Thursday, November 10, 2011

Typical Example of Media Mis-Reporting Trade Data

WASHINGTON POST — "The U.S. trade deficit fell in September to the lowest point this year as foreign sales of American-made autos, airplanes and heavy machinery pushed exports to an all-time high. The deficit narrowed 4 percent to $43.1 billion, the third straight decline and the smallest imbalance since last December, the Commerce Department reported Thursday.

Through September, the deficit is running at an annual rate of $558.2 billion, up 11.6 percent from the imbalance for all of last year of $500 billion. A higher deficit acts as a drag on economic growth because it means fewer jobs for American workers."  

MP: The story from the Washington Post above (emphasis added) is a typical example of how the media frequently mis-reports international trade data, for the following reasons:

1. Once we account for all international transactions including:  a) purchases of goods and services, b) investment income payments and receipts, and c) purchases of financial assets, there is an overall balance of U.S. international transactions, and the "balance of payments" account equals zero.  That is, the only way the media can report a trade "imbalance" is to completely ignore investment income, financial transactions and capital flows.  

2. The assertion that fictitious "trade imbalances," or "trade deficits" for only goods and services, are associated with "fewer jobs for Americans" is not supported by the empirical evidence.  According to research at the Cato Institute by Dan Griswold:

"Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose."

27 Comments:

At 11/10/2011 10:55 AM, Blogger morganovich said...

the r squared between economic growth and trade "deficits" is actually positive.

we tend to grow more when deficits are high. the notion that they impede us, as you say, is totally ungrounded in fact.

but then again, what do you expect from keynsians.

 
At 11/10/2011 11:02 AM, Blogger PeakTrader said...

The causality is when the U.S. economy is expanding faster, it's a stronger engine of global growth, including consumption. Therefore, U.S. net imports rise.

 
At 11/10/2011 11:11 AM, Blogger PeakTrader said...

Also, more jobs are created in export-led economies when the U.S. economy expands faster.

However, in the U.S., more net imports (or larger trade deficits) both destroy and create jobs.

The result is likely a U.S. net job loss (from larger trade deficits).

 
At 11/10/2011 11:49 AM, Blogger juandos said...

How often do we see the same said media come out and with the same fanfare correct the numbers they previously reported about unemployment supposedly improving?

From Zer0Hedge: The only question we have is how much higher will this week's 390K number be revised to next week in continuing the BLS one trillion sigma tradition of revising every prior number higher and never lower...

 
At 11/10/2011 12:00 PM, Blogger Buddy R Pacifico said...

OK, the media is is mis-reporting trade data.

Here a different report on the state of U.S. international trade:

U.S. trade transactions with its seventeen Free Trade Agreement partners, result in net positive flow of foreign reserves to the U.S. from twelve of those countries.

U.S. trade transactions with one mercantilist trade partner, produces almost all U.S. outflows of currency, from its international trade of goods and services.

U.S. trade with Free Trade Agreement partners results in mutual respect for intellectual porpert. U.S. trade with a huge mercantilist results in disregard for intellectual property by the mercantilist.

U.S. trade with a huge mercantilist results in forced joint ventures,for market access by U.S. companies. U.S. trade with Free Trade partners allow market access without forced joint ventures.

Mutual Free Trade Agreement vs. one-sided Mercantilist trade is another way report U.S. international trade flows and dead-ends.

BTW,
those of you who promote markets would obviously be for mutual Free Trade, and not enriching mercantilists at the expense of markets, yes?

 
At 11/10/2011 12:58 PM, Blogger morganovich said...

buddy-

"those of you who promote markets would obviously be for mutual Free Trade, and not enriching mercantilists at the expense of markets, yes?"

that's a false choice.

enriching mercantilists has nothing to do with anything.

even if you have tariffs on my goods, i am still better off not having tariffs on yours.

just because you chose to harm your own consumers is no reason for me to imitate your bad behavior.

i just wind up worse off by retaliating.

free trade is the correct course no matter what your partners do.

you need to read your ricardo.

 
At 11/10/2011 1:03 PM, Blogger PeakTrader said...

