WEBVTT 00:02.610 --> 00:08.970 This is the human action podcast where we debunk the economic political and even cultural myths of the days 00:08.970 --> 00:11.970 Here's your host dr. Bob Murphy 00:13.350 --> 00:15.570 Hello and trumpet Austrian fans 00:15.570 --> 00:24.090 Back for another episode of the human action podcast. I'm going solo this episode and I think in light of all of the discussion about 00:25.310 --> 00:27.470 Trump's tariff proposals 00:28.210 --> 00:29.810 that it will 00:30.450 --> 00:33.270 Serve you folks if I just do an episode here on 00:35.070 --> 00:40.170 Some elements of international trade theory and accounting that I think often 00:40.170 --> 00:44.030 Austrians don't encounter. All right, and so I want to be clear 00:45.150 --> 00:48.190 everything on the topic of international trade and 00:49.050 --> 00:54.750 Computing with you know, what's the trade deficit? And is that a good concept and all that kind of stuff that you'll see in human action 00:54.750 --> 00:57.410 Or man economy and state that's all correct 00:57.410 --> 01:01.210 But when I worked for Arthur Laffer briefly 01:02.730 --> 01:06.990 In his writings, he talked about things in terms of the accounting and the current account 01:08.430 --> 01:14.590 Devacit the capital account surplus and this and that what does that do with currency strengths and so on and I just saw some more 01:14.590 --> 01:19.170 About the accounting and came up with other ways to explain 01:19.170 --> 01:25.230 Via analogies to like a personal household or a corporation how to think about international trade 01:25.230 --> 01:28.510 So I want to be clear in this episode. I'm not 01:29.450 --> 01:30.330 Here to 01:30.910 --> 01:34.430 Tell you that Trump's ideas are good or bad. I 01:34.430 --> 01:39.050 Will link if you missed it. I earlier did an episode of this podcast on 01:39.590 --> 01:43.150 The difference between or how economists should evaluate 01:43.670 --> 01:47.450 tariffs versus income taxes and so there again 01:47.450 --> 01:53.270 I was trying to be neutral my personal thought would be if you could cut government spending enough such that 01:54.030 --> 01:57.110 Tariffs alone could raise the revenue necessary to fund 01:57.890 --> 02:03.930 Typical government operations at the federal level that that would be vastly preferable to having an income tax 02:04.950 --> 02:07.330 But that alone is not enough to say, okay 02:07.330 --> 02:13.210 So let's go ahead and do it because in practice what happens if is I think probably would have in any time in the near future 02:13.970 --> 02:14.890 They enact 02:15.430 --> 02:20.250 new tariffs or raise the rates on existing tariffs a lot and even if they do 02:21.130 --> 02:23.670 Allow some cuts in the income tax rate 02:23.670 --> 02:27.850 But if they still have the IRS or they still have the personal income tax and corporate income tax 02:27.850 --> 02:31.230 So they're still all in your business and it's just they lower the rate somewhat 02:32.010 --> 02:37.570 That it's not obvious at all that that's better than the current approach. All right, so I just want to be clear on that point 02:38.270 --> 02:43.210 But that's not what I'm trying to do in this episode. I'm not here trying to say tariffs are good or bad 02:43.690 --> 02:45.710 All I'm trying to do is clear up 02:46.270 --> 02:52.190 Some of the confusion that I've seen on social media when people who are armed with 02:52.830 --> 02:56.490 Some true statements about international trade or accounting 02:57.670 --> 03:00.850 Intaxation and then they go in and argue with each other and a lot of times 03:02.050 --> 03:07.870 I just saw it this morning for example did John Potter it's and John Carney were arguing with each other about 03:07.870 --> 03:13.530 Could a tariff make things become more expensive at Walmart and they were both relying on 03:14.410 --> 03:14.830 True 03:15.770 --> 03:20.770 Principles from economics and yet they each thought the other guy was nuts, right? 03:20.850 --> 03:23.870 So it was just kind of funny that so that's what I'm trying to clear up in this 03:23.870 --> 03:25.690 So I think regardless of your stance 03:26.810 --> 03:31.190 This episode should help you and at the very least will give you ammunition 03:31.830 --> 03:35.950 With which to go into battle whatever your side may be on this topic 03:37.710 --> 03:40.790 Okay, so one thing that you'll often see coming from 03:42.350 --> 03:47.030 Free market oriented non-Austrians is they will say that 03:49.690 --> 03:56.030 The conventional discussion about tariffs gets things backwards, right? So if you listen to a typical 03:56.670 --> 04:02.350 Proponent of protective tariffs, they might say something along the lines of and I don't know if Trump has literally said this 04:02.350 --> 04:07.330 But certainly many of his fans arguing on social media have said things like this that hey 04:07.330 --> 04:12.890 we're all for open trade and you know competition on a level level playing field and 04:14.870 --> 04:17.510 We're happy to buy imports from some other country 04:18.010 --> 04:21.710 But they should be willing to buy our exports and if they're not willing to buy our stuff 04:21.710 --> 04:26.650 Then we shouldn't buy their stuff and it makes it sound like the point of international trade is 04:27.290 --> 04:32.390 To get other people to take your goods and they're like doing you a favor and then out of reciprocity 04:32.390 --> 04:34.830 Okay, yeah, we'll scratch your back to and we'll buy your stuff 04:35.350 --> 04:42.130 When actually so this particular argument goes if anything, it's the other way around that our nation 04:42.890 --> 04:48.770 Let's throw out this example of this episode. I'm an American so I'll just speak from the perspective of the United States 04:49.630 --> 04:53.770 The the benefit to Americans in one sense from international trade 04:53.770 --> 05:00.090 Just in a certain crude level is all of the goods that we get from abroad, right? 05:00.090 --> 05:04.990 If if Japan sends us a bunch of Toyotas that were manufactured over there 05:06.490 --> 05:11.590 Then you know, how does that help Americans? Well because Americans now can drive around in Toyotas 05:11.590 --> 05:13.410 And we don't have to use our scarce resources 05:13.930 --> 05:18.590 To build vehicles for Americans to drive in right that frees up those resources to do other stuff with 05:19.090 --> 05:25.010 They're just like in general at the household level if somebody comes over for dinner and brings you a bottle of wine 05:25.010 --> 05:30.250 That's not hurting you this you're getting something right so that on one level 05:30.250 --> 05:34.870 You can look at it that way and so you say from that perspective 05:35.910 --> 05:41.950 Goods from abroad flowing into the United States makes Americans poorer and if 05:42.890 --> 05:48.090 As a regrettable necessity in order to keep those goods coming we have to ship 05:49.190 --> 05:50.410 Goods that we make 05:50.970 --> 05:56.650 Outside of our border so that foreigners can get their hands on those goodies. There's a sense in which that's a cost to us 05:56.650 --> 05:58.010 okay, so again 05:58.790 --> 06:01.610 There's one perspective that you'll often see 06:02.290 --> 06:07.290 Like like if a Steve Lansberg or a Greg Mankiw is talking about international trade 06:07.290 --> 06:09.750 And they're just talking very basic just to get people warmed up 06:09.750 --> 06:15.090 They might open with something like that and say hey, hey, you're getting things backwards in general 06:15.690 --> 06:19.170 Imports our benefits and exports our costs 06:20.750 --> 06:24.370 All right that and then they'll follow it up with say that doesn't mean 06:25.150 --> 06:28.930 We should just try to always import everything an export nothing because in the long run 06:29.930 --> 06:34.350 Foreigners would stop sending us stuff. Why are they gonna keep sending us cars if we never send them anything in return 06:34.350 --> 06:35.410 What's in it for the Japanese? 