We are providing a link to the third party's website solely as a convenience to you, because we believe that website may provide useful content. We do not control the content on the third-party website; we do not guarantee any claims made on it; nor do we endorse the website, its sponsor, or any of the content, policies, activities, products or services offered on the website or by any advertiser on the site. We disclaim any responsibility for the website’s performance or interaction with your computer, its security and privacy policies and practices, and any consequences that may result from visiting it. The link is not intended to create an offer to sell, or a solicitation of an offer to buy or hold, any securities.
Click the link above to continue or CANCEL
Commentaries & market updates.
They Have Got to be Kidding
They Have Got to be Kidding
In the latest instance of economic surrealism an article in yesterday’s New York Times elevated America’s “unique” ability to consume to the status of “comparative advantage,” a term heretofore reserved for production abilities alone. An abundance of malls, an extremely efficient distribution system, a prolific advertising industry, a highly evolved system of consumer credit, and the ubiquity of automobiles into which large quantities of merchandise could be loaded, were specifically cited as being uniquely American. However, these attributes are not the cause of America’s affluence but merely symptoms of the generosity of others.
Further, the article alleged that foreign producers benefit from American consumption because their own citizens lack the purchasing power to consume the goods themselves. They also benefit, according to this reasoning, because in exchange for providing Americans with consumer goods, they get manufacturing jobs. Such ridiculous assertions not only display a complete lack of understanding of economics in general (and Ricardo’s principal of comparative advantage in particular), but represent the establishments’ increasingly absurd attempts to portray America’s deteriorating financial and industrial position in a positive light.
It is a truism in economics that demand is unlimited, restrained only by the ability to produce. It is production that converts abstract demand into real purchasing power. Comparative advantage refers to an efficiency one country enjoys over another in its ability to produce a particular good, not consume it. Such a nation will seek to increase its consumption by trading with other nations that have comparative advantages in the production of other desired goods. In other words, the sole purpose of exports is to facilitate imports. By themselves, exports confer no direct economic benefit to the exporting nation. It is only through the consumption of imports that nations harvest the fruits of their exports.
The Times article, like the majority of such coverage in the mainstream press, confuses the means with the ends. Exports are the means, imports are the ends. Exporting without importing is like working without getting paid. Few people work for the sheer enjoyment of the experience.
The reality is that as true purchasing power is held by producers, it is not Asians who lack it, but Americans. However, through massive intervention by their central banks, Asians are lending their purchasing power to Americans. When it finally becomes apparent that these loans will never be repaid, Asian producers will reclaim their hard earned purchasing power, and consume their products themselves. When that happens, Americans will find their large car trunks to be of little use in the absence of Asian products to fill them with.
Sign up for our Free Reports & Market Updates.