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Thread: Is Trump right twice a day?

  1. #1
    SEÑOR Member Aimless's Avatar
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    Default Is Trump right twice a day? US trade policy going down the shitter

    The Economist and WSJ both grapple with an unsettling possibility:

    Why Germany’s current-account surplus is bad for the world economy

    [...] There is no question who has the better of this argument. Mr Trump’s doctrine that trade must be balanced to be fair is economically illiterate. His belief that tariffs will level the playing field is naive and dangerous: they would shrink prosperity for all. But in one respect, at least, Mr Trump has grasped an inconvenient truth. He has admonished Germany for its trade surplus, which stood at almost $300bn last year, the world’s largest (China’s hoard was a mere $200bn). His threatened solution—to put a stop to sales of German cars—may be self-defeating, but the fact is that Germany saves too much and spends too little. And the size and persistence of Germany’s savings hoard makes it an awkward defender of free trade. [...]
    This Time, Trump Is Right About Trade

    [...] Though German Chancellor Angela Merkel did not seem to care for the messenger, she should nonetheless hear the message. While Mr. Trump gets a lot wrong about trade, on this particular point he’s right. Germany’s current account surplus, which combines trade and investment income, is now the world’s largest. Along with China’s, it is a dangerous imbalance that leaves others, including the U.S. and the rest of Europe, worse off.

    It’s not just Mr. Trump who thinks so. “The criticism is right. Germany’s trade surplus is excessive,” says Marcel Fratzscher, president of DIW Berlin, a prominent German think tank. Mervyn King, former governor of the Bank of England, went further, arguing, “President Trump is right when he identifies a problem with current international trading and monetary relationships.” [...]
    If you don't have a subscription to WSJ: https://fbkfinanzwirtschaft.wordpres...t-about-trade/


    Do you agree? If so, how can the situation be improved? How can Germany be persuaded to change its policies, if, indeed, that's where the problem lies?

    Discuss as if Trump doesn't exist.
    Last edited by Aimless; 03-01-2018 at 08:24 PM.
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  2. #2
    Administrator Dreadnaught's Avatar
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    I agree this is a "right twice a day" kind of thing. The problem with a trade surplus is not the surplus in itself, but rather the causes, magnitude and duration of that surplus. That said, I'm not convinced there is a huge problem here. If the German economy were strong and dynamic enough, labor prices would increase, consumption would increase and the surplus would go away over time.

    The Germans writ large aren't the problem here —*this isn't Internet regulation or socialist-addled Berlin youth, after all. Bullying the Germans into spending more or exporting less seems like a silly solution to the problems of other nations. Those countries can learn a lot from Germany's labor/education markets and work to make their own economies more dynamic.

  3. #3
    Quote Originally Posted by Dreadnaught View Post
    I agree this is a "right twice a day" kind of thing. The problem with a trade surplus is not the surplus in itself, but rather the causes, magnitude and duration of that surplus. That said, I'm not convinced there is a huge problem here. If the German economy were strong and dynamic enough, labor prices would increase, consumption would increase and the surplus would go away over time.
    Part of the economic argument against German surpluses is that the country artificially limits labor prices through a variety of methods, which in turn limits consumption and drives the surplus. It is not necessarily obvious that labor prices are at their equilibrium level in Germany.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

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    Administrator Dreadnaught's Avatar
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    Limiting labor prices? I can sorta see it I suppose, but curious to hear how.

  5. #5
    For example, labor relations are far less contentious in Germany than they are in the US - there is no minimum wage*, but unions and corporations get together and agree on effective wages for large swaths of the industry in a single fell swoop. This kind of chummy coordination between labor and capital may actually be a decent model to follow, but it does mean that you don't necessarily reach equilibrium prices that might be expected in a more market-driven system.

    There are other methods as well, but this is a famous one used in much of German industry.

    *edit: I forgot that Germany just instituted a minimum wage a couple years ago. It's largely irrelevant for this discussion, though, since most wages under collective bargaining are higher than the fairly low German minimum wage.
    Last edited by wiggin; 07-20-2017 at 02:07 PM.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

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    All Worship Ragnarök Loki's Avatar
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    https://www.oecd.org/g20/topics/empl...-Economies.pdf

    Wig, see figure 4. Labor's share of the GDP in Germany is ~5% higher than in the US.
    Last edited by Loki; 07-19-2017 at 04:08 AM.
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  7. #7
    Quote Originally Posted by Loki View Post
    https://www.oecd.org/g20/topics/empl...-Economies.pdf

    Wig, see figure 4. Labor's share of the GDP in Germany is ~5% higher than in the US.
    https://www.ft.com/content/a7758d5e-...ac7a5?mhq5j=e2

    See the chart on productivity growth vs. wage growth. The former has way outpaced the latter since reunification. Similarly, look up the Agenda 2010 labor market reforms that dramatically changed job security, benefits, and (indirectly) compensation.

