Tuesday, March 31, 2009

It's not China's fault

We're going over international trade in my intermediate class.  This means that we're going over all the stupid notions people have about trade.  This is frustrating enough for me that I thought I would point them all out so you know not to say these things in my presence:

1) "We have a trade deficit because other countries cheat" - No.  We have a trade deficit because we would like to consume lots of stuff *right now*.  We can't produce all the stuff we want to consume *right now*.  So we pay the Chinese and Japanese to make it for us.  How do we pay?  By agreeing to pay them back tomorrow.

Trading with China is no different than "trading" with Sears for a new refrigerator, bought on credit.  Sears loans you the money ("no payments until 2010!") to buy the refrigerator.  You get the fridge *right now*, and will slowly pay back Sears over the next three years, say.  Equivalently, China loans us the money ("just pay us back in interest payments on U.S. bonds in 2010!") to buy boxes full of cheap plastic Disney princess crap. We get the Disney princess crap *right now*, and will pay them back over the next 3, 7, or 10 years depending on what kind of bonds the Chinese are holding.

Saying that China is "cheating" is like saying that Sears is "cheating".  How dare they allow you to freely purchase goods and services that you enjoy!!   Those bastards.

2) "The Chinese are going to own America."   Really.  China holds, by current estimates, about $740 billion in U.S. treasury bonds.  Japan owns about $640 billion.  That's a lot.  U.S. GDP in 2009, in the middle of the worst recession since the early 1980's, will be about $12 trillion.  That's a LOT more.

And you know what we own that they don't?  Printing presses and the master plates that allow us to rip off all the copies of George Washington that we want.  You know what all those U.S. bonds say on the front?  They say that the interest and principal is payable in U.S. dollars, and U.S. dollars ONLY.  If we wanted to, we could print off $1.38 trillion in new bills and ship them off to China and Japan to pay off all those bonds --- and there is nothing they can do about it.

You think they have us by the balls? No.  Imagine that you could pay off your mortgage and credit card debt by shipping a box full of old newspaper to your bank.  Who do you think would lay awake worrying about that happening - you or the bank?

3) "Trade deficits are bad."  I only have one question for you.  Why?  Give me one coherent reason that does not appeal to the fact that the people with the trade surpluses have funny-shaped eyes and live somewhere else.

4) "We need a strong exchange rate." Okay, that's great.  A strong exchange rate means that your dollars can buy a lot of euros, yen, or yuan.  With all those euros, yen, and yuan, you can buy up lots of Belgian beer, Sony DVD players, and more cheap Disney princess crap.  Oh, and you know what?  That means you'll be running a bigger trade deficit.  Exchange rate up, trade deficit up.  Exchange rate down, trade deficit down.

So shut up about your strong exchange rate and your whining about the trade deficit until you understand that these are mutually inconsistent.

5) "The U.S. doesn't make anything anymore."  Oh, really?  What do you do all day, pick your ass?  Well, for some of you, that's probably true. The rest of us are doing high-skilled jobs that people pay a lot of money for. We're the richest f***ing country on earth for a reason - we are better at pretty much everything than every other country.  You know what we make?  The original Disney movie that spawned all that cheap Disney princess crap.  You know what the Chinese get for injection-molding another Cinderella doll?  About 25 cents.  You know what Disney gets when they sell that cheap plastic piece of crap to me so that I can let Abby pretend that some day she'll have ankles the size of toothpicks?  About $10.  Do the math.

6) "Indians are taking all of our jobs."  Right. Because a lot of you are really dying to answer help-desk calls from Donna the receptionist who can't get her mouse-thingy to do the clicky thing to make the invites for the company picnic print out sideways ("why do they call it landscape, you think? It's not like there's any grass on it? He he.").  In the next 5 years, American companies will probably hire about 3,000,000 foreigners to answer calls and do back-office work.

In a non-recession year, you know how many jobs American companies "destroy" every MONTH through simple attrition and turnover?  Just about 2,000,000.  Every MONTH.  That means in the next 5 years there will be about 120,000,000 jobs destroyed by American companies.  During the same period, American companies will create about 140,000,000 new jobs.

Outsourcing is a rounding error for the American economy. So shut up.

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