Thanks for commenting. We are always "equal" in a trading relationship. Any US trade deficits for goods & services are offset equally by US trade surpluses in the non-goods & services or Financial Account. No country would accept our US dollars unless they had a use for them back in our own country. Thus, those extra "trade deficit" US dollars will immediately circle back to the US as stock purchases, loans to the US government to support US spending, the building of US plants, and/or as temporary savings in US bank accounts to keep our interest rates otherwise lower than they would be.

That is why they call it "trade" because the overall trade balance is always zero. So whenever you buy an import, know well that your purchase of that import will end end up in the hands of another American company!

Like or Dislike: 0  0

Like or Dislike: 0  0

Like or Dislike: 0  0

Thanks for the post.

U.S. dollars spent for oil or any other imported product come right back to the United States since the other country can't use the U.S. dollars in their economy. The essence of trade is truly a "win-win" since both countries value the other country's product by definition of the fact that a trade was voluntarily made.

Ultimately, the purchase of oil from Saudi Arabia is no different than the purchase of cars from Germany. In both situations, both the United States and the foreign countries gain since both nations receive income for their products. Pickens phrase of a "transfer of wealth" is highly misleading. It implies that the U.S. is losing wealth, which it is not. Oil to the U.S. is no less a desirable product than, say, Wonder Bread, i-Pods, or Fords are to the rest of the world. Using Pickens phrase, I wonder whether he would also say we are losing "wealth" to Japan and China for our purchase of all their products?

The U.S. will continue to trade our i-pods and Fords for cheap oil until we can ultimately purchase a cheaper fuel substitute. Given that oil is as cheap as Coca-Cola, it appears that that will be for some time. Too bad the government does not phase in a direct gasoline tax over time to rid our dependence on the oil. If we want to rid ourselves of foreign oil, it will need to occur through "price".

Like or Dislike: 0  0

I have a doctorate in law and not economics. We lawyers deal with words, so perhaps I can explain the meaning of the phrase you are poking fun at.

Oil Billionaire T. Boone Pickens actually coined the phrase "the greatest transfer of wealth the world has ever seen" in describing the vast sums of money we pay to import oil. I would submit that as a Billionaire, he knows a bit about wealth.

I would argue that your analysis is incorrect because you do not discuss the meaning of the term "wealth" and confuse the terms "trade" and "wealth". Let me explain.

Your argument assumes that in a trade neither party becomes wealthy at the expense of another because each party obtains something they want or need when the trade is completed. However, if that were always true no one would ever become wealthy. No individual would ever be wealthier than another. No country would ever be wealthier than another. The Heroin addict that pays $1,000 for his fix would be as wealthy as the dealer that sold him the heroin. But hey – they both got what they needed, so under your analysis they each obtained "wealth" right?

I'm sorry, but that's just wrong.

The US became addicted to cheap oil. It is now expensive, and just like the addict in my example, the US is making the oil exporting countries and their ruling families very wealthy, while the US goes deeper in debt.

Just like a household that spends more than it earns, our country becomes less wealthy when we import more than we export and we run a negative balance of trade. The US is currently importing more than we export, and one of the chief reasons is the price we pay for imported oil. I believe that is what Mr. Pickens meant when he referred to a transfer of wealth.

I noticed in the comments above that Patrick asked about foreign investments in this country, and you said it didn't bother you because if Japan built a casino or a car factory in the US they employed US workers etc. Once again, you have misconstrued the meaning of "wealth". Wealth is owning a casino or a car factory. A job working for a casino or car company is not wealth.

Like or Dislike: 0  0

Inside a warm damp cave completely sealed off from the outside world could life flourish indefinitely?

Answer: No life forms could flourish indefinitely. In an isolated system, Entropy always increases. Life tries to push Entropy in the opposite direction. When life is created, entropy decreases in the cave but nature demands a greater Entropy increase offset. The cave, being sealed, would mean that Entropy would reach its max, thus energy necessary to sustain and generate new life would be unavailable. Maybe we should learn a lesson from this. Available energy is mandatory. Wealth may equate to available energy. If you want to live in a nation that is prospering make sure that its available energy supply is abundant.

Entropy is one of "Physics Foibles". Look it up. Solve energy to mitigate all other issues.

