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George H. Blackford
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Re: “When we count the jobs that are lost or gained because of international trade, we should remember to include the gain of jobs from corporate and government spending that are funded from global investments in American stocks and bonds…. “Among the investments that America is selling to the world, none are more important than the debt of the US federal government….” This is bizarre. It fails to make a distinction between real and financial investment. Financial investments do not create jobs! (See: http://www.rweconomics.com/htm/Pro.htm ) According to Bureau of Economic Analysis’ statistics less than 25% of foreign investment in the United States is Direct Foreign Investment (DFI), and the bulk of DFI involves the purchase of existing real and financial assets rather than newly produced real assets. https://www.bea.gov/international/bp_web/tb_download_type_modern.cfm?list=2&RowID=144 Selling our assets off to foreigners is not exactly the kind of thing that makes the US prosperous. Nor does this article acknowledge that the manipulation of international capital flows is the mechanism by which foreign countries, such as Japan and the other Asian Tigers, peg their currencies to the US dollar so as to keep their exchange rates low and our exchange rate high, and that it is this kind of manipulation that has been so devastating to the manufacturing sector of our economy over the past 40 years. What is truly amazing about the failure to understand this is that Hobson predicted the situation the West is in today over 100 years ago, and, yet, economists today can’t seem to figure it out: . "Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China…or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations…. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or…by substituting her own, might flood their markets with her cheaper manufactures, and refusing their imports in exchange might take her payment in liens upon their capital, reversing the earlier process of investment until she gradually obtained financial control over her quondam patrons and civilisers….“ John Atkinson Hobson, Imperialism, A Study, 1902. The problem we have with China, Japan, and the other surplus countries today is that they have been “refusing [our] imports in exchange [for her exports and has been taking] her payment in liens upon [our] capital.” Hobson warned the West about this over 100 years ago, and it is beyond me economists can ignore consequences of this practice in light of the devastation it has caused. See: http://www.rweconomics.com/htm/FUB.htm and http://rweconomics.com/htm/WDCh_2.htm
Toggle Commented Nov 5, 2018 on Links (10/31/18) at Economist's View
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I am at a loss here. You argue: “As I see it, where manufacturing workers came under pressure (and they did) it was not from increased low-wage competition from abroad but rather from: 1. “fiscal policy failures that produced the Reagan (and then Bush II) deficits as Republican governance redirected dollars earned by foreigners from buying our exports to buying our bonds 2. “managerial failures in Detroit (and elsewhere in the U.S.) and successes abroad 3. “technological failures in Pittsburgh (and elsewhere in the U.S.) and successes abroad” I understand “managerial failures in Detroit” and Technological failures in Pittsburg” and that “low-wage competition from abroad” are not the problem, but I don’t understand how “fiscal policy failures that produced the Reagan (and then Bush II) deficits as Republican governance redirected dollars earned by foreigners from buying our exports to buying our bonds.” It seems to me that Hobson prophesized the root of the problem more than 100 years ago: "Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China…or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations…. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or…by substituting her own, might flood their markets with her cheaper manufactures, and refusing their imports in exchange might take her payment in liens upon their capital, reversing the earlier process of investment until she gradually obtained financial control over her quondam patrons and civilisers…. John Atkinson Hobson, Imperialism, A Study, 1902. It seems quite clear to me that the problem we have with China, Japan, and other surplus countries today is that they have been “refusing [our] imports in exchange [for her exports and has been taking] her payment in liens upon [our] capital,” and that this problem arises not because “the Reagan (and then Bush II) deficits as Republican governance redirected dollars earned by foreigners from buying our exports to buying our bonds,” but because the Reagan, Clinton, and Bush II free trade and international finance policies allowed this to happen rather than forcing a change in exchange rates in response to the resulting imbalance in the terms of trade. Please explain what I am missing here.
