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Home Publications Blogs Beat the Press Everyone Cannot Use Trade Surpluses to Generate Demand

Everyone Cannot Use Trade Surpluses to Generate Demand

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Saturday, 14 August 2010 07:48

The NYT has an article touting the success of Germany's economy. It notes that the Germany's strong growth in the second quarter (8.8 percent annual rate) and relatively low current unemployment rate (7.0 percent) support the view of Germany's leadership that austerity was the right path to foster growth.

It would have been worth noting that it is not possible for every country to follow Germany's path of relying on a large trade surplus (someone must have a corresponding deficit). Germany and some number of other nations can create domestic demand through trade surpluses, but this strategy cannot be followed everywhere.

It also would have been helpful if this article reported economic data that would have been meaningful to its readers. For example, GDP is always reported as an annual growth rate, not a quarterly rate. Also, it would have been more useful to present the OECD harmonized unemployment rate for Germany (7.0 percent), which is measured in the same way as the U.S. rate, rather than the German official rate, which counts part-time workers as part of the unemployed.

Comments (4)Add Comment
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written by izzatzo, August 14, 2010 11:17
It would have been worth noting that it is not possible for every country to follow Germany's path of relying on a large trade surplus (someone must have a corresponding deficit).


That's correct, now if only Mr Whose Your Nanny would follow through with this zero sum logic and agree that not everyone can be among the concentrated rich espousing austerity. For every one of them running a surplus, there must be a hundred others running a deficit to complete the accounting offset.
value of Euro
written by scott, August 15, 2010 12:52
You failed to note that German exports no doubt are aided by the soft Euro. Germany has a strong economy, but their currency is no doubt undervalued for them, but balanced for all of Europe based on Greece, Spain and Ireland, among others.

I think that the Euro crisis caught many American policy makers off guard. It should have been the dollar that softened. But the crises in Europe strengthened the dollar, hurting our exports' competitiveness.
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written by purple, August 15, 2010 12:55
The reason Germany has a trade surplus is because they have products people want to buy. If the US is forced into protectionism it is because their products simply can't compete on the world market. And also because the financial sector demands the dollar as reserve currency even if makes it over valued.

The US is going to have to make a choice. It can no longer support financial or military empire. The dominance in production and innovation that existed after WWW2 and Bretton Woods is long gone. This means giving up veto power in the IMF and also voluntarily moving to a Bancor type of system. The alternative is a collapse in domestic employment, fragmentation of politics and all the instability that will bring.
If "everyone cannot" then NO BODY CAN!
written by wil Cummings, August 16, 2010 11:36
Word order may not be important to economists.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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