Trade in the national accounts
I though a little different perspective on the impact of trade on the real GDP accounts might be interesting.
The first chart is of imports market share, or imports as a share of what we purchase in the US. In the second quarter of this year imports market share rebounded to about where it was at the pre-recession peak, or about 16% of consumption. Since the early 1980’s when the US started borrowing abroad to finance its two structural deficits — federal and foreign–
trades share of consumption has risen from about 6% to some 16%. Normally this has a small negative impact on the US economy, but sometimes you get quarters like the last quarter. Last quarter real domestic consumption rose at a 4.9% annual rate. That was an increase of $162.6 billion( 2005 $). But real imports also increased $142.2 billion (2005 $).
That mean that the increase in imports was 87.5% of the increase in domestic demand.
To apply a little old fashion Keynesian analysis or terminology, the leakage abroad of the demand growth was 87.5%. It does not take some great new “freshwater” theory to explain why the stimulus is not working as expected, simple old fashioned Keynesian models explain it adequately.
So compare this with exports. Import were 16% of domestic demand, but in sharp contrast
exports were only equal to 3.2% of final sales of domestic production. The peak share for exports was 5.9% in the 4th quarter of 2004. The great recession generated the severe world wide downturn in trade, but US imports are obviously rebounding much more than US exports. If you break down the difference between the US economy and the German economy, that so many people are trying to make so much of, this is the difference — Germany exported and the US imported. The difference has little or nothing to do with the difference in US and German economic policy in the Great Recession. Rather it reflects the structural changes that have stemmed from the structural twin deficits in the US since 1980.
It is just another example of how the “starve the beast” strategy does not hurt government.
Rather, it does massive damage to the private economy. The advocates of starve the beast expect a major crises to lead to a reduction in the role of government. But what they do not say, is that the crises they are so eagerly looking forward to is a collapse of the private economy. They consider this a good trade-off.
spencer – “The advocates of starve the beast expect a major crises to lead to a reduction in the role of government. But what they do not say, is that the crises they are so eagerly looking forward to is a collapse of the private economy. They consider this a good trade-off.”
Can you explain this in more detail? You lost me.
This is a huge statement…I assume you mean the US private economy (and related economies).
Well, firstly, we/or the “Mysterious They”, found out it is rather hard to starve a beast that can deficit spend in THE reserve currency and borrow at the lowest rates in the world.
The Beast then was able to eat Free Enterprise. Free Enterprise tries to save itself of course, one way being productivity gains. This lead to outsourcing or offshoring production to Asian robots, and robots in other places.
Perhaps the “Mysterious They” started to realize their miscalculation along the way. They may now be tag team partners with the Beast at this point, and secretly have become Austrian Economists. Creative Destruction starts with a fire sale on on assets, does it not?
I’m totally making this up and it is not based on any facts or observation of the real world.
Sorry to be late responding–we are babysitting four pre-school-age grandchildren today.
The starve the beast advocates first thought that deficits would hurt government. But when the growing deficits –both government and trade with trade driven by the inflow of foreign capital– proved that wrong they still stuck with their program. It turns out that deficits do not hurt government nearly as much as they damage the private economy. The harm works several ways. One is through the damage the trade deficit does to manufacturing and other domestic producers. The second is through the impact of higher rates. The third is that the structural deficit makes it very difficult to run government stimulus programs when the economy suffers a recession. That fact that the deficit was so large already this cycle is why the fiscal stimulus was too small– a large enough stimulus was a political impossibility because it had to be on top of a large structural deficit. Moreover, as we are now seeing much of the stimulus leaks abroad rather than feeding back into the domestic economy. All of these factors are ways that structural deficits harm the economy rather than government. But if they lead to a cut in transfer payments like social security or medicare some think that it is a good trade-off because they supposedly are not the ones hurt by the cut in transfer payments and can they can blame the poor economic performance on the liberals.
Is that a good first cut MG. Welcome back, we missed you.
IIRC, similar things happened after the great depression. The US experienced a slow recovery, while Europe had more of a bounce back. Anyone able to analyze any similarities here? At the time you may have had factors going on that aren’t now (up-tick in military production in central Europe), but I’m not sure what the timing would have been on that. Another factor may have been labor export from Europe to the US and remittances back to Europe. As the European recovery took off, those ex-pats returned home. How similar is labor “lending” to actual import/export of goods?
Most of the European countries left the gold standard before the US and their is an extremely strong tie between the end of the depression in any country and their deserting the gold standard.
Rdan,
“I assume you mean the US private economy”
Ah….what other private economy matters? I mean give me a break here….you mean to tell me, that you don’t recognize that every active political agenda in place right now is a focused attack on Free-Market Capitalism?
Really?
Ah…new tactic Jimi? I was speaking to Spencer and MG…your use of slogan is juvenile,,,an adult is being asked, since globalization is also an issue of winners and losers, and transitions are difficult.
Ah, Jimi has been enlisted to parrot the by-now pretty tired bit of right-wing dishonesty about Democrats attacking the private sector. What took you so long? This crappy little lie has been around for months now. You are ususally much quicker to promote the company line.
So, reality is more like this. Deregulation was taken to the point that it did real harm to private sector activity. You know the story – every honest game needs rules and referees, and we jettisoned both. So now, it’s time to hire some referees and impose workable rules so the game is fair. Nobody likes rules, so there is complaining. Those elements in the economy which did best by doing least for the economy in general complain the loudest. Republicans, who will vilify Democrats no matter what Democrats do, have joined in with those who think collecting eocnomic rents is THE benefit of capitalism. So there is a two-pronged attack on putting reasonable regulation in place. They need the Jimi’s of the world to broadcast their propaganda, and Jimi does. But Jimi’s masters must be angry right now that Jimi took so long to work this particular bit of cookie-cutter dishonesty into the coversation.
Read this strange insider story about a hedge fund operated out of Austria:
http://proposition13.blogspot.com/2010/08/paragon-advertising-back-to-it.html
Go read the Financial reform bill and tell me where the great Democrat plan of regulation as a means of friction lies?
Regulation is not the proper term, the proper term for your ilk is “Wanna be Kings”. Picking winners and losers based on Ideology. Your ilk wouldn’t know the first thing about what it is gonna take to get us back on track, because that is not what their agenda is, and never has been.
BTW, my masters don’t pay me to comment….just to monitor 🙂