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As I understand it, Korea, Japan, and a few other countries are countries that supply parts to China that are assembled in China. To the extent their rates fall, China's component part cost decrease in a way that should partially offset the increase in China's real exchange rate unless the BIS has some way of adjusting for this effect, which they may have. In any event, it is to be expected that the real exchange rates would increase in this situation with a fixed exchange rate since wages can be expected to increase with the kind of growth that China has experienced since 1904. This is something I did not deal with in Chapter 2 along with PPP when I wrote that chapter back in 2010 or so. These are very important concepts, but I didn't think they were relevant to the argument in the book at the time, and I still do not think they are relevant. I could be missing something here, but what seems relevant to me is the fact that China and other countries that have had a substantial current account surplus with the US use that surplus to invest in financial and existing real assets in the US in such a way as to maintain their trade surpluses, and I don't see how this benefits ordinary citizens in the US. How did we benefit from foreigners purchasing US government debt; the Mortgage Backed Securities that financed the housing bubble;real estate in Hawaii, California, and office buildings in NYC; or the Chrysler and American Brass corporations? And yet these kinds of purchases are what allow them to maintain the exchange rates that generate their current account and trade surpluses, exchange rates that keep their goods prices low relative to ours. These exchange rates are devastating to our domestic producers irrespective of what happens to China's or other surplus countries real exchange rates or PPP. I just don't get it. Krugman talks about these foreign investments as if they build up our capital stock. I think he is quite wrong about this in that he seems to be confusing saving with investment in the way I criticize in: http://rweconomics.com/htm/Pro.htm
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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As I understand it, Korea, Japan, and a few other countries are countries that supply component parts to China that are assembled in China. To the extent their rates fall, China's component part cost decrease in a way that should partially offset the increase in China's real exchange rate unless the BIS has some way of adjusting for this effect, which they may have. In any event, it is to be expected that the real exchange rates would increase in this situation with a fixed exchange rate since wages can be expected to increase with the kind of growth that China has experienced since 194. This is something I did not deal with in Chapter 2 along with PPP when I wrote that chapter it back in 2010 or so. These are very important concepts, but I didn't think they were relevant to the argument in that book at the time, and I still do not think they are relevant. I could be missing something here, but what seems relevant to me is the fact that China and other countries that have had a substantial current account surplus with the US use that surplus to invest in financial and existing real assets in the US in such a way as to maintain their trade surpluses, and I don't see how this benefits the US. How did the US benefit from foreigners purchasing US government debt or the Mortgage Backed Securities that financed the housing bubble or foreigners purchasing office buildings in NYC or the Chrysler and American Brass corporations? And yet these kinds of purchases are what allow them to maintain exchange rates that generate their current account and trade surpluses that keep their goods prices low relative to ours irrespective of what happens to their real exchange rates or PPP. I just don't get it. Krugman talks about these foreign investments as if they build up our capital stock. I think he is quite wrong about this in that he seems to be confusing saving with investment in the way I criticize in: http://rweconomics.com/htm/Pro.htm
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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That's an interesting chart. I would like to see that chart for China, Korea, Taiwan, Hong Kong, and Vietnam,
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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Give it up Michael. I'm not impressed with your babbling nonsense and gratuitous insults.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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Give it up Michael. I'm not impressed with your babbling nonsense and gratuitous insults.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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It's sad that I have to explain this to you but the non sequitur is to be found in your argument: "My google search plainly shows he did no such thing." As for Krugman's arguments in the link you post, how do you reconcile those arguments, which are basically what I have heard Navarro argue and what I am arguing here, and Krugman's reverse face with this: "Countries with trade surpluses win; those with trade deficits lose. “Both logic and history say that this view is nonsense: Trade surpluses are often a sign of weakness, trade deficits sometimes a sign of strength (as a matter of arithmetic, a country that attracts more inward investment from foreigners than it invests abroad must run a trade deficit).”