Buddy says: "those of you who promote markets would obviously be for mutual Free Trade, and not enriching mercantilists at the expense of markets, yes?"

Countries with inferior trade policies don't benefit more than free trade countries.

The U.S. has benefited more trading with China than China has trading with the U.S..

Trading worth less paper for real goods and selling eroding Treasury bonds benefited the U.S..

Also, offshoring low-end manufacturing and shifting resources into high-end manufacturing, retail, finance, biotech, etc. benefited the U.S..

Moreover, U.S. corporations importing goods at lower prices and higher profits benefited the U.S..

What did the Chinese get?

Yes, they stole some intellectual property. However, I'd like to see them reverse engineer a Cadillac SUV or a Wal-Mart.

They got lots of jobs. Unfortunately, if you weren't one of the 50 million communist elites (out of the 1.3 billion), your standard of living was still very low.

They got lots of negative externalities, including pollution, erosion, and deforestation.

They were able to buy lots of expensive oil for production.

And I doubt the communist party allocated most of their gain-in-trade wisely.

 
At 11/10/2011 1:07 PM, Blogger Benjamin said...

This analysis may be a bit simple.

Why then do the Chinese export and why does their economy grow so rapidly? Surely, money gained from exports spurs Chinese growth. Under this Perry analysis, exports and imports are nearly meaningless.

It is true the US can print money and pay our import bills that way, and that is what we have been doing. This is, in fact, a monetarist-Keynesian approach.

 
At 11/10/2011 1:28 PM, Blogger morganovich said...

bunny-

do you ever get tired of this "coincidence is causality" argument?

you can smoke cigars and be a fast runner too. that does not mean one caused the other.

china's growth is driven by industrialization, not trade policy. it's just a testament to the fact that ANYTHING works better than communism.

their system is also nearing collapse.

it's government debt funded investment. all their gdp growth is investment. their consumption is quite low. that's a sign of how their trade policy impedes quality of life improvement. sure, there has been some, but nothing like what england or the US experienced during industrialization.

china is a potempkin village built on massive over investment.

"It is true the US can print money and pay our import bills that way"

and this is stupid, even for you.

walmart can print money? that's new. when did that start?

imports are mostly bought by US firms and individuals, not the government.

they pay in cash they have to earn.

 
At 11/10/2011 1:35 PM, Blogger sethstorm said...


The U.S. has benefited more trading with China than China has trading with the U.S..

Entire regions of the US would be more than happy to tell you otherwise. To simply ignore or marginalize them is deceptive at best.

What was promoted as "temporary" displacement has been a generation of harm towards US citizens. It has only continued as a permanent attack against free US citizens with unfree and pliant Third Worlders.


Yes, they stole some intellectual property. However, I'd like to see them reverse engineer a Cadillac SUV or a Wal-Mart.

They already have reverse engineered a platform-similar Hummer SUV - by asking GM to let them look at the plans, then "rejecting" the purchase. As for Wal-Mart, China might as well have given the top executives (and Walton's heirs) Communist Party membership.

 
At 11/10/2011 1:42 PM, Blogger sethstorm said...


walmart can print money? that's new. when did that start?


If you let Wal-Mart print scrip, they would certainly do it again. Given their pushoff to various government services, and their token insurance offering that was never meant to be taken (given that it cannot be afforded by the people offered it), you'd defend such a practice.


china is a potempkin village built on massive over investment.

Then the US should do everything to send China into a irreversible collapse.

 
At 11/10/2011 1:54 PM, Blogger Benjamin said...

Morgan-

You seem to forget that the Chinese buy US Treasuries with the cash they get from us. Thus, we have simply "printed money" to pay for our imports.

This is well-understood.

 
At 11/10/2011 2:31 PM, Blogger Buddy R Pacifico said...

morganovich pleads "you need to read your ricardo".

Assuming Dave and not Rick:

There is little opportunity cost choice to the mercantilist, who steals from the high-tech economy trading partner. Pervasive theft by the mercantilist of pharmaceutical patents, dvds, business software, copyrighted downloads etc., offers the victims no compensation. So, what cost is there to the mercantilist for this theft, if it the mercantilist is defended by some, for providing cheap goods in return?

