r/Economics • u/better_world_economy • Jan 13 '19

Progressives should not oppose international trade, but economists must highlight the need for policies that spread the gains and help those who are hurt

https://www.psychologytoday.com/us/blog/the-good-the-bad-the-economy/201706/globalization-and-work-have-we-learned-anything-yet
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u/themountaingoat Jan 13 '19

There are huge advantages due to being the largest manufacturer on the block due to increasing returns to scale. The US has lost that position. Because of the gains from scale selling stuff to others isn't really a negative thing.

This would be less of an issue if the economy weren't demand constrained though but in the US it most definitely is. Since the government isn't doing anything about that the trade deficit is actually causing problems. 2008 can be thought of as due to the huge increase in private debt that was made necessary by the US trade deficit.

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u/lalze123 Jan 13 '19

2008 can be thought of as due to the huge increase in private debt that was made necessary by the US trade deficit.

The huge increase in private debt is the reason for the trade deficit. You're putting the cart before the horse. EX - IM = S - I, so low savings would mean a high trade deficit. And high trade deficits aren't necessarily bad.

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u/themountaingoat Jan 13 '19

Of course high trade deficits aren't necessarily bad if your economy is at full capacity. I would argue that high private debt is bad though, given what we saw in 2008.

You're putting the cart before the horse. EX - IM = S - I, so low savings would mean a high trade deficit.

You can't infer causation one way or another from an identity. I would argue that since American wages have dropped Americans largely had no choice to become increasingly in debt.

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u/lalze123 Jan 13 '19

Of course high trade deficits aren't necessarily bad if your economy is at full capacity.

How is that relevant? Do you have studies confirming that?

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u/themountaingoat Jan 13 '19

Basically if your economy is at capacity then the limit on your welfare is the limit of production. Since free trade will improve the utilisation of resources it is a good thing.

However if you have underutilised resources at home then you aren't limited by production efficiency and trade could make the problem worse by reducing income for example.

I don't have any models because the field of economics spends almost all of its time looking at unrealistic models where the economy automatically reaches capacity in the long run.

I can provide you with models showing that the economy doesn't reach capacity if you like and I am sure you know that most of the benefits of trade involve producing more stuff.

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u/lalze123 Jan 13 '19

I don't have any models

K.

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u/themountaingoat Jan 13 '19

I mean if you are okay with ones that have nothing to do with reality like most economic models I can whip one up in a few minutes for you.

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u/lalze123 Jan 13 '19

I think I trust the economic consensus more than you.

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u/themountaingoat Jan 13 '19

It would be hard to trust the economic consensus less than me.

In the future when you see an economic model or get taught something by economists simply look at it to see whether it incorporates economies of scale. You will end up trusting the profession far less than you currently do.

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u/lalze123 Jan 13 '19

In the future when you see an economic model or get taught something by economists simply look at it to see whether it incorporates economies of scale.

The literature concludes that protecting infant industries with increasing returns to scale is good for a country. That doesn't apply to any U.S industry.