06:36.770 --> 06:39.270 right, and so then you'll that leads into 06:39.950 --> 06:45.970 The next principle you will often see from like a Steve Lansberg or a Greg Mankiw to say hey in the long run 06:46.590 --> 06:48.250 Imports must equal exports 06:50.490 --> 06:53.350 And the reason for that they would argue is to say again 06:53.350 --> 07:00.150 What's the point of international trade you want to get stuff from other countries? The only reason you send them things is 07:01.170 --> 07:05.630 Because that's the way you keep their stuff coming into your borders now with this stuff, too 07:05.630 --> 07:07.670 I should mention there's a complication 07:08.250 --> 07:13.690 None of this stuff even on their terms the people who espouse these principles has to be true on a 07:13.690 --> 07:15.670 pair-wise country by country 07:17.170 --> 07:22.230 Level right we're talking more like the US versus the world at large just like 07:24.650 --> 07:26.270 That the household level 07:27.050 --> 07:28.910 To keep this analogy and float 07:29.430 --> 07:35.270 The consumption you get is like the benefit of of the market, right? 07:35.490 --> 07:41.950 You get stuff you get goodies, you know, whether goods or services that other people make and you get to enjoy and 07:43.290 --> 07:49.030 It's only a regrettable necessity that you have to sell stuff for most people like their labor 07:49.030 --> 07:50.370 Like that's how you earn an income 07:50.930 --> 07:54.370 So the only reason you're allowed to go around town and buy things from 07:55.270 --> 07:59.010 Merchants you want to go see a movie you want to buy some clothes you want to buy a fancy car 07:59.410 --> 08:02.790 Is that you have income and how do you get the income? Well? 08:02.850 --> 08:04.270 You have to sell goods and services 08:05.490 --> 08:11.490 Yourself to other people right so if you are allowed to just go around town getting cars and watching movies and getting clothes and 08:11.490 --> 08:15.130 Sushi meals and so forth and no one expected you to work 08:15.990 --> 08:17.030 That would be great 08:17.730 --> 08:19.770 Right that wouldn't be lamentable that'd be awesome 08:20.850 --> 08:25.230 It's all we have to work in order to generate the income so that we get to buy all those things, right? 08:25.310 --> 08:27.290 So that's where these people are coming from 08:28.170 --> 08:30.750 when they espouse principles like this and 08:31.690 --> 08:35.810 And so now that I've tried to just get you to see where they're coming from 08:35.810 --> 08:38.550 Let me now do the flip side of that just to show 08:39.170 --> 08:43.310 Yes, there's a sense in which that's true and people need to understand that if the 08:44.490 --> 08:51.090 If you're talking to somebody and they think the whole point of international trade is to get foreigners to buy our stuff 08:51.670 --> 08:56.990 And that it's only a regrettable necessity like a okay a quid pro quo. I guess we'll buy your stuff 08:57.710 --> 09:00.830 To be fair about it then that's backwards, right? 09:00.950 --> 09:05.330 I so I agree if you're talking to someone who's thinking of things at that level 09:06.050 --> 09:11.530 Then it helps to hit them up with we'll know if you think about it right the benefit of trade is we get 09:12.030 --> 09:15.590 Cars from Japan so we don't have to build them ourselves and and so on 09:16.650 --> 09:21.170 But you can't stop there. That's my point that that alone is not the end of the story 09:21.630 --> 09:23.290 because again just continue with 09:23.970 --> 09:26.730 the analogy of an individual household and 09:26.990 --> 09:30.530 Yes, it is true that if you could 09:31.990 --> 09:37.730 Go around town and just buy stuff and merchants would keep selling it to you and you didn't need to generate an income yourself 09:37.730 --> 09:40.310 That would be great. That's clearly not gonna happen 09:40.830 --> 09:43.350 So you do need to work but now 09:45.110 --> 09:46.950 You wouldn't conclude therefore 09:47.670 --> 09:53.150 That it was being irresponsible of there was some fallacy involved if someone said hey in general I 09:53.150 --> 09:56.450 Would like to have an income higher than my 09:57.030 --> 10:00.110 Consumption in a given period. I want to live below my means 10:00.790 --> 10:03.330 Right that wouldn't be a crazy thing for somebody to say 10:03.910 --> 10:11.090 We would think that'd be very responsible generally speaking right and so that is the analog in international trade of 10:13.370 --> 10:14.410 having a 10:15.830 --> 10:22.430 Current account surplus I'll come back to these concepts more in the future of this episode 10:23.150 --> 10:27.390 I don't mean down the road. Okay, so but I'm just telling you like the term of the accounting 10:27.990 --> 10:28.850 right, so 10:29.810 --> 10:30.390 the 10:31.370 --> 10:35.630 sort of Trump fan Maga fan who's big on 10:36.150 --> 10:37.790 tariffs and wants to promote 10:38.390 --> 10:38.910 exports 10:40.030 --> 10:42.830 They're actually not saying something crazy 10:43.350 --> 10:45.830 For thinking that yeah as a general rule 10:45.830 --> 10:50.670 It would be good if we had net exports if the if foreigners bought more of our stuff than vice versa 10:51.390 --> 10:57.010 Just like with a given household if you said in general when I talked to my CPA at the end of the year 10:57.010 --> 10:59.810 I would like to I'd like to see 11:00.490 --> 11:04.750 That what I sold of my stuff like my labor services to my employer 11:04.750 --> 11:08.950 Had a higher market value than what I spent on other people's stuff 11:09.890 --> 11:11.830 Particularly if we're just talking about consumption 11:12.510 --> 11:14.250 All right because the difference there is savings 11:16.410 --> 11:17.430 Okay, so 11:18.390 --> 11:21.170 Now let's just let it get more nuanced 11:22.310 --> 11:28.950 When the mainstream guys like a Steve Landsberg or Greg Mankiw if they heard me say that I think what they would say is something like 11:28.950 --> 11:31.570 Well, yeah, we're talking about the long run 11:31.570 --> 11:35.930 That's what we said in the long run exports must equal imports in the long run at any given time period 11:35.930 --> 11:40.730 There can be discrepancies. That's fine. And they say like for a household. Yeah, you yours 11:41.450 --> 11:45.530 In your prime working years you want to live below your means and build up assets 11:46.090 --> 11:48.650 But then that's because in your retirement you draw them down 11:49.770 --> 11:54.250 Right and they say what's what's the point of saving if not to have future consumption, right? 11:54.290 --> 11:56.830 They might say that like that's the whole point of saving 11:57.430 --> 11:59.330 It's just do you earn income? 11:59.890 --> 12:02.770 Do you want to consume it now or do you want to consume it in the future? 