i.e. changing from minute to minute and hour to hour. So, whatever gets captured at a point in time is no longer valid by the time the numbers get issued. To get around this fact, economists have tried to devise models to suggest that trends over time tell us something important. But, here there's the problem of which factors to consider to avoid being swamped by the variables. So, for example, they select "representative" entities to track, like industrial stocks or imports or exports, or whatever. But, their time-frame is still limiting. The models can't, for example, take into consideration that a debt incurred today will be paid back five years later -- a transaction that is balanced after five years.
    And Congress, for some reason, can't even comprehend that dollars are nothing but certified IOUs, which we all use to signify our debts to each other, much as we use the letters of the alphabet to signify (make visible) our words and thought to each other. Or, for that matter, that dollars are certified monetary obligations, much as marriage certificates attest to marital obligations.

    It should be noted that some legislators are convinced that a marriage doesn't exist, unless it is certified by the state and that obligations don't exist unless somebody gets paid, but they're wrong. It's what they'd like to believe because, if it were so, then the people who issue the dollars, certificates of debt, could exercise control by simply withholding the certificates. They'd like to think "people can't get married without my say-so and they can't get paid without my say-so and I'm going to withhold (seuqester) the dollars to prove it."

    Imagine a see-saw in balance. Is that a good thing?

    We organize governments to deliver services and prevent abuse.

    by hannah on Sun Jan 27, 2013 at 01:31:12 AM PST

    •  Balance wrt to Trade/Gov/Priv flows... (3+ / 0-)
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      hannah, cal2010, katiec actually not a reference to a static point in time, but rather a "movie clip" of a period in time.

      Business-wise it's like viewing an income statement versus a balance sheet.

      The key is stocks and flows -- these aren't illusions but realities of accounting. Just because a debt is paid back doesn't mean there won't be writedowns and cash deficiencies, which all end up being caught up in the system anyway.

      It may be a bit of a crude, even archaic system given the capacity we have now to more reliably track flows and accounts, but it's still very relevant.

      Imbalances still need to be considered for effects in the short and long-run, the micro incentives of those who are engaging in trade have to be understood.

      •  People engaged in trade have an incentive (3+ / 0-)
        Recommended by:
        cal2010, aguadito, katiec

        to take a "cut" of things they haven't made. They are middlemen. Middlemen are a vanishing breed for the simple reason that electronic communications are making direct interactions even over great distances much easier. When producers and users are directly connected, there's no need for the middlemen. They are reduced to being nothing but highwaymen -- persons who intercept a transmission or exchange in order to extort payment for themselves.
        Highwaymen perceive themselves to be in competition with the tax man. In fact that is not quite correct, because the tax man funnels most of what he collects into necessary public goods and services, one of which is keeping the highwaymen in check.
        What is ironic is that the production of goods has always been stressed by the fact that, although they are easy to count and assess as to their usefulness, high quality goods are counter-productive because, being long-lasting, their marketability shrinks. So, in order to keep production going at a steady rate and profits stable, producers resort to planned obsolescence and failure by design. The quality keeps decreasing until buyers revolt and the market collapses. The reason this is ironic is because services, which have always been considered less favorably by economists because their value is more difficult to quantify, actually follow the reverse trajectory. The market for services is never saturated and increasing quality increases profits almost automatically. So, if the revenue stream is to be sustained indefinitely, services are the way to go, even though quantifying them is hard.

        The only real problem is that people who are resistant to paying for labor tend to get ever more resistant when they are forced to pay up. Goods provide services. But, after the initial expense, they appear to provide them for free. It's an illusion, but it's all some people see.

        We organize governments to deliver services and prevent abuse.

        by hannah on Sun Jan 27, 2013 at 02:55:56 AM PST

        [ Parent ]

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