The ten most valuable companies in the world are all U.S. based. Think about that for a minute.
There are so many myths – right and left – that the above statistic disproves, but for this column the statistic will be used to address the accounting abstraction that is the “trade deficit.” That the world’s most valuable companies generally have a U.S. address is a near certain sign that the United States runs a “trade deficit.” A very large one.
The answer for why is basic. The prosperity of U.S. companies, and the global reach of their brands, ensures that ownership of them will be broad. As such, shares of American companies are “exported” around the world to global investors desperate to expose their savings to the United States. Those exports don’t count in the offense-to-common-sense calculation that is the “trade deficit.” Conversely, the import of consumable goods that Americans ultimately exchange shares in world-leading companies for doescount in what is a worthless calculation.
Imports are the certain reward for productivity. That Americans are the most productive people on earth helps explain the immense demand for shares in U.S. companies, along with the voracious demand within the U.S. for all the world’s plenty. To produce in abundance is to express a desire to import in abundance, and all this explains why American “trade deficits” are so large. They confirm the immense wealth within these fifty states. To create wealth is to be showered with goods and services from around the world. Logically.
New York Times columnist Paul Krugman at least situationally agrees with the above assertions. In a recent column meant to expose the “zombie ideas” that cloud the minds of people like President Trump, Krugman made a point to spend time on Trump’s odd obsession with “trade deficits.” He noted that many in the Trump camp believe that “Countries with trade surpluses win; those with trade deficits lose.” Krugman disagrees. He writes that “Both logic and history say that this view is nonsense: Trade surpluses are often a sign of weakness, trade deficits sometimes a sign of strength” since, as the Princeton professor goes on to point out, “a country that attracts more inward investment from foreigners than it invests abroad must run a trade deficit.”
Think about what Krugman is saying for a minute. He’s merely confirming what’s obvious. Countries that attract copious investment generally run “trade deficits.” Notable here is that without investment there is no company expansion, nor are there companies and jobs to begin with. Investment is the driver of economic growth, and “trade deficits” signal abundant investment inflows.
But Krugman being Krugman, his intense partisanship invariably requires him to descend into the ridiculous, only to reveal his own “zombie ideas.” More intense than his partisanship is Krugman’s unquenchable desire to attack anyone who desires tax cuts and a stable dollar. And so he does. The alleged victims are new NEC Chair Larry Kudlow, and Treasury under secretary David Malpass.
About the tax cuts that Krugman despises, as is so often the case with partisans on the left and right, he cherry picks. According to Krugman “the eventual catastrophe that followed George W. Bush’s tax cuts” discredits tax cuts. Talk about a non sequitur. No mention of the myriad interventions Bush called for amid a healthy market correction that led to the “catastrophe,” nor did Krugman acknowledge (for comparison’s sake) how the 1930s occurred in concert with the top tax rate being raised from 25 to 62% under Herbert Hoover, and 62 to 83% under FDR. In Krugman’s case, the goal is to always point out how awful it is when governments take away fewer dollars from rich people.
This is notable simply because as his own New York Times reported last month, the “richest 10 percent of American households own 84 percent of all stocks.” Once again, no jobs without investment. Readers who doubt the previous assertion need only ask their man at Princeton. How are jobs created? They’re always an effect of delayed consumption. Always. The rich have the most unspent wealth which explains why they own 84 percent of all stocks. Yes, the rich create the vast majority of jobs. Think about the previous tautology, and then think about the slant of Krugman’s columns. When you seek to penalize the rich, as Krugman explicitly does, you’re putting a bull’s eye on job creation.
Krugman then tacked to Malpass and criticized his expressed support for a strong dollar in a 2011 column published at the Wall Street Journal. In truth, Malpass desires neither a strong nor weak dollar. Malpass is in favor of money as a measure, which is the equivalent of Malpass saying he prefers automobiles with wheels. Money quite simply is. It’s not wealth as much as it facilitates the exchange of wealth. For the economically focused Malpass to be in favor of a stable dollar is like a track & field coach to be in favor of breathing. For one to support a floating dollar is to be in favor of less trade, and less investment; meaning less specialization and less productivity.
In Malpass’s case, the dollar fell to its lowest point ever in 2011. This is important for reasons Krugman previously alluded to in the same column. As he put it about the bullishness of “trade deficits,” they’re a “sign of strength” for them correlating with “more inward investment from foreigners.” Malpass was for a stronger dollar simply because the persistently weak one was repelling the very investment that powers economic growth. When investors put money to work, they’re buying future currency income streams. That’s why a weak dollar, euro, yen, yuan or anything else is such a barrier to growth. It penalizes the very investment without which there is none.
Krugman, the picture definition of a “two-handed economist,” writes that “persistently high unemployment is the one situation in which trade deficits really are an unambiguously bad thing, reducing the demand for domestic goods and services.” Ok, so the “trade deficits’ which signal “more inward investment” are a positive when the economy is good, but a negative when the economy is bad? Investment inflows that boost company formation and job creation are problematic when an economy is weak? Sorry, but Krugman’s editors have done him a disservice. He can’t have it both ways. Or three ways.
Indeed, what he ignores is that without good money there’s logically going to be less “inward investment.” As for “strong” money rendering “products less competitive,” please. Krugman needs to at least try to be serious. That’s the case because his arguments are so easy to discredit. Among other things, Japanese exports into the U.S. surged in the 1970s and 1980s despite the yen crushing the dollar.
To be fair to Krugman, there’s no doubting that the rise of Trump has coincided with some truly zombie-like thinking in the GOP. Tariffs are madness as Krugman no doubt knows, and Trump supports them. Trump also supports a weak dollar, and for the same reasons Krugman does: he naively thinks a wrecked currency makes products more competitive. It doesn’t. More than Krugman would like to admit, his nuttiness would have him feeling quite comfy inside the Trump White House.
Back to Kudlow and Malpass, here’s hoping they can counterbalance all the economic illiteracy within Trumpland. If they succeed, Krugman will assuredly be a major critic of Trump’s hoped-for lurch toward economic sanity. In short, readers will know Trump’s headed in the right direction if Paul Krugman’s embrace of his own inner Zombie becomes more and more pronounced.