Thursday, December 9, 2010

Trade Imbalance (Overlay)

If you take the trade deficit relative to GDP...
Multiply by -1, so a growing trade deficit goes up...
Index the series on its average value, as Milton Friedman would do...
Create a graph from the numbers, in a Google Docs spreadsheet...
Add a constant, to shift the trend-line "up" a bit...
Stretch the graph, to make it comparable in size to the Saez graph...
And overlay the Trade Deficit graph on the Saez Income Concentration graph...
This is what you get:


My feeling is, if I had the numbers used in the Saez graph, and I generated both graphs instead of trying to fit the one to the other, the similarity would be greater and the manipulation would be less.

I do not mean to imply that increasing income concentration caused or was caused by the growing trade imbalance. I mean to show that the same trend-change we see in the Saez graph is clearly visible in Trade Imbalance data.

And I do mean to imply that both changes, occurring almost simultaneously, were the result of changes in economic policy.

"tech" notes

I used the (free) PAINT.NET program to do these graphic manipulations.
I opened up the Saez graph and saved it as a PNG file (because PNG allows clear backgrounds).
I opened up the Trade Imbalance PNG. (GoogleDocs saves the graph as PNG by default.)
I used the "Magic Wand" tool to select the white background of the graph, and the DELETE key to erase that background.
I used the "Rectangle Select" tool to select and copy the Trade Imbalance graph.
Back in the Saez graph, I created a new layer and pasted the Trade Imbalance graph there. (Doesn't work if you don't create the new layer first.)
After pasting, I could move and stretch the Trade Imbalance graph, to align the X-Axis years and the Y-value trends.

Full Disclosure... I could have tried to make the one graph look like the other with this manipulation. What I did was try to see how similar they are.

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