Energy Crisis + Trade Deficit = ??

Tuesday, February 07, 2006
Although there are some of us old enough to think of Westinghouse as a refrigerator maker, it has actually been in the business of making nuclear plants for quite a long time. A business which, since the era of Hanoi Jane, hasn't been a very good place to be. However, recent Middle Eastern events, together with certain budding relationships, are starting to change people's thinking a bit. For those who have been paying attention to the zeitgeist lately, it's becoming obvious that a lot of folks, even very green folks, are starting to see the light at the end of the nuclear power tunnel.

Start now with a nuclear broth and mix in a massive ongoing trade deficit. As pointed out at Cafe Hayek, a trade deficit doesn't necessarily mean, as is so often erroneously avowed, that we are putting our children into debt; but what it very much does mean is that we are trading other assets for those piles of consumer crap goods we import from Asia. Assets like our companies and our land for example. Even some of our former politicians are for sale I hear. Our trading habits are akin to a spoiled scion of a wealthy family selling off the family jewels to pay for his coke habit. And so the latest asset to be flogged is once-proud Westinghouse (the "W" in WABC or WLS) now going to ertswhile cold-war profiteer Toshiba. So, as Terrye says, if the French can do it, we can certainly do it. Or even better, we can sell our ability to do it to the Japanese for a few more cars.

16 comments:

Kelvin said...

Yes - even the "family jewels" are for sale at the right price !!! Nothing lasts forever & a day any more

chuck said...

Although there are some of us old enough to think of Westinghouse as a refrigerator maker...

Geez, I thought they made air brakes for trains.

Anyway, I don't think nuclear power is the only thing we can do. We have limited ourselves for the last several decades, maybe it is time to also look at all the petroleum resources we have.

I have never understood the trade deficit. It is so huge that, if it was like household debt, the country should have gone under long ago. I keep waiting for someone to explain why that hasn't happened.

David Thomson said...

“I have never understood the trade deficit. It is so huge that, if it was like household debt, the country should have gone under long ago. I keep waiting for someone to explain why that hasn't happened.”

Our creditors are compelled to reinvest in our economy. Are they simply going to let it sit in a bank vault wasting away? The United States is essentially the only game in town. Countries like France are going downhill. We look like the safest bet for the foreseeable future. A number of people complain about the cost of our military. However, it is our strong defense---and political stability which keep us financially viable.

David Thomson said...

It is also foolish to get overly concerned about “trade imbalances” between countries. Does one worry about the possible trade imbalance between Montana and Texas, Houston and Memphis, or the west side of your town and the east side?

Knucklehead said...

I have never understood the trade deficit. It is so huge that, if it was like household debt, the country should have gone under long ago. I keep waiting for someone to explain why that hasn't happened.

I'll leave it to those who actually understand economics to smack me down and explain how my view of this stuff is knuckleheaded in the extreme. Macroeconomics can never be fully explained in the microeconomic terms of the individual household. National debt is not identical to household debt. Trade defecits are not the same as a family buying more than it has income for.

Trade deficit is a deficit of trade at the national level. We import a higher dollar value of goods (and/or services) than we export. It does not translate directly into debt any more than purchasing more vegetables from the grocer than we ourselves produce or sell to grocers translates directly into debt. If someone makes their living selling Japanese cars to his American neighbors he makes nothing yet has income to buy stuff. In trade deficit terms he can't be a good thing but yet he owns a home and has a family and purchases stuff and, presumably, some value to the US economy.

What we are trading is dollars for goods. Dollars, of course, carry some sort of fuzzy promise by the US government. But nobody is actually the least little bit interested in the promise. They want whatever the dollars can purchase - goods and services, investments, debt, whatever.

Of course some, or all, of the dollars we trade for goods is borrowed money. But just because somebody might borrow money to buy a Korean automobile doesn't mean they are borrowing money from Korea. The money is being borrowed from all sorts of sources, sometimes our neighbors (local bank, credit union), sometimes international banking corps, sometimes our own savings. Whomever you borrow whatever amount of dollars from, what happens is the dollars get shipped to Korea and the car gets shipped to the US.

That all seems reasonably clear to me but what always perplexes me, an admitted economic ignoramus, is why so many people find the trade deficit to be such a terrible thing. Now, mind you, it would seem to me that it would be preferrable to have something that much more closely approximates balance, but I don't see why an "export economy" is so hugely preferrable to an "import economy".