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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Your logic is astounding. You might want to look up the word "non sequitur" and think about it.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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That's rather amusing. How many of those results have you checked out? "Blackford chinese currency manipulations" gives "About 51,200 results (0.75 seconds)" and as best I can remember, this is the first time I have ever used this expression on the web. Give it up Michael.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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I would also note that I am ambivalent about this in that I fully understand the benefits of free trade to developing countries. Where I differ with Krugman on this is that I see the kind of trade we have seen over the past 40 years as leading to increase in debt and to financial, economic, political, and social crises that could lead us into World War III. From my prospective, that has been the history of this kind of free trade throughout history. Krugman's Neoclassical models simply assume the problems create4d by debt away, and take a Panglossian view of this situation as shown in their debt free mathematical models. I would also note that I am not the only economist who sees free trade this way. Dani Rodrik has written a number of very readable books on this subject as has Stiglitz, not that they would agree with everything I have said.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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"Paul Krugman is writing what I consider correct." We will have to agree to disagree here. I see Krugman waging the same kind of character assignation on Navarro that he did on Sanders. I have only seen one interview of Navarro, and what I saw was that Navarro clearly understood what Figure 2.2 means and that the US working class are clear losers as a result of what is shown in this figure. The fact that Navarro advises Trump is, admittedly, ominous, but it doesn't mean that everything Navarro says is nuts as Krugman would have you believe. Navarro is right on this issue, just as Sanders was right on the need for the government to expand public services even if he is running against Krugman's candidate of choice.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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As I said before, the support is in Figures 2.2 through 2.5 at: http://rweconomics.com/htm/WDCh_2.htm The fact that the Chines were able to keep their exchange rate fixed from 1996 into 2006 as indicated in Figure 2.2 makes it absolutely clear that they used their current account surpluses to peg their exchange rate to the dollar in in a way that allowed them to achieve the surpluses they achieved in Figure 2.3. Krugman consistently ignores this fact or tries to give the impression that it's no big deal. The mechanism by which a currency is pegged to the dollar is by the country doing the pegging purchasing US denominated asset with their currency in the foreign exchange market which bids up the price of US dollars in terms of their currency. This makes their exports cheaper in dollars and our exports more expensive in their currencies. I have explained this works as best I can in: http://rweconomics.com/htm/WDCh_2.htm I think the basic problem we have here is that you have more faith in Krugman and Neoclassical Economics than I do. The way I view economics is much different than the way he views economics. If you want to get some idea what I am talking about here, see: http://rweconomics.com/htm/Pro.htm but I suspect this will not be easy reading for a non-economist.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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You are not alone: "The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and order-ly method of thinking out particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on our-selves and allow, as well as we can, for the probable interactions of the factors amongst themselves. This is the nature of economic thinking. Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error [emphasis added]. It is a great fault of symbolic pseudo-mathematical methods of formalizing a system of economic analysis...that they express-ly assume strict independence between the factors involved [emphasis added] and lose all their cogency and authority if this hypothesis is disallowed; whereas, in ordinary discourse, where we are not blindly manipulating but know all the time what we are doing and what the words mean, we can keep ‘at the back of our heads’ the necessary reserves and qualifications and the adjustments which we shall have to make later on, in a way in which we cannot keep complicated partial differentials ‘at the back’ of several pages of algebra which assume that they all vanish [emphasis added]. Too large a pro-portion of recent ‘mathematical’ economics are merely concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols." John Maynard Keynes, 1936
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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I know the feeling: http://rweconomics.com/htm/FUB.htm But I do believe that the fact that some, many, or even most economists are not scientific does not mean that the study of economics cannot be undertaken via the methodology of science.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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"Australia has been selling off assets since 1980, with the economy doing fine all the while." Are you sure? I don't know much about Australia or about Macrobusiness, but here is an interesting link: https://www.macrobusiness.com.au/category/australian-economy/ It suggests the kinds of financial problems that I would expect to find in this situation which I mention here: http://www.rweconomics.com/LTLGAD.htm
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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Also Figures 2.4 and 2.5.
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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Figures 2.1 through Figure 2.3 at: http://rweconomics.com/htm/WDCh_2.htm
