Sunday, March 12, 2017

Another dim-witted criticism of Peter Navarro


http://www.businessinsider.com/peter-navarro-trade-op-ed-wall-street-journal-2017-3


#1
"Thing is, the trade deficit is far from the most important part of GDP. According to the Bureau of Economic Analysis, the 2016 trade deficit was about $500 billion. That's a lot, but it's a fraction of the other main components of GDP, like the $3 trillion of private investment and the $12.8 trillion in consumption last year."

Well, yeah. But last year's trade deficit doesn't go away. It accumulates to a trade debt, just like the Federal deficit accumulates to the Federal debt. The trade debt could be measured in terms of not "keeping American assets in American hands." I don't think we measure it, though.

On the other hand last year's GDP doesn't accumulate to anything. It was consumed and/or depreciated. It's gone (or it will be, soon).

The article suggests that the trade deficit is not big. The analysis is extremely shallow.


#2
"As for the importance of a trade deficit as a measure of how healthy your economy is, note that during the Great Depression, the US had a trade surplus."

If the US had a trade surplus, the rest of the world had a trade deficit. A trade surplus, like a trade deficit, is an imbalance. The imbalance is a problem. Or rather, the imbalance tells us there is a problem.

The article suggests that the trade deficit is not a problem because we had a trade surplus the last time our economy was this bad. The argument is ridiculous.


#3
"Navarro's article opens with an incomplete premise, that US GDP growth comes from 'only four factors: consumption, government spending, business investment and net exports (the difference between exports and imports).'"

and

"Two main factors for GDP growth — the trade deficit not among them — are accepted by economists pretty much the world over: labor-force growth and labor-force productivity."

Yeah, I know. The two acceptable factors appear in the Solow growth model. The four unacceptable factors appear in the C+I+G+NX identity. And, yadda yadda, an identity is always true but it doesn't tell you how things happen. I know. I've heard it before.

You can't swing a dead cat these days without hitting somebody saying labor-force growth and labor-force productivity.

But it is one thing to speak of getting higher growth because immigrants added to our population. It is quite another to say we should increase immigration so that we can increase growth. The first of those two things is perfectly reasonable. The second isn't, because immigration is not an economic policy.

Anyway, if we do boost the size and/or the productivity of the U.S. labor force, and we do increase economic growth and GDP, then guess what? The unacceptable sum C+I+G+NX will also increase. So really, Navarro isn't necessarily wrong. Maybe he's just simplifying differently.

//

If you really like President Trump, every argument that supports him seems like a good argument. If you really don't like him, every argument that shoots him down seems like a good argument.

Most of those arguments are garbage.

1 comment:

The Arthurian said...

At Cato, Daniel J. Ikenson in Peter Navarro, Harvard Ph.D. Economist, Trade Warrior attacks Navarro on the Y=C+I+G+NX thing and offers this quivering insight:

"The evidence is overwhelming – month after month, quarter after quarter, year after year – that the trade deficit and GDP rise and fall together."

Yeah, I know how the US figures look.

And I can guess without looking, that for nations with a trade surplus, Germany, China, the evidence is overwhelming that the trade surplus and GDP rise and fall together.

Daniel Ikenson's argument, essentially, is that our trade deficit is a good thing because it is a sign our economy is growing.

My counter argument is that a trade surplus is just as good, and for the same reason.

Do you see how stupid Ikenson's argument is?

Worst case, if you don't: If a trade surplus is just as good as a trade deficit, why not opt for the surplus?

We can't get there, that's why. So instead we make up stories that a trade deficit is a good thing.