I wonder what the outcome of a morganovich funded study, at the College of Rhode Island, would be that is titled:

"The Role of Intellectual Property Theft in Negating Ricardo's Opportunity Cost, by Econonies Not Protecting Foreign IP. Hmm?

 
At 11/10/2011 2:45 PM, Blogger morganovich said...

"Pervasive theft by the mercantilist of pharmaceutical patents, dvds, business software, copyrighted downloads etc., offers the victims no compensation. So, what cost is there to the mercantilist for this theft, if it the mercantilist is defended by some, for providing cheap goods in return?"

the cost is enormous.

it is their entire domestic industry.

blu ray and windows rapidly develop the DRM needed to stop piracy, but it's ever-present threat prevents any local alternative from flourishing, ultimately leaving them at the mercy of those from whom they would steal and paying extra for local language versions they cannot develop themselves.

the african music industry provides an excellent example.

 
At 11/10/2011 2:48 PM, Blogger morganovich said...

bunny-

"You seem to forget that the Chinese buy US Treasuries with the cash they get from us. Thus, we have simply "printed money" to pay for our imports.

This is well-understood."

that is the stupidest thing i have heard you say yet.

by your logic, if i buy a car from you and you put the money into treasuries, i printed money?

seriously, where do you get this stuff?

what you do with the money i pay you for a good or service has nothing at all to do with where i got it.

 
At 11/10/2011 2:53 PM, Blogger morganovich said...

"If you let Wal-Mart print scrip, they would certainly do it again"

but they can't seth, thus your whole argument is baseless.

"Then the US should do everything to send China into a irreversible collapse."

wow. that's some staggeringly stupid zero sum thinking.

oh yeah, let's destroy china. they'll stop buying our debt and jack up interest costs. they'll stop sending us goods and make us pay more for the same things. we'll lose the benefit of the trade we do with them.

destroying china would deeply harm the US. every job we got back would be more than paid for in increased costs to buy things, leaving us less well off in real terms.

that's some astoundingly imperialist BS you are spouting there seth.

you could not be more wrong.

 
At 11/10/2011 3:02 PM, Blogger Buddy R Pacifico said...

morganovich on the cost of Intellectual Property Theft to the perp economy:

"the cost is enormous.

it is their entire domestic industry."

Come on Morgan, the cost is to the producers who are victimized by the theft. They have lost an entire potential market, and the stolen IP may be sold in other mnarkets that results in even more loss. The producing industry bears the cost not the free loading economy that steals or buys stolen IP.

Don't you think Ricardo would state that "opportunity cost cannot be negated by theft in trade between econonies"?

 
At 11/10/2011 3:30 PM, Blogger morganovich said...

"Come on Morgan, the cost is to the producers who are victimized by the theft. They have lost an entire potential market, and the stolen IP may be sold in other mnarkets that results in even more loss. The producing industry bears the cost not the free loading economy that steals or buys stolen IP.

Don't you think Ricardo would state that "opportunity cost cannot be negated by theft in trade between econonies"?"

buddy-

you are really missing the boat here. in technology, you can always find a way around theft.

it just adds a new cost to your product to add the protection and licensing.

you pass that cost along to the customers that try to steal from you.

thus, the pirating of software in china just drives up their own costs and makes it harder for them to develop their own industry.

it means US companies that assemble in china don't transfer technology there. they do the high value add work elsewhere, then go to china to do assembly.

you are thinking in much too static a set of terms.

i know lots of people who (profitably) sell software to china.

the do it with draconian drm and copy protection and charge more.

attempted theft just adds cost to doing business.

it's just like transferring money. in the US, an armored car costs X. in kabul, it costs more. that cost gets passed on to customers.

their disregard for property just winds up hurting them in aggregate.

sure, a few folks might benefit from stealing some money, but that gets baked into everyone else's costs too. in aggregate, it leads to a loss.

you are mistaking the benefit of the one individual who manages to steal for the effect on the economy as a whole.

 
At 11/10/2011 4:11 PM, Blogger Buddy R Pacifico said...

morganovich,

"you are mistaking the benefit of the one individual who manages to steal for the effect on the economy as a whole."

