Short post since this is a travel day.
This is… stupid.
I know some people will tune this out because it’s about foreign trade and trade deficits and it’s sometime hard to understand if you haven’t spent at least some time studying how foreign trade and trade deficits work (or haven’t at least googled these things).
But this may literally be the dum(b)est thing any President of the United States has ever said since Trump talked about how to spell the word “dumb” (hint: he didn’t know how to spell the word “dumb - with or without a “b”?! - so he assumed everyone didn’t know how to spell the word “dumb”. That is so dum).
First, when the U.S. economy spends money abroad, it’s not just giving it gratis to other countries. The U.S. gets goods (and/or services” in return.)
In addition, as Krugman explains (in economicsese that can sometime be a bit dense) (bold emphasis mine):
the balance of payments always balances. Every purchase by one country is also a sale for another country, regardless of the form of the exchange. It could be (1) goods and services exchanged for goods and services; or (2) goods and services exchanged for assets; or (3) assets exchanged for assets. The form doesn’t matter: every purchase involves a corresponding sale.
So for the nation as a whole, we have an accounting identity for international transactions:
Sales of domestic goods and services to foreigners + Sales of domestic assets to foreigners = Domestic purchases of foreign goods and services + Domestic purchases of foreign assets
If we took a highly simplified example, in which the only two countries in the world are the U.S. and China, we might say that:
Sales of US wheat to China + Sales of US Treasury bills to China = US purchases of Shein clothing + US purchases of Chinese stocks
…
With this language simplification, we can rearrange the accounting identity of international transactions to arrive at this:
Sales of assets – Purchases of assets = Purchases of goods – Sales of goods
Applied to the U.S., the left side of this equation is our net capital inflows -- the excess of foreigners’ investment in US assets over our investment in foreign assets. The right side of the equation is our trade deficit – the excess of our purchases of foreign goods over foreign purchases of American goods. Hence:
Net capital inflows into the U.S. = U.S. trade deficit
Pay attention to the section at the end that I bolded. Essentially, our trade deficit - spending more overseas for goods/services than overseas countries pend in the U.S. - is equal to the net positive investment other countries make in the U.S.
Krugman explains this in more easily understood terms below:
Why has the US run persistent trade deficits? The accounting identity doesn’t give a clear answer because it cannot reveal what causes what. Do we have a trade deficit because we have a highly innovative economy that attracts foreign investment? or do we have to borrow from foreigners because we have a trade deficit?
In the modern world economists generally subscribe to the former explanation: foreign capital flows, seeking higher rates of return in the US, have driven the US trade deficit. The underlying mechanism runs through the value of the dollar. It looks like this:
1. Foreigners want to invest in America
2. To do so foreigners must acquire dollars
3. Foreign demand for dollars drives the dollar up relative to other currencies
4. The higher value of the dollar relative to other currencies makes U.S. production more expensive and less competitive compared to foreign production
5. The end result is a U.S. trade deficit
This guy is the President of the United States. If he doesn’t understand this basic rule of economics, he has people available to him who do (or should if he didn’t pick sycophantic ignoramuses to provide him with advice).
This may be the most classic exhibition of Dunning -Kruger effect ever. For those who don’t know,
The Dunning–Kruger effect is a cognitive bias that describes the systematic tendency of people with low ability in a specific area to give overly positive assessments of their ability.
Yet no one in the media questions his truly idiotic and stupid statement on this.
Oh, this very dumb individual also lied about his class standing at the undergraduate (not graduate) Wharton School program at the Uiversity of Pennsylvania. Trump claimed he graduated first in his class. Nope (he didn’t even make the Dean’s List or graduate with any honors):
Not only is he doing his best to destroy our country, he’s stunningly dum(b). It’s obvious and needs to be explicitly pointed out ad nauseum.
Nirvana - Dumb
Bonus song since - yeah - I’m a Grateful Dead guy:
Grateful Dead - Ship of Fools