Like or Dislike: 0  0

There are other means by which international trade helps the economy as well. Trade also increases global competition. Because companies and consumers are acting out of their own self-interest, they should buy the best product at the cheapest price. This, in turn, causes local and global producers to fulfill these wants. International trade generally contributes to our overall well-being. This importance of international economic realtions is quite visible in the current issues with the American stock market. As our stock market has been falling, economies throughout the world have suffered too. This further proves the point that as one country succeeds, so do the others-and as one country suffers, the others do as well. We must not be blinded by the constant usage of the phrase 'transfer of wealth', as our wealth is not being transfered, but returned to us in other markets.

Like or Dislike: 0  0

Great to hear from you!

Yes, "imports are paid for by exports" is just another way of saying that each country cannot use the other country's currency so it must be spent back into the home economy. As I like to say, anytime you buy a Honda (Japan) that same money is going to be spent almost immediately right back to America. Think of it this way: the money you spend on a Honda will help some other American company dollar-for-dollar.

AAhhh….Patrick, you got to another level of complexity because you have now studied economics for two years: Japan may spend the US dollars we paid them for the Hondas by building a business in Alabama ( a gambling casino or car plant, for example). As an alternative, Japan may lend the US dollars back to the US Government by buying a US Bond. As another alternative they may elect to buy one of our buildings as rental property.

In all of the above cases, which is taught in Macroeconomics under "Balance of Payments", the US dollars received by Japan for the Hondas is spent back immediately into the US and it helps our US economy in some way. If Japan builds the casino or car company on US soil that creates jobs and incomes in the US. If Japan lends it to the US Government (should the US need to borrow because of deficit spending) the Japanese are really temporarily "saving" the US dollars and they will eventually be paid back with interest and then buy something only in the USA. Also, until Japan does liquidate their US savings (sell their bonds), Japan has allowed our US Government to spend the dollars, provided by Japan.

Your last question is the toughest one. Is there a cultural problem with other countries buying real estate and building companies in our country. Well, I can't speak for everyone on that one. I don't mind at all! I am grateful for all the investment that countries like Japan, China, Germany, Canada, and Britain have done in our country with the US dollars we have sent them. They have created millions of jobs through their spending of dollars back into our country. In fact, many people believe they are buying from an American country, but they are not. For example, Burger King, Budweiser, and Giant Food are all foreign owned companies doing business in the United States as they have elected to take our US dollars paid for imports to establish businesses in the United States.

Thanks for the post!

Like or Dislike: 0  0

First of all, we actually quickly talked about this the other day in my micro class. The phrase that the book and the teacher used was "imports are paid for by exports." I just thought it was interesting that my teacher was just talking to us about this. And, the PPC has already come up, I still remember that from last year.

Anyways, I was wondering if some of the cause for concern was the fact that these countries are using our money to buy US companies. I just wonder if we are culturally ready to have our companies owned by people outside of our country. Is this a cultural deficiency? Should we be happy about this? I believe I remember reading that most of the Chrysler building is now owned by a Saudi firm. I think it's a little odd having an American landmark under country of another country.

Like or Dislike: 0  0

If Japan buys oil from the United States, the US must use the Japanese Yen received to buy Japanese products.

In effect, and using my analogy in my posting, we would have a trade of oil (Japan gets) for Hondas (US gets).

I'm not sure the U.S. economy is crumbling…at least yet…. but a trade of oil for Hondas helps both the US and Japan 'cause both economies now have more goods and services than if they did not trade.

In fact, in our slowing U.S. economy it is trade that has been the "shining light" as trade has been at an all time high causing the U.S. economy to not be as bad off.

Thanks for the question!

Like or Dislike: 0  0

Was I any help and are your questions now answerde?

Like or Dislike: 0  0

Like or Dislike: 0  0

I believe that the simple answer to your question is that citizens a) generally have not taken an economics course, and b) they focus on the loss of jobs by the businesses in their country that lose out to better competition.

The gains from trade are the positive net of two occurrences: the plus is more product choices, lower prices, and better quality for the "winners" which is the country's citizens as a whole. But this gain is partially (&temporarily) offset by the "losers" which are the country's businesses thaqt have to lay off workers (or close) that lose out to the better foreign competition. It is much more VISIBLE to see the 100 people laid off in Michigan than the lower auto prices spread out to millions of Americans.

Also, the great thing about trade is that the "losers" (displaced workers) get back in line and find other jobs which is evidenced by a very consistent employment/unemployment rate over the years that trade has been increasing. Its painful for the workers that are displaced but the alternative of forcing citizens to not enjoy trade would slow economic growth.

Thanks for participating!

Like or Dislike: 0  0

Like or Dislike: 0  0