5 Myths About Sick Old Europe
washingtonpost.com
washingtonpost.com
For those interested in the subject I highly recommend the following book: "United States of Europe". That book tries to carefully compare US and EU as two major competing nations/economies.
Way more complex. You're absolutely right. I think I could write a book about it...
> United States of Europe
I didn't like it very much. It's kind of superficial, and I think he actually gets a lot of things wrong.
The US has a chance of navigating out of the failing socialist systems. The cultural heritage of individual independence and government mistrust means it's possible. But Europeans exhibit nothing but obstinate rigidity, even with a more serious problem. It's a ticking fiscal time bomb.
South\Eastern Europe is now the place with the most growth, like an "up and comming" neighborhood, and you can get away with a lot more there.
Back home, most of my friends that have "starter" jobs, are actually doing it under the rug. Go to work, regurarly, get paid, but they don't officially result in the payroll of the company (to avoid all the obligations that come with it).
After a couple of years of work, once you gained some experience you move there, or somewhere else in a more stable status.
I am assuming a startup will probably be the same. First years it will all be under the rug. Remember, laws are made to be broken to a certain extent, but they also prevent large companies from treating employees just as a disposable thing, with no rights, no vacation, no health care, no paid maternity leave as you have in the US.
Sure some large companies do provide them, but some don't (ala Walmart), and this nation leaves it's citizen under the mercy of capitalism (which just wants you healthy enough to perform your duties).
Remember, Europeans work to live, Americans live to work.
Sounds a lot like Italy, where the high price of doing business forces things underground, thus giving people no legal redress should they have problems. Yuck.
And yet, it usually isn't. (However, all Californians either live on the beach in LA or in San Francisco.)
My US company has those things. If it didn't, I'd find another company. Having lots of companies makes this feasible.
In addition to that we have free schooling, and Swedish schools are not bad, not as good as the top US ivy league, but better than the average US state university. We have very low CO2 emissions, partially due to geography, but also due to extensive investments by local government on biofuel district heating networks. We also have good public transport. Sweden is about the same size as California, but has a superior public transport infrastructure, despite only having 9 million people (compared to 34 million in CA). Nearly all of the Swedish transport system was publicly funded.
On top of this Sweden is consistently ranked among the top countries for standard of living. Despite all the taxes. Now, just like others have said, there is a big difference between different countries in Europe. Bigger than most who have never visited imagine. But high taxes does not automatically mean crappy lifestyle.
http://en.wikipedia.org/wiki/Mercantilism
David Hume famously noted the impossibility of the mercantilists' goal of a constant positive balance of trade. As bullion flowed into one country, the supply would increase and the value of bullion in that state would steadily decline relative to other goods. Conversely, in the state exporting bullion, its value would slowly rise. Eventually it would no longer be cost-effective to export goods from the high-price country to the low-price country, and the balance of trade would reverse itself. Mercantilists fundamentally misunderstood this, long arguing that an increase in the money supply simply meant that everyone gets richer.[20]
Countries with trade surplus are giving loans of wealth and capital to other people who are better at actually using stuff. In return for their giving up their stuff they get money, which has only one use: getting some stuff back later. Whereas countries with trade deficits are like new companies that get a loan and go do something useful with it -- they are the ones who are best at using stuff.
In fact, the phrase "oversupply of bullion" doesn't even make any sense when I think about it. Bullion is defined as "that stuff that can be exchanged for anything else", so how can you have too much of it?
If these are stupid questions, sorry :)
Don't be ridiculous. The surplus can be invested overseas to buy up foreign competitors and suck away the profits, creating even more trade surplus. The surplus can be invested in creating higher margin export industries domestically, again growing the surplus.
The fact is,people, that economics is not a science. Unlike the (more) axiomatic world of physics and math,economic principals hold true much less in the real world. Yet for some reason, people think that they can formulate theories about how economies work in certain situations. This is tantamount to trying to predict which way the wind will blow.
My original question suggested a way to turn that money into wealth -- buy real estate, stocks, etc in other countries. (This is, from what I understand, what actually happens -- more productive countries buy parts of less productive countries, in effect.) Actually, I think there are only two possible answers to my question: first, that purchases of real estate, etc, are included in any analysis of trade. (This would mean my question is just a misunderstanding of what a "trade surplus" is.) Second, that Hume was wrong, and that a country can maintain a trade surplus.