12:03.010 --> 12:05.770 And if you want to consume it in the future you save it now 12:06.250 --> 12:08.950 And then it you know it earns interest or dividends or capital gains 12:08.950 --> 12:11.650 You know whatever vehicle you're using to save it and defer it 12:11.650 --> 12:19.710 But ultimately the whole point of that the rationale of saving and investing is to increase future income 12:20.370 --> 12:24.370 And why do you want to increase future income ultimately because you want to increase future consumption? 12:25.290 --> 12:29.650 If you never got to consume what would be the point of earning an income they might say 12:30.550 --> 12:30.950 right 12:32.970 --> 12:34.670 So again with this focus, I'm sorry 12:34.670 --> 12:36.650 But I just got to keep saying oh 12:36.650 --> 12:41.350 But then the next element is because you can take these arguments and you it's like you can never stop 12:41.650 --> 12:43.610 Or at least there's always or 12:44.550 --> 12:46.490 There is often on 12:47.170 --> 12:50.410 The other hand or let's take it one step further though, and that's what I'm doing here 12:50.410 --> 12:53.790 I will do one more of these then I'll stop don't worry on this particular train of argument 12:53.790 --> 12:55.630 I'm just showing you the back and forth 12:57.590 --> 13:01.510 Even there though. Yes, you want to in general you're doing you know 13:01.510 --> 13:04.430 You're sitting down with your financial planner and you say here's my income and okay 13:04.430 --> 13:07.970 We're gonna save and then we're gonna send the kids to college and we're gonna do this and I'm gonna assume 13:07.970 --> 13:10.950 I'm gonna live to be this many years old and blah blah blah and I got to have my 13:12.910 --> 13:18.550 Long-term long-term care rider and my insurance policy or whatever I'm doing to fund in case I got to go 13:18.550 --> 13:23.110 It's into hospice and blah blah, but right you're doing all this stuff, but still 13:24.050 --> 13:27.570 Most people especially if they're like upper middle class or wealthier 13:28.330 --> 13:29.870 Assume that when they die 13:30.530 --> 13:35.990 The value of their estate is going to be positive and that's a big part of what they do with their financial planner 13:36.650 --> 13:41.650 Is to try to minimize like the inheritance tags and all let's set up a trust and let's do this and then oh if we do that 13:41.650 --> 13:44.310 We can blah blah blah and the kids can claim up to this amount 13:45.010 --> 13:46.350 Right. You're not assuming 13:47.210 --> 13:50.350 That your lifetime income equals your lifetime consumption 13:51.030 --> 13:54.130 As of right now in present discounted value terms, right? 13:54.210 --> 13:59.430 So it's not true that for you as an individual in the long run your income equals your consumption 14:00.370 --> 14:02.010 That's not true. It's typically 14:03.370 --> 14:05.630 Right, and then you could say oh 14:05.630 --> 14:08.950 Sure, but still you're gonna be queasy like what's the point of giving? 14:09.910 --> 14:12.150 wealth and inheritance to your heirs 14:12.950 --> 14:14.530 Except to fuel their consumption 14:15.170 --> 14:18.170 And yeah, you that's true, but even with them 14:19.070 --> 14:20.110 You know if you 14:20.590 --> 14:26.650 Hand over if you accumulate when and when you die you give your kids in a state that's valued at three million dollars 14:27.770 --> 14:32.430 You wouldn't want them to then on that consume 14:33.370 --> 14:39.610 Three million dollars more than they earn in their lifetimes and hence squander the family 14:40.230 --> 14:40.750 Fortune 14:41.610 --> 14:47.050 Right, you would expect that when they die they give to your grandkids more than three million dollars 14:47.050 --> 14:52.010 If they've conducted themselves properly with all this stuff. I'm not worried about inflation. Obviously folks 14:52.010 --> 14:56.890 Just trying to keep the number of moving parts to a minimum here in the analysis 14:58.010 --> 14:59.590 right so notice 15:00.550 --> 15:02.190 All of this is perfectly 15:03.630 --> 15:07.490 Coherent it is still the case that yes the point of 15:08.430 --> 15:10.830 earning an income is 15:10.830 --> 15:12.310 to be able to fuel consumption 15:14.010 --> 15:20.290 That's what that's why you sell your goods or services in the marketplace for money is so that you can go buy things in the marketplace 15:21.750 --> 15:23.310 but you don't 15:23.870 --> 15:27.350 Merely spend on consumption. You also invest the money in 15:28.070 --> 15:32.870 Order to enhance your income down the road and say why well, yeah, there's a sense in which that's ultimately about consumption 15:32.870 --> 15:37.310 But do you see what I'm saying? It's not the case that any particular decision maker 15:37.790 --> 15:42.110 Given his or her time horizon has to think oh, I want to just 15:43.210 --> 15:48.670 Consume exactly my total income during my lifetime again with you know present discounted value and all that stuff 15:49.390 --> 15:57.470 That's not the case and there's nothing weird about thinking if possible I should conduct my affairs as a good steward of 15:58.550 --> 16:00.770 the resources that were handed to me from my 16:01.810 --> 16:06.010 Ancestors to add to that and so that in general 16:06.990 --> 16:13.970 Every generation should be handing over more wealth to the next generation and that kind of dovetails with 16:14.670 --> 16:19.190 Society at large that we expect the standard of living of humanity to rise over time 16:19.190 --> 16:27.070 Not merely because of technological discoveries and you know scientific breakthroughs, but also from the steady accumulation of capital 16:27.070 --> 16:28.590 that even if 16:28.590 --> 16:35.050 We didn't come up with a better way to make stuff. We could just rely on existing knowledge and 16:35.930 --> 16:40.390 That over time through saving and accumulation of physical investment 16:41.330 --> 16:45.430 Our productivity would be higher right that our great-grandkids are 16:46.450 --> 16:48.570 Gonna work with better tools and equipment 16:50.090 --> 16:54.910 Then we are and that's why for an hour of their labor they're gonna be able to make more stuff 16:55.430 --> 16:58.870 Even if between now and when our grandkids are working 16:59.570 --> 17:03.430 There's no new technological innovations. There will be in practice 17:03.430 --> 17:08.830 But even if there weren't it would still be the case that our grandkids for an hour of their labor on average 17:08.830 --> 17:11.090 Are gonna be more physically productive than we are today 17:12.630 --> 17:18.750 Okay, so I'm just saying these things are all consistent and so I'm showing I think the limitations of 17:19.370 --> 17:24.730 The framework when like a Greg man Q or Steve Landsberg says oh the long-run exports must equal imports 17:25.310 --> 17:27.170 That that doesn't need to be the case 17:29.670 --> 17:33.950 And that there's nothing illogical or incoherent about 17:34.890 --> 17:41.670 People thinking yeah in general I would like my country to have net exports 17:42.870 --> 17:45.550 Because that's in the sense like building up our assets 17:46.290 --> 17:50.070 For down the road like it just puts us in a better position economically 17:50.070 --> 17:55.790 But you could think that plausibly if the analog to of that in the in your household example or 17:56.530 --> 18:02.430 Framework is the household that lives below its means and you know accumulates net financial assets 18:02.430 --> 18:06.850 That they then bequeath to or designed to be financial assets could be physical assets too 18:06.850 --> 18:12.810 Like you could own a factory or something that you invested