    As for the specific question of Germany's labor share, the link below has some interesting discussion on long term trends. Depending on how you analyze the data, Germany may indeed have a higher labor share than the US; this doesn't really tell us if wages are below market level, though, since it's entirely possible that Germany's equilibrium labor share (and, indirectly, wages) should be higher than the US' (or that the US is separately depressing wages through other means). But on long term trends, Germany used to have a much higher labor share than the US and now it bounces around close to the US. Chapter 5 (especially figure 32 onwards) is instructive:

    http://www.ilo.org/wcmsp5/groups/pub...cms_194843.pdf

    I suspect that there is actually a very complicated story about German wages since reunification, and that even if wages are depressed it only is part of the story of Germany's unhealthy trade surplus. Certainly consumption in Germany is subdued, but there are probably a lot of factors - not just wages - that drive that.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

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    Senior Member Flixy's Avatar
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    Quote Originally Posted by wiggin View Post
    For example, labor relations are far less contentious in Germany than they are in the US - there is no minimum wage, but unions and corporations get together and agree on effective wages for large swaths of the industry in a single fell swoop. This kind of chummy coordination between labor and capital may actually be a decent model to follow, but it does mean that you don't necessarily reach equilibrium prices that might be expected in a more market-driven system.

    There are other methods as well, but this is a famous one used in much of German industry.
    I'd like to point out that collective bargaining generally only specifies minimum wages not maximum, at least over here. And all the free market fans here hate unions for keeping wages too high I'm not sure I agree that this would keep wages artificially lower instead of higher.
    Keep on keepin' the beat alive!

  9. #9
    Collective bargaining typically increases wages for obvious reasons. But collective bargaining that is chummy is likely to increase wages less than you'd get otherwise. Whether this is a deviation from a market determined 'equilibrium labor price' is a tougher question because we need to consider counterfactuals and decide what are appropriate conditions for equilibrium.
    "When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first." - Werner Heisenberg (maybe)

  10. #10
    Senior Member Flixy's Avatar
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    Plus there's arguably a value to both employees and employers to have stability and no strikes. Which is probably impossible to quantify.
    Keep on keepin' the beat alive!

  11. #11
    SEÑOR Member Aimless's Avatar
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    Quote Originally Posted by Loki View Post
    https://www.oecd.org/g20/topics/empl...-Economies.pdf

    Wig, see figure 4. Labor's share of the GDP in Germany is ~5% higher than in the US.
    As far as I can tell, this was no longer true in 2014, whether you look at adjusted (for self-employment) or unadjusted numbers:

    http://www.imf.org/en/Publications/W...l-2017#Chapter 3

    See data for fig 4.1 and 4.2. I believe these findings are somewhat difficult to interpret due to the differences in non-wage benefits between countries.
    Last edited by Aimless; 07-19-2017 at 07:58 PM.
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  12. #12
    SEÑOR Member Aimless's Avatar
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    Quote Originally Posted by Flixy View Post
    I'd like to point out that collective bargaining generally only specifies minimum wages not maximum, at least over here. And all the free market fans here hate unions for keeping wages too high I'm not sure I agree that this would keep wages artificially lower instead of higher.
    Germany does have a minimum wage. It was implemented only recently--in 2015--so there isn't much useful data on its effects on trends in wages and productivity. I suspect this minimum wage will have a negligible impact on those things because the vast majority of German workers are subject to collectively bargained wage agreements with wage floors higher than the national minimum wage.

    There has been a lot written about the reasons for the wage restraint (a useful search term if you wish to read more on the subject) that has been seen in European economies such as Germany during the past couple of decade. The essentially collaborative relationship between workers' unions and employers/employers' associations tends to be highlighted as one important reason for that restraint, but it's difficult to dismiss the impact of the EU and, to a lesser extent, the EMU. While there has indeed been a great deal of restraint in wage increases in many European countries, at the sectoral level the picture has often been more complex, with some or even many sheltered sectors seeing wage increases substantially greater than exposed sectors, which is precisely what you would expect. It's also worth noting that European countries can often have high rates of public sector employment that may make wages more sensitive to economic crises that threaten public finances, and that employees in European countries often also enjoy substantial publicly funded benefits--eg. healthcare, parental leave, etc--that make comparison between countries difficult.

