# Increase in productivity

“The data are intended for comparisons of trends over time; they are unsuitable for comparisons of the level of average annual hours of work for a given year, because of differences in their sources and method of calculation.”

• Trade deficits since the end of the convertibility.

• Warning - I am more worried about trade deficits and manufacturing decline than most economists.

• The Economist magazine says that Germany’s surpluses are a threat to free trade).

• Most of the time budget surpluses are negative. (except briefly under Bill Clinton)

• Often, large trade deficits are blamed on too large budget deficits. If the U.S. is unhappy about its trade deficits, then it should simply save more, that is do less government deficits.

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Source: Binyamin Appelbaum - The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society

• Services industry sees less rapid productivity gains.

• Therefore, services are an increasingly larger share of the economy.

• This is an important fact, because some deindustrialization is needed.

• Bill Clinton talks about Lester Thurow’s book. html

In his most recent book, “Head to Head,” the economist Lester Thurow (sp) argues that there are seven major areas of technology which will produce the lion’s share of the high-wage, high-growth jobs of the 21st century, at least as far as we can see into that century, that aerospace is one of those areas, and that a nation with a stake in any of these technologies gives it up only at its peril. We have enjoyed an enormously positive position in aerospace for a long time now, but if you look at our airlines, the airlines alone have lost as much money in the last four years as they made in the previous 60.

• Krugman (1994) - Competitiveness: A Dangerous Obsession ?

• Responses:

  • Thurow (1994) - Microchips, not potato chips

  • Prestowitz (1994) - Playing to Win

  • Scharping (1994) - Rule-Based Competition

  • Cohen (1994) - Speaking Freely

• Krugman (1994) - Proving my point.

• Our trade deficit problem. html

• Reading: “Two out of three ain’t bad.” The Economist, August 27, 2016.

• According to J.M. Keynes, the problem of fixed exchange rates such as a Gold Standard was that it forced the adjustment of balance of trade imbalances onto deficit countries. Deficit countries were forced to respond to an outflow of gold by curbing the demand for imports, and cutting wages to restore export competitiveness.

• Whose fault is it? Is Germany not consuming enough or U.S. consuming too much?

• J.M. Keynes was proposing that creditor countries would share symmetric blame for trade imbalances.

• There would both be penalties for being overly lax, just as there would be penalties for having too large a trade surplus.

• However, Keynes was not able to get enough support for such creditor adjustment.

• The United States (dominating power at Bretton Woods) opposed the idea for the same reason Germany resists it today: it was a country with a big surplus on its balance of trade.

• Austerity policies which were implemented in Europe after 2011, following the Greek debt crisis.

• An alternative adjustment would have been to have Germany and the rest of Europe increase their aggregate demand, to boost Greece’s exports and help pay for imports.

• Instead, Greece (and Spain) was forced into costly import compression through tax increases and spending cuts, which hurt internal demand a lot.

• Reading: Robert J. Barro, Stimulus Spending Keeps Failing; If austerity is so terrible, how come Germany and Sweden have done so well?, Wall Street Journal, May 9, 2012.

• According to Robert J. Barro, Germany and Sweden have done very well macroeconomically, despite having moved to rough budget balance from 2009 to 2011.

• A Keynesian economist would actually give would be to say that the reason why Germany and Sweden have done so well is that they have largely benefited from growth in their external demand, themselves due to other countries implementing Keynesian aggregate demand stimulating policies during the period.

• And indeed, both Germany’s and Sweden’s net exports have substantially increased during that period, or at least they have stayed strong, as shown here there for Sweden (you can see both here).