in right that there's nothing weird about that. Okay 18:14.790 --> 18:16.650 Let me just mention as an aside 18:17.830 --> 18:19.070 part of the 18:20.730 --> 18:22.370 Rhetorical bang for the buck that 18:23.210 --> 18:28.930 Landsburg or man Q gets from espousing that principle to say in the long-run 18:28.930 --> 18:37.470 Exports equal imports for a given country so to be clear for planet Earth as a whole of course exports have to equal imports 18:38.570 --> 18:42.330 One nation's export is another nation's import right so clearly 18:43.110 --> 18:48.170 For the system as a whole exports always equal imports. We're here just talking about from an individual country's 18:48.790 --> 18:53.830 Perspective do exports have to equal imports and in any given time period. No, that doesn't need to be the case 18:55.450 --> 19:01.910 What is true is if some countries on planet Earth are running net exports, then it has to be the accounting flipside 19:01.910 --> 19:04.830 There must be some countries that are running that imports. That's got to be true 19:04.830 --> 19:07.630 All right, so it can't be the case that every country is 19:09.390 --> 19:11.130 Not exporting in a given time period 19:12.850 --> 19:15.470 Okay, but back to what I was trying to say is 19:17.790 --> 19:22.610 Partly the reason a landsburg or a man Q will espouse that principle to say 19:22.610 --> 19:24.510 Hey in the long run the whole point of 19:25.630 --> 19:32.810 Exporting is to generate the income with which we buy foreign imports and that the the goal is to get 19:33.490 --> 19:37.650 Imported goods that we you know on better terms than we could produce domestically 19:38.110 --> 19:39.390 Just like with the household 19:40.150 --> 19:44.190 There's a reason you don't grow your own food make your own clothes make your own car 19:44.190 --> 19:50.390 No, instead you specialize in what you're really good at and you go to your job and you do that 19:50.390 --> 19:57.910 That's to focus on and that's how you generate the income with which you then go in from other people who are specializing in you know 19:57.910 --> 20:01.870 Being farmers or making cars or making clothes and you spend your money 20:01.870 --> 20:08.730 With those people and that's how we all end up with a higher standard of living by specializing in what's called our comparative advantages 20:09.350 --> 20:12.890 Making more than we need personally and then go into the marketplace and swapping 20:13.410 --> 20:18.410 Those goods and services for each other and we all walk away with a much higher standard of living 20:18.410 --> 20:22.590 Then if we each narrowly were self-sufficient, okay, so 20:23.250 --> 20:30.410 That's kind of the background and now again, thank you or a landsburg when they say so in the long run exports equal imports and 20:31.890 --> 20:34.510 Part of what they get from that is to say so if you're 20:35.510 --> 20:40.730 Ironically if you enact measures like high punitive tariffs that discourage 20:40.730 --> 20:41.490 imports 20:42.930 --> 20:45.890 Thinking ah, we want to get a favorable trade balance 20:45.890 --> 20:49.810 You know we want to right now all the u.s. Is running a trade deficit. We don't like that 20:49.810 --> 20:56.770 So here's what we're going to do. Let's jack up tariff rates to discourage Americans from importing foreign goods 20:58.650 --> 20:59.550 and so then 21:00.450 --> 21:03.270 Given that we're exporting a certain amount if our imports fall 21:03.850 --> 21:06.050 maybe the the 21:06.590 --> 21:12.090 Negative will flip to a positive and our exports will be higher than our imports and we can start running that exports for a while and 21:12.730 --> 21:17.610 So the man cues and landsburgs of the world will say that's very short-sighted 21:17.610 --> 21:21.030 because there's a feedback mechanism if 21:22.470 --> 21:26.150 They're thinking since in the long run exports equal imports that's not gonna work 21:26.150 --> 21:30.670 What's gonna end up happening is if because of high tariff rates, for example 21:31.510 --> 21:34.170 Americans now ours are importing less 21:35.150 --> 21:41.390 Then intuitively that means foreigners are getting fewer dollars now like leaving the country metaphorically 21:42.090 --> 21:45.310 And so now they have fewer dollars with which to buy us exports 21:46.490 --> 21:49.890 So just to pick illustrative examples if the u.s. All of a sudden 21:50.470 --> 21:56.910 Puts really high tariffs on Japanese cars your cars that were like literally produced in Japan and put on a ship and cross the 21:56.910 --> 21:57.650 Ocean to come into 21:58.230 --> 21:59.270 Beyond us roads 21:59.850 --> 22:02.170 So if they stopped buying those cars from Japan 22:03.030 --> 22:07.990 Well now the Japanese don't have as many u.s. Dollars with which to buy us exports of wheat 22:08.710 --> 22:11.270 and so by clamping down and reducing 22:12.090 --> 22:14.870 The amount of us imports the argument goes 22:15.570 --> 22:17.690 That's necessarily going to reduce 22:18.650 --> 22:19.770 Perhaps with a lag 22:19.770 --> 22:26.090 The ability of us exporters to keep up their exports and so you're not gonna improve the trade balance all you're gonna do is 22:27.030 --> 22:32.230 Restrict the two-way flow of trade if you just narrowly clamp down on one 22:33.230 --> 22:34.270 Vector of it 22:35.330 --> 22:37.350 Okay, so I think that's true 22:38.710 --> 22:43.890 But again, it's my concern is the way they get there is by espousing this principle 22:43.890 --> 22:51.030 Oh, yeah in the long run exports equal imports and that I think is is more dubious because again in the household analogy I 22:52.190 --> 22:53.750 Don't think you'd want to say in the long run 22:54.290 --> 22:58.090 Income equals consumption that that you know, you could say well, okay 22:58.090 --> 23:02.770 If the long run means out to seven generations, okay, but isn't that kind of silly? 23:03.450 --> 23:05.650 likewise with a country a 23:05.650 --> 23:07.970 Country could have exports higher than imports 23:08.870 --> 23:12.630 For 300 years, there's nothing in the accounting that prevents that from happening 23:12.630 --> 23:17.230 And so what does it mean to say in the long run? You know what I mean? So that's kind of what I'm getting at 23:17.230 --> 23:18.410 but I do think 23:19.010 --> 23:19.890 putting aside 23:20.910 --> 23:25.050 The question of you know, oh should we be going around holding up this principle 23:25.630 --> 23:27.550 That in the long run exports equal imports 23:27.550 --> 23:33.950 I don't think we should because it's liable to confusion and it's arguably incorrect depending on you know 23:33.950 --> 23:35.910 Your assumptions and how you define the terms 23:36.710 --> 23:39.390 But I do think forget that just in general 23:39.950 --> 23:41.810 Yes, other things equal 23:42.550 --> 23:46.970 Whatever the current status is of the US trade balance 23:48.290 --> 23:52.270 If all of a sudden there is a crackdown 23:52.990 --> 23:56.590 Making it harder for Americans to import foreign goods 23:57.670 --> 24:02.630 Then that will make foreigners have a harder time buying our stuff 24:02.630 --> 24:07.390 And so an aggressive crackdown on US imports 24:08.090 --> 24:10.190 will also lead to 24:11.330 --> 24:15.730 Difficulty for US exporters. It doesn't have to be dollar for dollar 24:15.730 --> 24:20.110 But those pressures are still going to be there. And so let me just take a moment 24:20.790 --> 24:22.570 to walk through some of the 24:23.450 --> 24:25.050 realistic complications there 24:26.350 --> 24:26.950 that 24:27.870 --> 24:31.930 You might think what we talking about if you sell dollars to Japanese 24:32.630 --> 24:33.810 The Japanese people use yen 24:34.430 --> 24:37.430 will write and so there is that 24:39.230 --> 24:43.230 Complication and so what what would happen is if 24:44.830 --> 24:48.930 Americans because of high tariff rates placed on Japanese goods 24:50.090 --> 24:54.070 Now switch their demand away and they don't try to spend as much buying 24:54.710 --> 24:56.690 Japanese made vehicles as they do 24:56.690 --> 24:58.870 You know making American vehicles wherever 24:59.490 --> 25:02.510 Then what happens in the foreign exchange markets that means now 25:03.290 --> 25:07.970 There are fewer dollars chasing yen and so that makes 25:11.690 --> 25:15.070 The dollars strengthen against the end 25:17.390 --> 25:17.990 and 25:17.990 --> 25:20.410 Then that makes it harder for 25:21.270 --> 25:21.870 Japanese 25:23.550 --> 25:30.470 Importers to buy us wheat because now wheat has become more expensive because it's priced in dollars originally 25:30.470 --> 25:34.070 And so then is the dollar strengthens against the yen 25:35.390 --> 25:40.650 From the Japanese importers perspective. Oh American wheat all of a sudden just got more expensive 25:40.650 --> 25:43.050 So they're not gonna buy as much of it 25:43.050 --> 25:45.990 In terms of like physical but bushels 25:46.750 --> 25:49.350 Okay, so that's how it works. All right 25:49.890 --> 25:53.870 All right, I got a lot of stuff to cover so I'll move on I could with all these things 25:54.310 --> 25:58.410 It's like an onion you could keep healing back the layers of subtlety and nuance and realism 25:58.410 --> 26:03.530 But I'll stop with this train of thought on that level of difficulty. All right, but again 26:03.530 --> 26:07.070 So the principle is just so that I get mixed up. I 26:07.070 --> 26:08.730 Think it is correct to say 26:10.190 --> 26:15.050 It's short-sighted if what your goal is is to promote net US exports 26:15.050 --> 26:17.150 You want to have a favorable trade balance 26:17.150 --> 26:24.230 To just crack down and make it harder for Americans to import foreign goods that that's going to be largely self-defeating 26:25.150 --> 26:29.250 Because there's a countervailing force that to the extent that that's successful 26:29.250 --> 26:36.610 That will make the dollars strengthen other things equal and then that makes us goods more expensive to foreign importers 26:36.610 --> 26:39.230 and so by restricting the flow of 26:40.770 --> 26:42.570 Imports going into the US 26:43.170 --> 26:48.550 You're also going to restrict the flow of exports leaving the US again. It's not necessarily going to be dollar for dollar 26:48.550 --> 26:49.650 You can come up with scenarios 26:50.730 --> 26:52.130 Where it's you know 26:52.650 --> 26:55.190 The effect is there, but it's just not completely awash 26:55.770 --> 27:00.610 But i'm just saying that effect is going to be there and so you have to just keep that kind of stuff in mind 27:00.610 --> 27:01.610 and again 27:02.310 --> 27:08.090 To go back to the landsburg mancube perspective the intuition behind that is 27:10.750 --> 27:14.850 To a first approximation why are the japanese selling us cars? 27:15.910 --> 27:16.770 Well, it's because 27:17.630 --> 27:22.550 They want to get stuff from us. They're just going to give us cars for free. Why would they do that? What's in it for them? 27:23.110 --> 27:26.810 But if among other things, oh, because they're getting a bunch of wheat from us. Well, then that makes sense 27:27.610 --> 27:30.150 And so now all of a sudden if we're not buying their cars 27:31.530 --> 27:37.490 Then how are they going to get our wheat? So it's actually the other way around that why would we be continued to send them wheat if they're not sending us cars in exchange 27:38.090 --> 27:39.190 Or you can think of it that way 27:40.050 --> 27:42.710 Okay, now let's move on to a different topic 27:46.630 --> 27:52.050 If all countries did we're engaging in barter transactions for the actual goods 27:53.490 --> 27:55.970 Then yeah, it would it would totally make sense 27:56.990 --> 28:00.250 And trade would always be balanced and it would just be a matter of 28:00.250 --> 28:05.050 You know, we would send a certain amount of wheat to japan and they would send us cars and that would be it 28:05.050 --> 28:06.170 and there'd be no 28:09.170 --> 28:12.450 Consequences of those transactions beyond the immediate effect 28:13.050 --> 28:14.490 There'd be no long-term impact 28:14.950 --> 28:17.230 But in practice with international trade 28:19.050 --> 28:22.690 You can have more sophisticated exchanges that involve 28:23.990 --> 28:26.930 Entities or or quantities over time 28:27.770 --> 28:29.830 Right. So specifically 28:30.930 --> 28:37.830 A country is allowed to run a trade deficit, right a country can import more than it exports in a given period 28:37.830 --> 28:39.350 There's nothing stopping that from happening 28:40.530 --> 28:42.130 And one so how does it do that why 28:42.670 --> 28:48.630 For in a given period it is possible the us could import cars from japan even though it doesn't export anything 28:49.610 --> 28:51.090 Why would the japanese do that? 28:51.470 --> 28:57.210 Well, they would do that if they get financial assets if they get claims on future flows from the us 28:57.870 --> 29:02.310 Then they might do that again going back to the household analogy just like 29:03.250 --> 29:08.330 Why would I go to my employer and sell all my labor hours week after week to get income? 29:09.010 --> 29:13.450 If I didn't in that same year go and spend all of it on consumption 29:13.450 --> 29:14.790 What's in it for me? 29:15.290 --> 29:18.970 And the obvious answer as well because if you live below your means 29:18.970 --> 29:22.670 You're accumulating assets that can help you down the road 29:23.270 --> 29:24.630 That's why you would do it 29:25.210 --> 29:26.250 Okay, so 29:29.050 --> 29:31.750 In the international trade context 29:32.830 --> 29:36.210 One truism that is very useful is to say 29:36.950 --> 29:42.350 Um the current what's called the current account is the flip side of the capital account 29:42.910 --> 29:46.590 So look if there's a current account deficit, then there's a capital account surplus 29:47.550 --> 29:52.890 Or the other way around if there's a capital account deficit, then there's a current account surplus 29:55.630 --> 30:03.690 So for example just to give you an illustration 30:05.310 --> 30:05.990 Suppose 30:06.970 --> 30:13.470 The u.s. Government runs a 300 billion dollar trade deficit or sorry 300 billion dollar budget deficit 30:14.570 --> 30:20.150 And it finances that by selling the treasury bonds to japanese investors 30:21.330 --> 30:26.330 Okay, so the u.s. Government wants to spend 300 billion more than it takes into tax revenue 30:27.210 --> 30:30.830 It needs to come up with that money somehow so the treasury issues bonds 30:31.630 --> 30:37.010 Somebody has to pay for those bonds so the government can go spend the money on whatever buying tanks or 30:37.540 --> 30:38.990 Social security payments or whatever 30:39.610 --> 30:43.610 And suppose they get the money from japanese investors who now add 30:44.350 --> 30:49.250 300 billion dollars in present market value of treasury bonds to their portfolios 30:52.670 --> 30:57.830 That is called a capital account surplus from the perspective of the united states 30:58.530 --> 31:01.810 There's more capital flowing into the u.s. 31:02.390 --> 31:08.030 Then vice versa japanese investors are investing 300 billion dollars in u.s. 31:08.690 --> 31:12.530 Dollar denominated assets namely the treasury bonds 31:13.170 --> 31:16.090 Whereas in this example we're assuming assuming u.s. Investors aren't 31:16.750 --> 31:21.070 Buying japanese shares of corporate stock or bonds from the japanese government, okay 31:22.970 --> 31:25.010 So now the question is okay 31:25.710 --> 31:33.270 The japanese investors got an asset now they own now claims on future cash flows from the u.s 31:34.630 --> 31:38.330 So what does the u.s. Have to show for it? How do we benefit? 