Now that I think about it that way, I'm almost certain the answer is the first.
so, i think we agree, even though kingkongrevenge considers it ridiculous.
Trade Deficit = Current Accounts.
Current accounts are primarily composed of a nation's trade balance, plus any interest paid/received and things such as foreign aid.
Investments = Capital Accounts.
Capital accounts are the flip side to the coin which helps balance the books. Capital accounts are a measure of capital flow in and out of the country.
The United States with its ridiculous current account deficit needs to attract tremendous amounts of Foreign Direct Investment. I.e, since we're owe money in our current accounts, we have to attract investments in our capital accounts (sell off assets) to balance the books.
When a country has surplus of money (China and its trillion dollars in reserve), it means it is running a surplus in the current account. There's only two things it can do with it: hold it (which serves no purpose... as Milton Friedman said: you just exchanged goods for paper) or invest it. China invests it by buying up US T-Bills (hello Foreign Direct Investment), buying assets (oil rights, mineral rights etc), improving infrastructure, and creating government backed private equity firms to invest heavily and well to ensure future growth.
This is also similar to what the smart Middle Eastern countries do. This way, down the line a country running a current account surplus will have a diversified and growing rate of return (interest/dividends) and can cover any dip in the trade balance.
So that, simplistically, is how the system works. Trade deficits aren't inherently bad (after all, someone has to run a deficit since trade is a zero sum game), but running huge trade deficits and then running huge budget deficits on top of that is really, really bad.
I hope that made sense.
EDIT: wording.
It's not just for "getting stuff back." It's capital. It can be used to buy up or create dividend producing assets. Nations that accumulate capital can invest it, and through the magic of compounding interest and capital investment they can race ahead of competitors.
> countries with trade deficits are like new companies that get a loan and go do something useful with it
This way of thinking is so at odds with historical reality I need to know where you encountered it. Every great and ascendant nation has run consistent trade surpluses. Nations with trade deficits are either banana republics or headed that way.
The US trade deficit is not from imported capital goods. The US imports consumer products.
The US now runs a trade deficit with every region of the world. The US has a net trade imbalance in every category of industrial/scientific machinery and high-tech products.
Sorry, there is no way to spin trade deficits as positive.
"Milton Friedman, the Nobel Prize-winning economist and father of Monetarism, argued that many of the fears of trade deficits are unfair criticisms in an attempt to push macroeconomic policies favorable to exporting industries. He stated that these deficits are not harmful to the country as the currency always comes back to the country of origin in some form or another (country A sells to country B, country B sells to country C who buys from country A, but the trade deficit only includes A and B). In fact, in his view, the "worst case scenario" of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation."
It's worth keeping in mind that trade is not a race or competition. It doesn't hurt us in any way if Europe accumulates wealth quickly.
I think the idea that trade deficits are bad and trade surpluses are good is largely an artifact of the way we talk about it. It wouldn't sound as scary if Lou Dobbs talked about "America's looming capital account surplus," even though a capital account surplus is logically equivalent to a trade deficit. Right now, foreigners are buying up a small share of our capital goods and sending us consumer goods in exchange. At some point in the future, those same foreigners will sell the capital goods and use them to purchase consumer goods from us. In an of itself, neither situation is something to be concerned about.
This isn't quite true. The nations that accumulate capital tend to buy up the high return assets of financially weaker nations. Now that the dollar is tanking, due to the deficits and monetary irresponsibility, you see foreigners snapping up American companies and properties. The dividends from those things are now less likely to be invested here.
Hollywood has been riding high on this principle for decades, sucking in foreign money like a turbocharged vacuum cleaner on crack, and promptly distributing it to themselves, their lawyers, surgeons, trainers and decorators, as salaries and bonuses. All the while, the local insiders/studios keep the choicest releases to themselves. They only need financing 'help' for the risky, read subprime, stuff.
What's really sad, for European savers at least, is that despite being fully aware of this, their homegrown movie industries continue to be an even shittier bet.