Interesting Michael Mandel posts
March 06, 2006
Michael Mandel at BusinessWeek Online--a journalist with a substantial economics background; about time!--has been posting a bunch of thought-provoking stuff recently. He suggests macroeconomics should address, simultaneously, two startling facts:
In my view there have been two very dramatic changes in the U.S. economy compared to ten years ago. First is the remarkable and unanticipated acceleration of productivity growth. Second is the equally remarkable and unanticipated widening of the measured trade deficit, a hallmark of globalization.
He strongly doubts the "we're spending way too much" explanation of the trade deficit:
The rise in the trade deficit ($700 billion) has come at the same time that U.S. productivity has soared way above expectations (adding an additional $1.2 trillion to output). As a result, the Spendthrift America view of the world requires an absolutely astounding increase in the U.S. propensity to consume over a very short period of time--almost $2 trillion above expectations. This is very unlikely.
And he points to an interesting potential measurement problem:
How should we book this transfer of business knowhow from Bentonville, Arkansas, home of Wal-mart, to say Tokyo? Conventional statistics would say that we wouldn’t book it as exports, but rather just pick it up as increased profits overseas.
I don’t buy the conventional view, though. I reason this way. Let’s do a thought experiment. Suppose that in a parallel universe the secret reason for Wal-mart’s higher productivity was a special very expensive “thought-ray” machine, manufactured in a nondescript building in Bentonville, Arkansas. (picture below). Each machine costs $10 million to build.
Each Wal-mart store has one of these machines installed, which increases the productivity of Wal-mart’s workers by 20% as soon as it is turned on.
Now let’s suppose that Wal-mart buys a store in Tokyo, and ships one of its thought-ray machines from Arkansas. The productivity and profits of the store immediately go up by 20%.
Clearly the trade statistics would book the transfer of the thought-ray machine as an export of $10 million, followed by the increase in overseas profitability.
Why don’t we count the transfer of Wal-mart’s business knowhow the same way?