31:39.070 --> 31:41.490 From issuing liabilities on us 31:42.190 --> 31:45.110 That now foreign people namely japanese own 31:45.810 --> 31:49.550 Oh, well, what if they send us 300 billion dollars worth of cars right now? 31:49.830 --> 31:51.170 Then that makes sense 31:52.210 --> 31:56.890 Okay, these things again. I'm I'm being simplistic and there's always this 31:57.830 --> 32:01.470 Issue when you talk about international trade to think in terms of national aggregates 32:01.970 --> 32:02.370 Obviously 32:03.090 --> 32:05.590 There's not like one person who's just the usa 32:06.230 --> 32:07.810 Doing this stuff. It's different people 32:07.810 --> 32:10.990 But the way you do the accounting if you're gonna do it that if you're gonna go down this path 32:10.990 --> 32:13.030 You know, these are the kind of statements that pop out 32:14.370 --> 32:14.770 Okay 32:17.390 --> 32:18.190 And so 32:20.330 --> 32:25.730 That's one way of understanding, you know, why is there a a trade deficit in this particular example 32:26.400 --> 32:29.190 It was because we supposed there was no other trade going on 32:29.810 --> 32:30.950 the u.s. Government 32:31.730 --> 32:32.230 needed 32:33.010 --> 32:37.250 To borrow money and it borrowed it from these japanese investors 32:38.150 --> 32:41.350 And so in terms of the you know, the physical flow of goods 32:42.150 --> 32:46.630 There's a sense in which the japanese sent over a bunch of cars 32:48.450 --> 32:52.670 Today in exchange for our legally binding promises that oh down the road 32:53.110 --> 32:55.290 We will send you wheat for example 32:55.790 --> 32:58.930 Right, so that's what can happen that the japanese investors now 32:59.650 --> 33:02.750 Are going to get a flow of dollars over time in terms of interest income 33:04.350 --> 33:05.390 And if they want 33:06.890 --> 33:11.050 You know, they could take those dollars and you know the dollars could trade for yet 33:11.050 --> 33:14.230 And then they could take the end and turn them back into dollars and buy us exports of wheat 33:14.910 --> 33:17.350 And so if you want to think in terms of the inter temporal flows 33:18.100 --> 33:21.750 It could be the japanese sent a bunch of cars today 33:22.370 --> 33:25.050 To get a flow of bushels of wheat 33:26.090 --> 33:26.590 indefinitely 33:27.130 --> 33:28.570 You could think of it like that 33:29.370 --> 33:29.870 Okay 33:31.530 --> 33:33.430 Just like at the household level 33:34.210 --> 33:36.850 If you live below your means and came up with 33:37.490 --> 33:40.970 An extra three thousand dollars and then you put it 33:42.250 --> 33:42.770 Into 33:43.830 --> 33:47.950 You know banks see these rolling over that would generate you 33:50.350 --> 33:53.750 A perpetual yield and you could take that and go 33:54.810 --> 33:55.330 Buy 33:56.090 --> 33:58.150 steak dinners with that or something 33:58.150 --> 34:01.390 All right, and as long as you kept your principal at three thousand 34:02.070 --> 34:05.730 And just consumed only the interest that that kicked off year after year 34:06.710 --> 34:07.230 Then 34:07.930 --> 34:08.910 You could do that 34:11.110 --> 34:14.210 And so there would be a sense in which you took your present income 34:14.990 --> 34:17.610 And saved and invested it and then it gave you a flow 34:18.290 --> 34:20.910 Of you know one steak dinner per year forever 34:21.790 --> 34:23.990 And that wouldn't be living above your means 34:24.450 --> 34:24.890 Right 34:25.390 --> 34:29.670 So whatever you were still spending based on the income from your employer 34:30.410 --> 34:35.270 That one time decision up front to set aside three thousand dollars and start rolling it over in bank CDs 34:35.930 --> 34:38.650 And then living off the interest on that that then kicked off 34:39.310 --> 34:42.250 Now your consumption would be permanently higher 34:43.690 --> 34:46.530 All right, and and there you wouldn't be impairing 34:47.550 --> 34:49.890 Your ability to generate income down the road 34:50.550 --> 34:55.870 And so that's what the what's called the current account is when we're doing international trade, right? 34:55.950 --> 34:59.450 So if one country accumulates a bunch of assets 35:01.710 --> 35:04.310 Entitling it to income from foreign sources 35:05.110 --> 35:11.450 The country can run a trade deficit with those other countries even if the current account is balanced 35:12.970 --> 35:13.490 Right 35:16.490 --> 35:17.530 So um 35:18.410 --> 35:21.390 That's that's partly what's going on. So when people speak of 35:21.990 --> 35:24.990 Like oh a trade deficit means we're living below our means 35:24.990 --> 35:30.130 Or sorry above our means in a trade surplus means we're living below our me. That's not quite right 35:30.810 --> 35:36.270 It would be right if you were just starting at time zero and there was no prior history of trading and financial assets 35:36.270 --> 35:37.490 Then it would be true 35:37.490 --> 35:41.850 But in general no the the statement that you had want to use is the current account 35:43.530 --> 35:46.790 Right that again because if you have past accumulation of assets 35:47.750 --> 35:51.650 Your country can run a trade deficit if that's just what you know 35:51.650 --> 35:56.690 What you're reaping from having lived below your means in the past just like again at the household level 35:57.650 --> 35:59.270 If you save a bunch 35:59.910 --> 36:04.730 Then you can consume more than your income your your like paycheck income 36:05.750 --> 36:07.450 And that doesn't mean you're actually reducing 36:07.910 --> 36:14.170 Your total assets because those other financial assets are generating income themselves. That's the way to think about in terms of the accounting 36:15.230 --> 36:18.250 Okay, so that now leads into 36:19.150 --> 36:20.570 another train of thought 36:23.650 --> 36:26.630 When people are opposed to 36:29.310 --> 36:30.270 Trade deficits 36:31.290 --> 36:32.490 they will often 36:33.210 --> 36:34.170 think of 36:34.170 --> 36:37.590 The financing of them is like running up the credit card 36:38.250 --> 36:43.190 And they'll say yeah when the us for example is running a trade deficit with the rest of the world 36:45.230 --> 36:49.590 What's financing that because again, it's not that the rest of the world's just gonna send us goodies for nothing 36:49.590 --> 36:51.850 It'll say the us is issuing net 36:52.630 --> 36:57.550 Financial assets to the rest of the world the us liabilities to a bunch of foreigners are rising 36:58.170 --> 37:00.790 And so foreigners might be accumulating treasury bonds 37:01.510 --> 37:03.630 foreigners might be acquiring 37:04.390 --> 37:07.070 You know conventional corporate bonds, but they also might be buying 37:07.710 --> 37:09.390 stock in us companies or 37:09.950 --> 37:13.870 What