There is a lot of talk in the world today about how countries are going to grow their way out of their debt problems. When you combine this sort of hopeful talk with the fact that numerous countries in the Western World are pumping huge amounts of cash into their economies in a bid to devalue their currency in addition to adding liquidity to the market, you get an interesting situation where everyone claims that trade surpluses are just around the corner. I’m not math guy, but if everyone claims they are going to be a net exporter isn’t it sort of tough to find people to buy your stuff?
Fellow Taxpayers Lend Me Your Wallets…
From what I can tell trade surpluses and terms like “net exporter” are perfect economic talk to gain public support from a public that doesn’t really understand economics at all. I am constantly fascinated by this weird dance that democracy has to perform in a day and age where the world is so complex and specialized.
On one hand we like to believe that people will understand enough about the events of the day to make informed decisions in their country’s best interests. On the other hand there is no way that at least 99% of the population (including myself) can understand the machinations that go on in Ben Bernake’s mind, or the scope of the pros and cons that a country’s economic decisions have to include.
If you walk into a market I think you’ll have a tough time getting someone to describe what “operation twist” means, or how a derivative is made. What you can bank on though is people understanding who gets ripped off in a trade. The media loves reporting trade deficits and trade surpluses because they sound fairly sophisticated, yet most people understand the basic idea of one person gaining more than the individual they traded with. In large part because of this seemingly simplicity, every politician from here to Timbuktu is shouting from the mountaintops that they will aggressively move to cut down on trade deficits and improve efficiency in order to become a net exporter.
Economists Don’t Need Math Stupid… It’s More of a Gut Thing
This is all fine and good until we get back to that pesky math again. If we keep racing against each other to devalue our currency (don’t you love the irony of the USA accusing China of artificially holding down their currency while at the same time announcing QE3?) the end results will just be inflation that equals out all the way around. I don’t think I’m alone in saying that the currently low rate of inflation is fairly surprising considering how much economic stimulus has been pumped into the economy. One has to think that eventually these chickens will come home to roost. I guess deflation won’t much of an issue anymore anyway.
No one has yet been able to explain to me how in a worldwide market where the majority of “rich” governments are promising a new era of cutbacks and austerity that we suddenly all going to be able to sell more stuff to each other. Ripping the other guy off in a trade always makes sense to the lowest common denominator yet we must realize that it isn’t quite that simple. I know that the media is pretty sensationalistic and all, but other than the developing world it’s tough to find a bright spot. Japan = too in debt, USA = Fiscal Cliff, Canada = Housing market crash and personal debt levels up the wazoo, China = slowing down, moving to self-purchasing market, and we haven’t even got to the grand daddy of them all over in Europe.
Well one thing is for sure, they’ll have to rewrite that international trade section of the macroeconomics 101 book I read back in school. I didn’t realize it was possible for everyone to rip their trading opponent off at once, and yet have no one get ripped off. Now there’s a scenario only a politician could love.