The Era Of Trade Surplus Envy

Mike Mandel says “[t]he U.S. should be a production economy, not a consumption economy.” I have really no idea what that’s supposed to mean, since presumably the idea is to produce goods and services that people want to consume. But he also argues that stimulus to consumer demand would be a bad idea because “[c]onsumption leaks right out the door as higher imports.”

This reminds me that across much of the world we’ve entered a strange kind of dynamic. When a country runs a trade deficit, what that means is that its population is consuming more goods and services than it produces. A trade surplus means you’re producing more goods and services than you consume. You certainly might think that running a trade deficit would be a privilege. After all, who doesn’t like more stuff? People go to work in order to get paid. And they want to get paid because they want to buy things. If you get the ability to buy even more things without working harder, that’s a good thing. Conversely, if you need to work harder but don’t get any extra stuff, that’s kind of a bummer.

But this is not, in fact, the way the contemporary world is processed. Rich countries, generally speaking, have plenty of stuff. Many of them, however, appear to be suffering from a shortfall in employment. Consequently, the idea of “working harder” (in terms of large annual aggregate hours) strikes many people as appealing even if it doesn’t come with a proportionate increase in the quantity of stuff. Hence the debtor countries (like the USA) have come to envy the surplus countries (like Germany) in a way that might initially seem slightly perverse. And certainly I’m all for boosting net exports. But once you understand us as having more of a shortfall of employment than a shortfall of stuff, you see that this has implications beyond the trade realm. In particular it re-enforces the point that you can’t beat the unemployment sector for low productivity. If the goal is to reduce the amount of not-producing-anything that people are doing, then it’s relatively easy to think of ways to give people jobs doing not-nothing. If you think that you’re a country that’s actually suffering from an acute shortage of stuff (consider India) then you need to pay a lot of attention to getting good value from your public expenditures. But if you’re a country that’s suffering from an acute shortage of jobs, then even things that asymptotically approach pure makework are better than nothing.