Net importers wealthier than net exporters

What is wealth?

Some folks believe that wealth is pictures of dead people on pieces of toilet paper. Other folks believe that wealth is shiny metal. But neither is true. Weath is stuff.

Now I hear you saying, "but if I had millions of dollars, I'd be wealthy!" Uhm, and what would you do with that millions of dollars? Would you put it all in a big room and roll around in it like Scrooge McDuck? "I'd buy a new house", you say? "I'd buy a new car", you say? Yes. Because the money itself isn't wealth. What you buy with the money is wealth. Money has to serve as a temporary store of value because of the time lag between trades -- i.e., you trade something to someone in exchange for money (if you're an ordinary working slob, you trade your labor for money, generally), and then at some point after you receive your paycheck, you spend it on food and rent and such. But the operative word is temporary. In a functioning capitalist economy, money that sits under mattresses turns into lumpy mattress stuffing from the perspective of the economy, not money. Which, as I've previously pointed out, is why capitalism requires inflation -- to drive money out from under mattresses (where it would be losing value) and into the real economy where it can be used to facilitate trades of goods and services, which is the whole reason money was invented in the first place.

Now I hear you say, "but... but... billionaires! They have lots of money!" Well, actually, no. The average billionaire could not put his hands on more than a few hundred thousand dollars at best on short notice. What billionaires have is lots of stuff -- they own corporations, they own government bonds, and yes they own houses and cars and stuff but mostly what they own is the building you go to work in, the tools you use for whatever your employment is, the banks that lend you money at 29% interest that cost them 1.5% interest to borrow from the Federal Reserve window... if you wanted a million dollars from a billionaire, he'd have to go out and sell stuff to get his hands on that much money. Which just emphasizes that it's not the million dollars that is wealth -- it's what that million dollars bought (the stocks, the bonds, the businesses and physical assets) that is the wealth. Otherwise the billionaire would have never traded that million dollars for that stuff in the first place.

So anyhow, one of the canards of "conventional common sense" is that it's bad that the United States is a net importer rather than a net exporter. Being a net importer is called "running a trade deficit" and spoken about as if it were as evil as the satanic love child of Stalin and Pol Pot. But... but... the United States ends up with more stuff that way, i.e., becomes wealthier as a nation by being a net importer!

So why does "conventional wisdom" say that net importers are "bad"? It's because they conflate money with wealth. They confuse the instrument used to facilitate the trade of real wealth in a market -- money -- with the actual wealth that is being traded in a market. A net importer ends up with less money from a series of trades than a net exporter, meaning that a net importer thus has "less wealth" if you're an idiot and think money, not stuff, is wealth. But since stuff is wealth, and since we have a printing press and can always print more money as needed, the fact that some money went overseas and never came back is no big deal -- we just print more for the next set of trades.

Of course, this presumes that people overseas are willing to send us more stuff in exchange for more freshly printed dollars that never come back buying exports from us. It also presumes that the resulting imported wealth is not offset by a reduction in locally-produced wealth due to rising unemployment taking productive assets (workers) out of the market. It also presumes that in fact people overseas are not running a tab on us and getting ready go all Ottoman on us. But given that our trade is being conducted in dollars, not in foreign currencies (the problem the Ottomans had -- their debts were denominated in foreign currencies), we can handle even that situation by simply printing more dollars... though after doing so, if we want to borrow we'll get charged *huge* interest rates to compensate for the risk that the lender is taking that we might default by printing money. So it goes.

But at the moment we're nowhere near that point. The world economy is dollarizing because oil is denominated in dollars, and right now there seems to be no shortage of states willing to trade goods for pieces of toilet paper with pictures of dead people on them. We get "stuff". They get fancy toilet paper. How is that not a good deal for the United States? Other than the effect upon employment, if imports supplant local production, with resulting possible social disorder... but we have mechanisms for dealing with that too, though the teabaggers may call those methods "socialism". So be it.

-- Badtux the Economics Penguin