ElPistolero wrote:I thought we were engaging in light hearted banter about simple minds and simple economics, but I fear there may be more truth to the former than I first thought.
You can say that again.
ElPistolero wrote:The short answer is that it's not a zero sum game because unless you're only ever going to have $100 or $80 or whatever, other sources of income will make up the difference.
There is no "other income" in international trade balances. That is the total bill when all incomes and expenses are included. The deficient country pays for the gap somehow. Again, I have to ask you where that $20 comes from. If you come up with the answer, you'll realize none of the payment options are positive over the long-run.
ElPistolero wrote:The long answer is that I routinely buy products from Apple, and Apple does not buy products from me. I carry out these transactions without incurring any debt. It's not magic.
That's a flawed analogy. If you buy from Apple and pay for the product, you have an equal trade balance. That's good. In fact you are illustrating the importance of avoiding long-run trade deficits without even realizing it. You exported something of value (time, skills, capital, etc.), and with those proceeds imported something you didn't produce--an Apple product. It's a win-win. So let's hypothetically reduce the U.S. trade imports to one international supplier--Apple. For over forty years the U.S. has been importing from Apple without being able to pay for the products in full with their money earned from exports. That's not good. That means would be you buying a new iPhone every year for over four decades without being able to pay for it in full. So we go back to the previous question. How are you paying for that phone?
ElPistolero wrote:Like countries, I have other sources of income. In fact, buying the Apple product actually enables me to benefit from other sources of income. I could pay myself $800 to make an iPhone myself, but it would take months, and $800 spread out over many months isn't much of an income, given that I can earn a lot more doing something else. Or I can buy it from Apple and earn more elsewhere. Hence the economic benefit of buying goods from someone who can produce them more efficiently.
You're stuck on believing that countries have some other source of income. In general your explanation is correct, but it's stated for a perfect world.
You have one major part incorrect and it highlights the issue with "free" trade when you're the more advanced country. In general current trade isn't based on efficiency. In a perfect world it would be, but it's not. It's commonly based on cost. China, Mexico, etc. aren't making products for the U.S. because they're more efficient at allocating labor and capital. Quite the contrary. They're actually highly inefficient sources. But they're cheaper sources, and that's why "free" trade is so dangerous for the more advanced country. Proper trade is about taking advantage of each country's strengths in natural resources, knowledge, capital, labor, technology, etc. But too often that's not the reason trade is made. Instead it's made on cost, and in that situation free trade becomes the great equalizer of nations. It gives a huge boost to the exporting country, but the net effect to the advanced country can be negative.
ElPistolero wrote:Now your analogy may hold true if $100 or $80 is all the two are going to have for eternity, but that's a unrealistic and questionable assumption. Especially if buying $100 of goods will allow you to make $140 elsewhere.
My analogy was not for a long-run model. You're moving the lines. But let's play. Let's hold U.S. imports at $100. For over forty years they've had less than $100 available to pay for those products (never has the U.S. made even $100 with it, let alone $140). Explain how this can remain positive indefinitely.
ElPistolero wrote:That aside, Coyne has been described as a great many things, but 'socialist' is not one of them. He's an open advocate of Adam Smith's philosophies and a consistent critic of government subsidies and protectionism. The article itself is based on Smith's economic principles. I accept that it's a complex subject, but it seems his argument has passed you by completely. So much so that, instead of engaging his argument, you've resorted to name-calling. Ok, I guess, but based on your own words, it's hard not to conclude that you've simply picked up some technical sounding words and terms along the way without understanding what they actually mean.
Don't take it from me. Take it from . . . Coyne himself!
https://twitter.com/acoyne/status/833489402085138432https://twitter.com/acoyne/status/964391747106172929So it's now name-calling to call someone what they say they are? Inside I'm chuckling at you believing I pick up technical terms without knowing what they mean.
He publicly advocates for socialist policies. It's clear where he stands. He's not someone to trust for the correct free market solutions. I shouldn't have to explain how socialism is a failure in theory and has been a failure in practice.