No good sir, you are mistaking the benefit of a whole economy that steals, with the reduction, by you, to one individual. A whole economy that steals, offers zero (or negative) comparative advantage to the producers who are victimized, based on no opportunity cost lost in procuring the producers goods.

Any Ricardo would state that comparative advanatage does not work when property rights are not protected for producers in a country.



"

 
At 11/10/2011 4:15 PM, Blogger Zachriel said...

Mark J. Perry: That is, the only way the media can report a trade "imbalance" is to completely ignore investment income, financial transactions and capital flows.

The article is clearly referring to the "U.S. trade deficit," which has a clear economic meaning as the difference between exports and imports of goods and services.

 
At 11/10/2011 5:45 PM, Blogger sethstorm said...


morganovich said...


What you call imperialism is a part of competitiveness. The same competitiveness that has been used to justify losses against US citizens.

If they're willing to do the same to US (IP theft or compromising US Government assets), we should be willing to meet the same challenge. Given how they have acted against the US and developed countries, collapse is an option that needs to be on the table.

 
At 11/10/2011 7:51 PM, Blogger Craig said...

those of you who promote markets would obviously be for mutual Free Trade, and not enriching mercantilists at the expense of markets, yes?

Sorry to disappoint you, but, no.

One-sided free trade is better than no free trade at all. Whatever economic contortions the mercantilist must go through to provide me with cheap goods only benefits me at his eventual expense.

Voluntary trade (even with a mercantilist) enriches me just as much as it enriches him. Sorry, dude. Go back to the drawing board.

 
At 11/10/2011 8:05 PM, Blogger juandos said...

"What was promoted as "temporary" displacement has been a generation of harm towards US citizens"....

Well the lazy bastards ought to have acquired a marketable skill, eh sethstorm?...

 
At 11/10/2011 9:34 PM, Blogger Buddy R Pacifico said...

Craig states:

"One-sided free trade is better than no free trade at all. Whatever economic contortions the mercantilist must go through to provide me with cheap goods only benefits me at his eventual expense.

Voluntary trade (even with a mercantilist) enriches me just as much as it enriches him. Sorry, dude. Go back to the drawing board."


Dude, your parasitic non-market stance is raised and noted.

 
At 11/11/2011 12:01 AM, Blogger sethstorm said...


Well the lazy bastards ought to have acquired a marketable skill, eh sethstorm?...

While businesses get to sit idle and complain instead of training upwards to meet the demand?

Another point - how about the businesses that flout age discrimination law to bypass otherwise well-qualified people that have the skillsets?

You give business too much credit. Calling those workers "lazy bastards" is an excuse that doesn't hold water.

 
At 11/11/2011 3:02 AM, Blogger juandos said...

"While businesses get to sit idle and complain instead of training upwards to meet the demand"...

Its there money to spend as they see fit...

BTW did you forget that the businesses spent money already on training? Yeah, its called taxes and it was spent/wasted on what is foisted off as the public school system...

"Another point - how about the businesses that flout age discrimination law to bypass otherwise well-qualified people that have the skillsets?"...

Again its the business' money to spend as they see fit...

BTW who says those people are, 'well qualified'?

I mean if you don't like it, then you should start up your own business and hire who you want and train them the way you want, after all its your money...

 
At 11/11/2011 9:52 AM, Blogger VangelV said...

MP: The story from the Washington Post above (emphasis added) is a typical example of how the media frequently mis-reports international trade data,...

But don't you do the same thing when you write your energy postings? When you cite production that comes from the destruction of capital you don't say that is not sustainable. You don't show that the economics are not viable for the trend that you are projecting. And you don't explain that the 'growth' from that capital destruction is being offset by depletion from older assets and that lower imports are primarily due to a collapse in demand caused by a contraction in the real economy.

You misrepresent inflation by accepting the BLS calculations without question even though you know that the application of the same methodology would have shown a 1970s without much inflation.

It is clear that your natural optimism causes you to misrepresent data by always pointing to the positive interpretation even as you ignore the negative.

In short, welcome to humanity. People will do what they already believe in and will spin the facts in a way that feeds their belief system. There is nothing strange or unexpected about that.

 

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