Class #24 10/29/2011

 Rizzo started off the class by talking about how no one wants to ban technology from the job loss that it creates, but they want to limit trade. He then talked about how other countries have lower wages than the US and that wages have increased by 100% in China over the past 8 years. When comparing businesses and if one should trade, both the absolute advantage and the comparative advantage matter. These stats matter to us if we want to outsource a job to a different country. If China assembly line workers make $8 an hour and can produce 4 units in that hour, than there is a charge of $2 a unit per hour. If the US pays $30 an hour and produces 20 units, then the use charges $1.50 per unit. We have to divide the wage by the marginal product of labor (how much more stuff can you get to work another hour at work. Specialization and trade are used to higher wages. Wages in China have been going up very fast over the past few years. The increased wages in China do not mean that trade is going to come back to America.

       Globalization allows worker in their countries to increase their productivity. The ability to produce and wages both matter. They are an opportunity cost. Patterns and trade are both determined by Wages/marginal product. We won’t notice an increase in GDP from Chinese tariff. Regulations are often costly but sometimes have to be done. If trade deficits destroy jobs, then shouldn’t we create jobs with trade surplus? NOPE. Statistics show that jobs have decreased with both trade deficits and surpluses. We currently have half the number of farmers that we did in 1950, but we are producing 3x the amount of food with the same amount of land.

      

1. People pay for imports with exports. 2. When we specialize, we get richer. It allows us to consume more and it also creates jobs. This makes us richer. The same jobs are created in the exports sector that we lose in the exports sector and vice versa. When you put these two things together, we get more money. Rizzo currently has a trade deficit with Wegmans and a trade surplus with the U of R. After Rizzo retires, neither the U of R or Rizzo or Wegmans is going to try and collect further money. Free television has made HBO more profitable because people like a variety of things that they can watch. If North Korea gave every American a free $6,000 car every 4 years, then each person will have $6,000 that they can spend on something else. This will create jobs in these other industries. We replace products with better products. The car industry in America will not fail though because everyone has different preferences so people will still buy other cars. If Rizzo buy a new Iphone the trade deficit with China is worse by the $829 that it costs. In reality it is less, because only certain parts are made in China and not the whole phone itself.

Jobs are a cost. We support trade because data shows that trade creates jobs. When we trade with others, different trade opportunities creates more jobs. International trade is great because it promotes peace between the different countries. Machines cost more jobs than trade does. Mathematicians were scared that a math book would put them out of business, in reality it helped progress mathematics by allowing mathematicians to further their research and make new equations by being able to learn the previous material faster.

Trade account- G and S. We sell to buy

Capital account balance- Is related to the trade deficit.

Capital account surplus allows us to consume more than it produces. American assets are very attractive to people. Any dollar that Rizzo spends will get back to him. If I buy $10 in toys from China and a person in China buys $5 glasses from me, the current account balance is -5. The $5 we lose can buy more American goods for foreign countries as well as buy an American asset. Trade deficits are good. By reducing the amount of money in the US, you increase the wealth in America for everyone by the amount that isn’t there. If Rizzo rips a dollar bill, everyone is richer by $1. US capital account balance and US current account balance is 0. If we buy a foreign car, they will use this money to put back into the American economy.