About that trade deficit

  1. You do know, Aaron, that Andrew Hepburn also recently wrote a blog on Econowatch:
    What Canada’s current account deficit says about our vulnerability to a global slowdown
    http://www2.macleans.ca/2012/09/13/what-canadas-trade-deficit-says-about-our-vulnerability-to-a-global-slowdown/

    I thought it was a good post because it looks at trends, risks and what the numbers suggest is happening to the Canadian economy, an area to me of greater concern than focusing on the semantics and accounting definitions, as the academics tend to do.

    Yes, a record trade deficit is not in itself a concern as Mr Gordon will blog. But, will he put it into context as both the above noted blog, and the G&M linked article did?

    • Same criticism as above. Coyne’s basic argument is that things are pretty good in Canada right now, firing on 7 of 8 cylinders, not to worry about another “hobgoblin”.

      But, he does no real analysis of where the numbers are heading, why, and what this may mean.

  2. Bryan Caplan ~ The 4 Boneheaded Biases Of Stupid Voters:

    Like most noneconomists, he suffers from anti-foreign bias, a tendency to underestimate the economic benefits of interaction with foreigners. Popular metaphors equate international trade with racing and warfare, so you might say that anti-foreign views are embedded in our language. Perhaps foreigners are sneakier, craftier, or greedier. Whatever the reason, they supposedly have a special power to exploit us.

    There is probably no other popular opinion that economists have found so enduringly objectionable. In The Wealth of Nations, Adam Smith admonishes his countrymen: “What is prudence in the conduct of every private family, can scarce be folly in a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry.”

    As far as his peers were concerned, Smith’s arguments won the day. More than a century later, Simon Newcomb could securely observe in the Quarterly Journal of Economics that “one of the most marked points of antagonism between the ideas of the economists since Adam Smith and those which governed the commercial policy of nations before his time is found in the case of foreign trade.” There was a little backsliding during the Great Depression, but economists’ pro-foreign views abide to this day.

    Even theorists, such as Paul Krugman, who specialize in exceptions to the optimality of free trade frequently downplay their findings as abstract curiosities. As Krugman wrote in his 1996 book Pop Internationalism: “This innovative stuff is not a priority for today’s undergraduates. In the last decade of the 20th century, the essential things to teach students are still the insights of Hume and Ricardo. That is, we need to teach them that trade deficits are self-correcting and that the benefits of trade do not depend on a country having an absolute advantage over its rivals.”

    • See I found that a valuable quote. Thanks.

  3. Good on you Aaron, for pointing out the lies from both sides. I wonder how many of the regular crew here will spot that.

  4. “The Conservatives subsequently complained that Mr. Mulcair had his numbers wrong.”

    What would the Cons possibly know about deliberately (even repeatedly) playing fast and loose with the truth?

  5. The NDP are right. Economists, when discussing trade balance, always refer to the current account. According to Nobel Laureate Paul Krugman, the current account is “a broad measure of the trade balance including income on investments.”

    If one checks out how the current account is calculated on the Statistics Canada website, it shows the balance between imports and exports of: a) goods and services; b) investment income; and c) transfers.

    According to Investopedia, its definition is: “The difference between a nation’s total exports of goods, services and transfers, and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.”

    Gordon is being dishonest claiming the current account is *calculated* by the “national accounting” model of the economy. That only shows there is a *relationship* between the current account, private spending and investing, and public taxes and spending:

    CurrentAccount = (savings – investment) + (taxes – spending)

    http://en.wikipedia.org/wiki/Twin_deficits_hypothesis

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