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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Krugman: “On one side, we have the neo-mercantilists — people like Peter Navarro, Trump’s trade czar — who see world trade as a tale of winners and losers: Countries with trade surpluses win; those with trade deficits lose. “On one side, we have the neo-mercantilists — people like Peter Navarro, Trump’s trade czar — who see world trade as a tale of winners and losers: Countries with trade surpluses win; those with trade deficits lose. “Both logic and history say that this view is nonsense: Trade surpluses are often a sign of weakness, trade deficits sometimes a sign of strength (as a matter of arithmetic, a country that attracts more inward investment from foreigners than it invests abroad must run a trade deficit).” This is bizarre. Krugman refuses to make a distinction between real and financial investment in his arguments in this regard. According to Bureau of Economic Analysis’ statistics less than 25% of foreign investment in the United States is Direct Foreign Investment (DFI), and the bulk of DFI involves the purchase of existing real and financial assets rather than newly produced real assets. https://www.bea.gov/international/bp_web/tb_download_type_modern.cfm?list=2&RowID=144 Selling our assets off to foreigners is not exactly the kind of thing that makes the US prosperous. Nor does Krugman acknowledge that this is the mechanism by which foreign countries, such as Japan and China, peg their currencies to the US dollar so as to keep their exchange rates low and our exchange rate high that has been devastating to the manufacturing sector of our economy over the past 40 years, which brings us back to Hobson: . "Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China…or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations…. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or…by substituting her own, might flood their markets with her cheaper manufactures, and refusing their imports in exchange might take her payment in liens upon their capital, reversing the earlier process of investment until she gradually obtained financial control over her quondam patrons and civilisers…. John Atkinson Hobson, Imperialism, A Study, 1902. The problem we have with China, Japan, and other surplus countries today is that they have been “refusing [our] imports in exchange [for their exports and has been taking] payment in liens upon [our] capital.” Hobson warned the West about this over 100 years ago, and it is beyond me how Krugman can make light of this practice in the face of the devastation it has caused: http://rweconomics.com/htm/WDCh_2.htm
Toggle Commented Mar 21, 2018 on Links for 03-20-18 at Economist's View
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On: "Paul Krugman Explains Trade and Tariffs - The New York Times" What has happened with regard to trade was predicted by Hobson over a hundred years ago: "It is here enough to repeat that Free Trade can nowise guarantee the maintenance of industry, or of an industrial population upon any particular country, and there is no consideration, theoretic or practical, to prevent British capital from transferring itself to China, provided it can find there a cheaper or more efficient supply of labour, or even to prevent Chinese capital with Chinese labour from ousting British produce in neutral markets of the world. What applies to Great Britain applies equally to the other industrial nations which have driven their economic suckers into China. It is at least conceivable that China might so turn the tables upon the Western industrial nations, and, either by adopting their capital and organisers or, as is more probable, by substituting her own, might flood their markets with her cheaper manufactures, and refusing their imports in exchange might take her payment in liens upon their capital, reversing the earlier process of investment until she gradually obtained financial control over her quondam patrons and civilisers. This is no idle speculation. If China in very truth possesses those industrial and business capacities with which she is commonly accredited, and the Western Powers are able to have their will in developing her upon Western lines, it seems extremely likely that this reaction will result." (John Atkinson Hobson, Imperialism, A Study, 1902) Turning “the tables upon the Western industrial nations, and… flood[ing] their markets with…cheaper manufactures, and refusing their imports in exchange…[while taking] payment in liens upon their capital” is the essence of the export-led growth policy adopted by those countries that have achieved substantial trade surpluses during the past forty years. And, yet, there is not a single question or reply from Krugman relating to this problem. Why is it that Western economists cannot see or simply ignore this phenomenon? It is obvious that the Chinese have read Hobson since they have dutifully followed his advice. Could it be that Western economists have not read or cannot understand Hobson, or is there more to it than this?
Toggle Commented Mar 18, 2018 on Links for 03-17-18 at Economist's View
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He came oh so close to facing up to the fact that we have to increase taxes to provide the government the people want and expect: http://rweconomics.com/Deficit.htm
Toggle Commented Mar 3, 2018 on Links for 03-02-18 at Economist's View
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I don't know if you saw this since it didn't get posted as a reply so I will post it again: I'm not quite sure what you mean by bothering the parents of their grandchildren with the problems of old age, but isn't that what happened with the bulk of retirees before Social Security and Medicare? My point is that Social Security and Medicare make it possible for retirees to not bother the parents of their grandchildren with the problems of their old age, and I would think that their children and grandchildren can appreciate that fact
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I'm not quite sure what you mean by bothering the parents of their grandchildren with the problems of old age, but isn't that what happened with the bulk of retirees before Social Security and Medicare? My point is that Social Security and Medicare make it possible for retirees to not bother the parents of their grandchildren with the problems of their old age, and I would think that their children and grandchildren can appreciate that fact.
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I think I pretty much covered all of this in http://rweconomics.com/Deficit.htm except "Leading with Social Security and Medicare misses everyone under 65 by more than a few years." It does not miss those who are nearing retirement, on disability, or are the children or grandchildren of those who are on disability or receive Social Security and Medicare benefits.
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I an still waiting for Democrats to stand up and admit their role in enabling Republicans by refusing to challenge the Republicans' absurd mantra of lower taxes, less government, and deregulation by defending the need for higher taxes, more government, and regulation. When is the last time a Democrats stood up and argued that we need to increase taxes if we are to save Social Security, Medicare, and all of the other programs and services that only government can provide? ( http://governmentisgood.com/ ) The cowardice (or, perhaps, just plain ignorance) of Democrats in this regard is just as responsible for the mess we find ourselves in today as the duplicity of the Republicans. Until Democrats are willing to stand up and face the fact that we must increase taxes in order to provide the government people want and make this a campaign issue rather than countering the Republicans by pretending we can have out cake and eat it too there is little hope for the future. It’s not enough to just complain about how bad Republicans are. That’s how we ended up with Trump. Democrats have to offer a viable alternative if things are going to change: http://rweconomics.com/Deficit.htm
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