alarms people even more is foreigners might be investing in us real estate 37:14.590 --> 37:18.350 And that's the sense, right? So jeez. Why would japan send us a bunch of cars? 37:19.050 --> 37:23.850 Well, if they bought some houses in florida and manhattan 37:24.350 --> 37:27.430 And that's what they were getting in exchange for sending us a bunch of cars today 37:27.950 --> 37:29.470 That could make sense from their point of view 37:30.270 --> 37:32.210 right and so the people who 37:33.030 --> 37:33.510 are 37:35.350 --> 37:35.830 Alarmed 37:36.350 --> 37:42.250 At the us quote living above its means and running trade deficits would say this is unsustainable 37:42.250 --> 37:45.930 We need to stop this is only because the us government is so profligate 37:46.630 --> 37:49.070 And you know americans in general just need to 37:49.730 --> 37:55.310 To stop selling their birthright in order for a massive potage today, you know, you can use metaphors like that 37:55.890 --> 37:58.990 So that's correct as far as it goes that it is true 37:59.570 --> 38:03.190 If one country has a large trade deficit, it's possible 38:03.830 --> 38:06.990 That what's generating that and making it happen 38:07.830 --> 38:08.770 is that 38:09.410 --> 38:11.470 the people in that country are 38:12.210 --> 38:14.330 living above their means and 38:15.050 --> 38:18.870 basically, you know putting consumption on the credit card just like in a household level 38:19.510 --> 38:21.730 If you wanted to go take a trip to vegas 38:22.850 --> 38:25.890 Or take a you know trip to some caribbean island 38:26.570 --> 38:27.930 And you didn't have any 38:28.930 --> 38:35.490 Savings, you know from your job and you couldn't your the income from your employer wouldn't find when you couldn't fit that in your budget 38:36.390 --> 38:37.890 You could just put out a credit card 38:38.410 --> 38:40.390 So yep, you enjoyed the trip it happened 38:40.390 --> 38:41.410 But now 38:41.970 --> 38:47.290 You owe a bunch of money to visa or whoever and it starts rolling over at high finance charge rates 38:47.850 --> 38:49.390 And that's going to permanently impact 38:50.090 --> 38:55.110 You know your your future consumption possibilities because now you got to take some of your future income flows 38:55.610 --> 39:00.130 And use it to at least service the interests if not to knock down the principal that that 39:01.530 --> 39:03.010 Okay, so that's true 39:04.110 --> 39:08.290 But that's not the only possibility and this is what the 39:09.110 --> 39:13.570 Guys like steve landsburg or greg mancue or arser laffer might point out 39:14.190 --> 39:15.690 Is that to the extent 39:16.370 --> 39:20.010 That foreigners view the united states is a great place to invest 39:21.350 --> 39:23.470 Well, then that would also generate this outcome 39:23.470 --> 39:28.890 All right, so instead of viewing it as oh, yeah, americans are profligate and living above their means 39:29.450 --> 39:33.110 You could do the accounting flip side and say well, no, what if it's just that 39:33.670 --> 39:40.010 The us, you know has a fairly stable for all its flaws still has a very attractive regulatory climate tax structure 39:40.010 --> 39:44.090 The rule of law is much better in the us than it is a lot of places around the world 39:44.090 --> 39:46.610 And so wealthy individuals from around the world 39:47.970 --> 39:52.270 What do they where do they want to park their money they want to put it into the us 39:53.170 --> 39:56.770 It's a very safe dependable return blah blah blah. Okay. And so then 39:57.330 --> 39:58.450 How is that going to happen? 39:59.190 --> 40:04.390 Why would the united states allow foreigners to get to acquire all of these claims? 40:05.070 --> 40:09.010 And future us output. Well, the foreigners got to send us stuff right now 40:09.010 --> 40:12.030 And so they send us goodies and that's that's the trade 40:13.170 --> 40:16.230 Okay, it's if that sounds ominous to you 40:16.910 --> 40:20.550 We can come up with examples at the household or the um 40:21.350 --> 40:23.970 Corporate level where it's not ominous, right? So you're a 40:23.970 --> 40:30.630 Just a young person you have an aptitude for the medical sciences and you want to go to medical school. You want to become a doctor 40:31.830 --> 40:34.510 And oh geez a lot medical school is very expensive 40:34.970 --> 40:36.030 How what do we do? 40:36.730 --> 40:38.910 Well, you can take out student loans 40:39.490 --> 40:43.750 And as long as your forecasts are correct and you ended becoming a heart surgeon and making tons of money 40:43.750 --> 40:47.390 Once you're up and running you can afford to knock out your debts 40:47.890 --> 40:48.890 your student loans 40:49.630 --> 40:53.450 Okay, there's nothing wrong with it in the current environment with all the regulations and government 40:54.850 --> 40:55.310 shenanigans 40:55.310 --> 41:00.310 Yeah, I don't like the higher educational market and so on in the student loan market, but I'm just saying 41:00.930 --> 41:04.450 Even in Rothbardia land you could imagine some student 41:05.170 --> 41:09.250 From a very modest background but yet who is going to make a great heart surgeon 41:09.990 --> 41:13.190 Should be able to get financing to go to medical school, right? 41:14.350 --> 41:15.250 And so there 41:17.150 --> 41:19.190 It it would be somewhat misleading 41:19.750 --> 41:23.570 To point to that medical student, you know, who's like in their second year 41:24.110 --> 41:28.110 And who is borrowing from outsiders and accumulating and having this growing 41:28.950 --> 41:30.710 debt owed to outside lenders 41:31.330 --> 41:34.670 And say oh this person's being irresponsible and living above his means 41:35.350 --> 41:40.170 He should he should you know, that's no you're kind of misunderstanding the situation there 41:41.170 --> 41:44.230 For a corporate example suppose a company 41:45.130 --> 41:46.350 Is doing great 41:46.910 --> 41:52.190 And but its current factories are running it at capacity and they think that oh, yeah our ad 41:52.870 --> 41:55.770 Campaigns our marketing is doing really well and we think 41:56.290 --> 41:59.230 Next year our sales if we can keep up with the demand 41:59.770 --> 42:01.970 Are going to increase 30 percent 42:01.970 --> 42:05.730 But right now we just can't we're running everything full tilt 42:06.330 --> 42:10.790 We got you know full shifts fully man. What are we let's build a new factory 42:11.410 --> 42:17.130 Oh, but you know what we don't have the cash on hand to be able to do it internally to finance it internally 42:17.650 --> 42:19.510 Okay, so let's issue some bonds 42:20.350 --> 42:23.610 To then build this new factory so we can increase our capacity 42:24.250 --> 42:26.010 To increase our revenue down the road 42:26.790 --> 42:28.510 All right, there's nothing 42:30.170 --> 42:31.470 Profligate or irresponsible 42:32.450 --> 42:37.010 About a company doing that and yet in terms of the accounting what happens for that period 42:37.870 --> 42:40.010 They are spending more than what their 42:40.770 --> 42:43.150 Income was right. They're incurring 42:43.890 --> 42:47.130 extra liabilities of money they owe to outsiders 42:49.010 --> 42:53.670 But that's not unsustainable assuming that their forecasts are correct. That's a very sensible thing to do 42:55.070 --> 42:57.130 Okay, and so now at the country level 42:57.810 --> 42:58.790 let's say 42:59.990 --> 43:02.690 That a bunch of people read Rothbard 43:03.530 --> 43:05.950 And hoppa and murphy throw that in there 43:06.590 --> 43:08.330 And they say oh we get 43:08.990 --> 43:13.450 Anarchal capitalism is the wave of the future. This is just amazing. We had a society based on free market 43:13.990 --> 43:18.050 principles and full respect for property rights and they go and they 43:18.610 --> 43:22.550 Somehow buy some island in the pacific and they turn it into Rothbard land 43:23.430 --> 43:24.450 What would happen? 