Comment by smallmancontrov
10 days ago
A current account deficit is a capital account surplus, assets and exports compete in the balance of payments, an asset windfall kills exports by increasing the currency hurdle and embedded asset price.
What you are seeing is "the bar" for a successful manufacturing business increasing until only the most profitable are left -- things like chips, things like shell companies that exist to monetize a brand. "New growth" isn't highly profitable so it never has a chance to get started (unless a recipient of an asset windfall is willing to finance it all the way to "the bar" -- see: Elon Musk).
Ah. I get it now. A established economic model is provable and that in five years you can forecast that if you follow X guide you'll end up on top with Y.
If competition is on the scene then how can you assure me that myself taking the risk of investing will return me the sum I wish for in return.
Production has already been established but the threat is in that an another forecastable model exists and that to catch up to their market will require more investment and expenditure which could lead in less chance of a return. And even if the model is copyable; as like the trope of Chinese knockoffs to of Japanese products, you're still at a lower advantage.
It's not they don't want to innovate but the risk to gamble on innovation is high enough that you could stifle competition cheaper via governmental means.
This slows their forecast and where you can then strategise to overcome the competition rather than risking expenditure via innovation. Crafty, cheers.
It's worth tracing this through every level in order to get the causality correct.
Triffin's Dilemma says that in the case of the modern USA, assets will be pumped. Macroeconomics says asset pump = export dump.
The way that economics dumps exports is by raising the bar (strong currency = poor customers, expensive assets = expensive houses = expensive labor, costs go up, price goes down, profitability is squeezed). Eventually the bar became impossible to hop without a cheat code like "good brand and no R+D" or "software level profitability".
At the individual level, manufacturing pay went in the shitter as the jobs dried up while house prices and stock prices went through the roof... so everyone who could became real estate agents, or doctors overcharging real estate agents, or sellers of investment scams to venture capitalists.
What's wild is that this happened to the Spanish, the Dutch, the English, and by the 1960s Triffin could see that it would happen to the US as well.
If you want details from an economist who does his homework, "Trade Wars are Class Wars" by Klein and Pettis.
> A current account deficit is a capital account surplus,
That's true.
> assets and exports compete in the balance of payments, an asset windfall kills exports by increasing the currency hurdle and embedded asset price.
They don't really have to compete with each other. It depends on what the central bank does (or doesn't do) about the exchange rate, for example.
Weakening the dollar would make the export sector happy, but if you did enough of it to make the US export sector strong you would make assets unhappy. In fact, we have front row seats to this very lesson which appears to be even stronger in reality than it is in theory: we are already seeing yields rise despite a dollar that is still strong enough to crush exports.
Assets have had such a stranglehold over US politics for the last 50 years that if we ever actually run pro-export policy it won't be due to doomed self-promotion by exports (we even have a term for the pattern where this fails on first contact with tradeoffs: TACO) it will be because assets self-sabotage, implode, and exports fill the vacuum.
The exchange rate is a nominal phenomenon. Inflation adjusted interest rates and inflation adjusted asset values are a real phenomenon. They don't necessarily have much to do with each other.
Germany and Singapore are two prominent historic examples of countries that export just fine despite a strong currency.
Weakening your domestic currency has barely any impact on the real price of traded goods and commodities: they just price at the world market rate. The impact is felt for goods with sticky prices, chiefly labour. Weakening your currency is mostly a way to try and give everyone a wage cut. That can make your exports more competitive for a while. But it's not the only way to cut workers' wages. (And in general, later you seem to agree that giving ordinary people more real income is kind of the point of economics. So giving everyone a real wage cut seems a bit of a curious way to get there.)
> we are already seeing yields rise despite a dollar that is still strong enough to crush exports.
Rising yields fairly mechanically leads to a stronger dollar.
Btw, you might like https://en.wikipedia.org/wiki/Lerner_symmetry_theorem
The Lerner Symmetry Theorem suggests roughly that import tariffs are equivalent to export taxes; and export subsidies are equivalent to import subsidies.
And the US is actually doing pretty well in exports, if you take into account that they are exporting not just goods but also services; and if you squint a bit, you can also see that Americans love to found new start-ups and new world beating companies and sell shares in them to the world. That's also a kind of export, but it shows up on the other side of the ledger for accounting reasons.
Similarly, if you build an office building in Seattle and sell it to a foreigner, that also doesn't show up as an export for accounting reasons.
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