I realize the following is completely simplistic, but it seems to me that it is "easier" and potentially less painful, to stop buying stuff than it is to stop selling stuff. If Americans ever decide we've got enough TVs or that times are tough and we're not gonna buy many new ones for a while, it isn't American TV factories and factory workers who suddenly discover they don't have jobs.

It sure seems to me that there are bound to be pros and cons (those ubiquitous tradeoffs) to export economy vs. import economy. One of the benefits of being an import economy, I speculate, is that downturns don't normally hit as hard as they do for export economies.

Morgan said...

I thought Westinghouse Nuclear was sold to British Nuclear Fuels several years ago, a few years after the US Government blocked its sale to Siemens.

David Thomson said...

China and the rest of the world are anxious to continue doing business with America. Why am I so complacent? Just look at the stock market and the other economic indicators. There’s likely little to worry about unless you see a massive drop in the Dow Jones. Economic transparency keeps us on our toes. The investment community is obviously very confident concerning our economic future.

Rick Ballard said...

Knuck,

I look at it this way - I give you a pretty symbol that functions as a medium of exchange as long as I say it does. I also own the symbol factory.

You give me a refrigerator.

Who's at risk?

David Thomson said...

There is an overwhelming trade deficit between Wal-Mart and myself. I purchase thousands of dollars of items annually from its stores. Wal-Mart, however, has yet to buy anything from me! What does this major corporation do with my paper symbols of value? A good deal of it is used as investment capital to open new stores.

terrye said...

I can remember when nuclear reactors scared people...hey, now they are a lot less scarey than the mullahs and their ilk.

We can use more coal too, but we can not do anything that quickly, it all takes time.

As for the trade deficit..if the price of oil could be brought back down to about $35 a barrel it would help alot. If I understand it correctly the deficit is measured not by volume or amount, but by value. So we would be importing less and at least some of what we were importing would be cheaper.

It would seem to me that nuclear reactors and coal gassification plants would help on two fronts: less to import from unstable regions and a better balance of trade.

And yes by God if the Frenchies can do it, we can. How hard can it be?

Knucklehead said...

Rick,

And there is always "who holds the risk"?

Holders of US debt instruments can always cash out and get out of dollars and into something else. Of course doing so would drive down the price of dollars more quickly than they could cash out as well as driving up the price of whatever they decided to buy (presumably Euros) just as quickly.

Investors don't generally purposefully look for ways to guarantee they sell low and buy high.

Knucklehead said...

Terrye,

We can, of course, "do it". What gets in the way is NIMB. Americans in general aren't particularly afraid of nukes - especially if the nukes are far away. The reason we haven't build a nuke generator or even a danged petro refinery in decades is NIMB.

Getting beyond NIMB for nukes and all the other various things we need requires political courage. Politicians (and the POTUS can't do this, it just ain't in his job description) need to have the courage to deal with the NIMbies and the Greens. Notfuhnuttin' but even if you give the Greenies what they want, windmills, you gotta then go to war with the bird lovers who don't like windmills 'cause they chop the snot outta the birdies.

We could devise giant machines that use the relentless ebb and flow of the freakin' tides to generate pollution free power but there will be tidewater lovers (not to mention lying around on the beach lovers) lined up to fight against it.

Knucklehead said...

BTW, just for giggles, here are a few links about harnessing tides for power generatition: link, link (even the French can do it!), link (I love that one - millions of countries and provinces are doing it already!), link.

Knucklehead said...

Well, darn. Those ugly tradeoffs rear their nasty little Medussa heads yet again. Quiet Hybrids Pose an Invisible Risk.

I'm a bit puzzled about why people walking in parking lots and along sidewalks aren't looking for cars as much as they are listening for them, but what do I know.

I think this calls for a national crash program to develop some sort of audible thingie that would alert passersby when a hybrid is backing up. Maybe something that "beep, beep, beeps" or whatever. There's got to be a solution to a problem like this.

chuck said...

We could devise giant machines that use the relentless ebb and flow of the freakin' tides to generate pollution free power but there will be tidewater lovers (not to mention lying around on the beach lovers) lined up to fight against it.

Yeah, and it would slow down the earth's rotation and cause the moons orbit to move further out. You thought global warming was a problem? You ain't seen nothing yet.

Knucklehead said...

Chuck,

I hadn't thought of that - equal and opposite reactions are a law of nature. Oh well. Back the drawing board. Those freakin' petro purveyors have us by the short hairs, don't they.