43:26.070 --> 43:26.350 no 43:27.370 --> 43:32.230 Presumably there would be a bunch of investors around the world who understood. Oh, yeah this place 43:32.970 --> 43:36.290 Has a promising future and they would want to invest in it 43:36.290 --> 43:40.090 Like they would try to buy real estate in it or the companies that were founded there 43:40.090 --> 43:42.150 They would want to buy stock in those companies 43:42.870 --> 43:46.910 Or if the companies there were issuing bonds, they would want to buy those bonds and so forth 43:47.490 --> 43:51.030 and so the physical reality what would happen is 43:52.270 --> 43:55.170 barrels of crude oil and all kinds of steel 43:55.950 --> 44:01.570 And cement and blah blah blah from around the world would all flow to this little island in the pacific 44:01.570 --> 44:06.010 So they could start building all their factories and bridges and whatnot and 44:06.710 --> 44:10.390 Missile defense systems, you know because natives are actually going to try to say hey 44:10.910 --> 44:12.770 These guys are uh bad 44:12.770 --> 44:14.950 We're going to have to invade that right 44:15.630 --> 44:18.850 And all in building all of the secure vaults for the banks 44:18.850 --> 44:22.410 They're going to have gold bars in there because of course it's going to be 100% reserve because you know 44:22.410 --> 44:24.270 They're going to really respect Joe Salerno there 44:24.850 --> 44:29.930 Okay, so what would you see in terms of the trade accounting? I imagine Rothbard land 44:31.050 --> 44:37.590 When it first forms if it's an island in the pacific is going to have huge trade deficits because on that 44:38.570 --> 44:44.590 To get that place up and running a bunch of real resources from around the world are going to have to flow into there 44:44.590 --> 44:47.330 So they can build up their infrastructure and get up and running 44:48.010 --> 44:50.950 And there's nothing irresponsible or profligate about that 44:52.150 --> 44:52.590 Okay 44:53.850 --> 44:54.290 so 44:55.190 --> 45:01.610 My I guess how do I sum up this last round of consideration of a country running 45:02.510 --> 45:04.110 Perpetual trade deficits 45:05.110 --> 45:08.050 And again strictly speaking its current account deficits 45:10.190 --> 45:10.910 That 45:13.610 --> 45:16.390 Yes, that could be the symptom 45:17.270 --> 45:20.390 Of a fundamental profligacy that there's a century 45:21.110 --> 45:23.630 Are just being very uh, short-sighted 45:24.370 --> 45:25.250 and uh 45:25.250 --> 45:26.730 hedonistic and they're 45:27.190 --> 45:29.890 They're just spending above they're living above their means 45:30.490 --> 45:36.030 And they can finance that for a while by issuing ever more liabilities to foreigners who are only too happy to say 45:36.030 --> 45:40.150 Okay, sure. Yep. Yep. We have now more and more claims on your future income 45:40.150 --> 45:44.130 And eventually those chickens are going to come home to roost and there's going to be a very painful correction 45:44.890 --> 45:46.450 That could be what's going on 45:47.430 --> 45:47.870 or 45:48.530 --> 45:52.690 It's also possible a given country could have a long string of 45:53.310 --> 45:54.130 trade deficits 45:54.710 --> 46:00.010 And that could be explained by the fact that this is such a great place to invest in in as long as 46:01.410 --> 46:02.530 The um 46:03.190 --> 46:03.970 The assets 46:04.750 --> 46:05.730 Of this country 46:06.330 --> 46:09.510 Are growing more than the external claims on them 46:10.010 --> 46:14.310 On net that people in the country could still themselves grow. It's not that 46:14.990 --> 46:21.470 You know a bigger and bigger share of their GDP is now earmarked to flow out to pay off the interest they owe to foreigners 46:21.470 --> 46:22.510 That doesn't need to be the case 46:24.010 --> 46:27.310 Okay, so in practice, I do think 46:28.410 --> 46:30.650 There well, I think there's a little bit of both going on 46:30.650 --> 46:35.350 So I do think that yes, certainly and by profligacy we can include the u.s. government 46:35.870 --> 46:39.510 If the u.s. Government all of a sudden cuts spending next week 46:40.150 --> 46:40.910 or let's say 46:40.910 --> 46:44.150 February early february once elan and uh 46:44.310 --> 46:49.470 The fake can start having their ideas implemented if the u.s. Government drastically slash spending 46:49.950 --> 46:52.930 So that u.s. Government borrowing dropped 46:53.850 --> 46:54.730 Then alone 46:56.070 --> 46:59.290 Other things equal would do a lot to reduce the u.s. trade deficit 47:00.830 --> 47:02.150 Again other things equal 47:04.970 --> 47:08.530 And in terms of the mechanism just to walk through that in case you're curious you can say well 47:08.530 --> 47:12.310 Other things equal the u.s. Government's not borrowing as much 47:12.310 --> 47:15.510 That means the yield on treasuries can fall 47:16.870 --> 47:20.770 And so now foreigners don't find us bonds as attractive 47:22.450 --> 47:25.410 And so that makes the dollar weaken 47:26.310 --> 47:34.710 And so now that makes foreign imports more expensive to americans and it makes us exports cheaper for foreigners and so that 47:35.500 --> 47:37.510 You know that string of consequences would 47:37.510 --> 47:42.210 Cause the u.s. Trade deficit to fall other things equal so notice with this stuff 47:42.810 --> 47:46.830 It might be counterintuitive you might have thought if the u.s. Government's slash is spending 47:47.410 --> 47:50.690 That they would make the dollar strengthen because now america is stronger economic 47:50.690 --> 47:55.090 No, it's actually the other way around in these particular examples again other things equal 47:55.570 --> 47:57.650 All right, I will stop there 47:58.410 --> 48:03.190 There's more stuff I could cover but we'll say that for future episodes again big picture here 48:03.190 --> 48:08.850 I'm not trying to get you to be for against tariffs to think trump is a great guy or a monster 48:09.430 --> 48:10.590 I'm just trying to clarify 48:10.590 --> 48:16.070 I see people arguing on social media about these topics and his stuff is pretty complex and nuanced 48:17.210 --> 48:20.530 And partisans on both camps will grab onto a principle or two 48:21.090 --> 48:24.750 And then think that's the whole story when a lot of times no it's yeah 48:24.750 --> 48:27.110 What you're saying is is true in so far as it goes 48:27.110 --> 48:31.310 But there's a lot more going on and that maybe even the person on the other side of the argument 48:31.310 --> 48:34.550 Is also clinging to a true principle and the two of you are 48:35.230 --> 48:39.030 You know one guy saying no no the elephant really does have a big trunk and the other one's saying no no 48:39.030 --> 48:41.630 I'm telling you this tail is very skinny and you're both right 48:43.030 --> 48:47.170 All right folks watch out for those elephants. See you next time 48:49.810 --> 48:54.250 Check back next week for a new episode of the human action podcast in the meantime 48:54.250 --> 48:57.530 You can find more content like this on nieces.org