    Re. collective bargaining only setting the floor, this is only partly true. Collective bargaining can also help establish and entrench norms for individual wages. If you start with a comparatively high collectively bargained wage floor, that may impose a limit on the maximum amount an employee can be paid, for both economic and social/cultural reasons.
    Last edited by Aimless; 07-19-2017 at 09:21 PM.
    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
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    Quote Originally Posted by wiggin View Post
    Collective bargaining typically increases wages for obvious reasons. But collective bargaining that is chummy is likely to increase wages less than you'd get otherwise. Whether this is a deviation from a market determined 'equilibrium labor price' is a tougher question because we need to consider counterfactuals and decide what are appropriate conditions for equilibrium.
    Collective bargaining is pretty much price fixing. Labor is just another good.

  14. #14
    Senior Member GGT's Avatar
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    Quote Originally Posted by Lewkowski View Post
    Collective bargaining is pretty much price fixing. Labor is just another good.
    Au contraire. Labor isn't "just another good" that can be treated - or traded - on the global market like any other commodity. Labor, loosely translated, means employing/paying people for their work. Technology and globalization have changed several consumer markets that Freeee Trade Agreements didn't anticipate -- see Walmart as an early example of getting cheap goods (from China) that didn't translate to local US employment, but indeed led to loss of jobs.

    This is a very complicated issue with no easy answers. Instead of criticizing Germany, I applaud their efforts, because they at least recognize the changing world/economies in their educational and vocational programs that put the USA to shame.

  15. #15
    SEÑOR Member Aimless's Avatar
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    Trump declares war on solar panels and washing machines:

    https://www.washingtonpost.com/news/...-trade-action/

    The price of a mediocre SC judge.
    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

  16. #16
    Administrator Dreadnaught's Avatar
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    Well fuck I was going to buy a washing machine.

  17. #17
    SEÑOR Member Aimless's Avatar
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    The way this played out--with Trump changing his mind like three times and/or lying to officials and press--was absolutely ridiculous:

    https://www.thestar.com/news/world/2...t-applies.html

    https://www.axios.com/trump-declares...e28f7bf4b.html

    EU response:

    https://www.reuters.com/article/usa-...-idUSB5N1E000U


    China isn't even in the top 10 of trading partners when it comes to steel and latest info from insiders is that Trump has clarified there won't be any exemptions for eg. Canada, Brazil etc. I believe this is equal parts pandering to his base base and crony protectionism. Hope someone follows the money.
    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

  18. #18
    This is going to be a pretty direct comparison to answer the question of which is dumber, Bush or Trump.
    "In a field where an overlooked bug could cost millions, you want people who will speak their minds, even if they’re sometimes obnoxious about it."

  19. #19
    24 hours later and I'm already seeing Bush being the smarter one.

    Markets fall as Trump says trade wars are 'good and easy to win'
    "In a field where an overlooked bug could cost millions, you want people who will speak their minds, even if they’re sometimes obnoxious about it."

  20. #20
    That's no moon. EyeKhan's Avatar
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    Quote Originally Posted by Aimless View Post
    The way this played out--with Trump changing his mind like three times and/or lying to officials and press--was absolutely ridiculous:

    https://www.thestar.com/news/world/2...t-applies.html

    https://www.axios.com/trump-declares...e28f7bf4b.html

    EU response:

    https://www.reuters.com/article/usa-...-idUSB5N1E000U


    China isn't even in the top 10 of trading partners when it comes to steel and latest info from insiders is that Trump has clarified there won't be any exemptions for eg. Canada, Brazil etc. I believe this is equal parts pandering to his base base and crony protectionism. Hope someone follows the money.
    And we can expect the price of everything made with steel and aluminum to go up... sigh. Why did the Democrats have to run Hillary? Why so blind to how much she had been poisoned?
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  21. #21
    That's no moon. EyeKhan's Avatar
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    Quote Originally Posted by Ominous Gamer View Post
    24 hours later and I'm already seeing Bush being the smarter one.

    Markets fall as Trump says trade wars are 'good and easy to win'
    So are nuclear wars. Lets try one.
    The Rules
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  22. #22
    SEÑOR Member Aimless's Avatar
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    The party of business:

    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

  23. #23
    SEÑOR Member Aimless's Avatar
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    JFC... this entire thread is straight-up batshit:

    “Humanity's greatest advances are not in its discoveries, but in how those discoveries are applied to reduce inequity.”
    — Bill Gates

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