INTERNATIONAL TRANSFERS OF WEALTH What is Dr. S driving at in this chapter?

INTERNATIONAL TRANSFERS OF WEALTH

What is Dr. S driving at in this chapter?

U.S. exports, 2013

$2.27 trillion exports $2.74 trillion imports $471 billion deficit Top export markets: Canada, Mexico,

China

Top U.S. exports?

Top U.S. exports?

Machines, engines Electronics Oil, fuels Vehicles Aircraft Medical, technical equipment Gems, precious metals

How does wealth move between nations?


Direct investment in businesses

How does wealth movebetween nations?

Direct investment in businesses Deposits in banks


Direct investment in businesses Deposits in banks Purchase of bonds


Direct investment in businesses Deposits in banks Purchase of bonds Remittances from immigrants


Direct investment in businesses Deposits in banks Purchase of bonds Remittances from immigrants Imperialism


Direct investment in businesses Deposits in banks Purchase of bonds Remittances from immigrants Imperialism Foreign aid

Dr. S Opines:

“When it comes to international trade and international transfers of wealth, things are relatively straightforward but the words are often slippery and misleading…”

International investments

Why do rich countries invest in other rich countries?



Our old friends property rights and framework of laws




Poor nations are poor for a reason




Poor nations are poor for a reason Danger that due to corruption, unrest or

‘nationalization,’ you won’t get your money back


Remember the least corrupt nations?


Remember the least corrupt nations? Denmark, Finland, New Zealand,

Singapore, Sweden



Singapore, Sweden And the most corrupt?



Singapore, Sweden And the most corrupt? North Korea, Somalia, Afghanistan,

Sudan, Myanmar


Nationalization: confiscation of privately owned business by a government…e.g., Venezuela, Cuba, Argentina

Cuba: king of the nationalizers

Cuba expropriated all private businesses after 1959 communist revolution

Paid nothing to property owners Extended even down to street vendors


Nationalization: confiscation of privately owned business by a government…e.g., Venezuela, Cuba, Argentina

Were GM, Chrysler and Citi nationalized?

Why does Dr. S say ‘don’t worry’ about trade deficits?


International trade numbers don’t include services…only physical goods that move across borders



U.S. is a service-based economy



U.S. is a service-based economy Don’t include physical goods such as

Rockefeller Center and VW plant in Tennessee



U.S. is a service-based economy Don’t include physical goods such as

Rockefeller Center and VW plant in Tennessee

Trade ‘deficit’ numbers can be misleading

Nigeria, desperately poor, has a ‘trade surplus’

Trade Deficits

In fact, Dr. S contends that by investing in U.S., foreigners create more wealth here… it’s not a ‘zero sum’ game

Trade Deficits

In fact, Dr. S contends that by investing in U.S., foreigners create more wealth here… it’s not a ‘zero sum’ game

For most of its history, the U.S. has been a ‘debtor’ nation, and one of the most prosperous in the world

Other ways wealth gets transferred

Bank deposits

Bank deposits

Swiss hold an estimated $1.7 trillion belonging to foreigners

Bank deposits


U.S. banks estimated to hold more than $3 trillion in foreign deposits

Bank deposits


U.S. banks estimated to hold more than $3 trillion in foreign deposits

What do banks do with that $? Fractional reserve banking… it builds

wealth

Sale of bonds

Sale of bonds

What is the U.S. debt?

Sale of bonds

What is the U.S. debt? $17.5 trillion

Sale of bonds

What is the U.S. debt? $17.5 trillion Most nations regularly sell bonds to

finances operations and capital projects

Sale of bonds


finances operations and capital projects It’s a global business, with most being

bought by foreigners

Sale of bonds


finances operations and capital projects It’s a global business, with most being

bought by foreigners Mostly buy bonds of developed nations

Remittances

Remittances: money sent by foreign workers to their home countries

Remittances


How much do Mexicans working here send home each year?

Remittances


How much do Mexicans working here send home each year?

In 2013, $10.7 billion... down from $25 billion in 2007. Mexico’s second-largest source of foreign currency after oil

Emigrants v immigrants

Emigrant:


Emigrant: one who leaves his/her home country for another



Immigrant:



Immigrant: one who has left his/her country to live in another



Immigrant: one who has left his/her country to live in another

People are a tremendous source of wealth creation… create whole new industries

Imperialism

Imperialism

The plunder of one nation’s wealth by another. Examples?

Imperialism


Alexander the Great, Old Testament battles, Romans, Dutch, British, Nazis, modern-day Russia in the Crimea

Imperialism


Alexander the Great, Old Testament battles, Romans, Dutch, British, Nazis, modern day Russia in the Crimea

Loaded word for leftists: U.S. frequently is accused of being imperialist by radicals

Imperialism

If modern U.S. was imperial, we would have looted Europe and Japan after WWII… we did just the opposite, sent them our wealth

We would control the huge oil resources from Iraq after we defeated that nation

Imperialism

Dr. S contends that rarely in modern history has imperialism made a nation wealthier

Imperialism


Marxists talk of imperialism as being a nation “looted” by foreign investors

Imperialism



Opposite is usually true: poor nations have few foreign investors

Imperialism



Opposite is usually true: poor nations have few foreign investors

Why? Economics is not zero-sum

Foreign aid

Foreign aid

Foreign aid is the transfer of wealth from governments and international organizations to poorer countries

Foreign aid


U.S. foreign aid in 2013: $50 billion

Foreign aid


U.S. foreign aid in 2013: $50 billion U.S. foreign aid in 2008: $26 billion

Foreign aid


U.S. foreign aid in 2013: $50 billion U.S. foreign aid in 2008: $26 billion Top recipients:

Foreign aid


U.S. foreign aid in 2011: $50 billion U.S. foreign aid in 2008: $26 billion Top recipients: Afghanistan, Israel, Iraq,

Egypt, Pakistan

Foreign aid

Dr. S and most conservatives contend that foreign aid does not

Micronesia

Foreign aid


For example, free-food shipments destroy local food producers

Foreign aid


For example, free-food shipments destroy local food producers

Much is siphoned off as corruption, to support cronies and maintain political power

Foreign aid

Much of it comes through the International Monetary Fund and the World Bank

IMF

The International Monetary Fund promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.

IMF

The IMF has 187 member countries. It is a specialized agency of the United Nations but has its own charter, governing structure, and finances. Its members are represented through a quota system broadly based on their relative size in the global economy.

IMF

Formed during Bretton Woods conference in 1944; Keynes was one of co-founders

IMF


Republicans want to cut payments to IMF, Democrats oppose

IMF


Republicans want to cut payments to IMF, Democrats oppose

Typically headed by European

World Bank

World bank: The World Bank is an international financial institution that provides financial and technical assistance to developing countries for development programs (e.g. bridges, roads, schools, etc.) with the stated goal of reducing poverty.

World Bank

Also came out of Bretton Woods

World Bank

Also came out of Bretton Woods Typically headed by American, in this

case Jim Yong Kim

World Bank

Also came out of Bretton Woods Typically headed by American, in this

case Jim Yong Kim Provided $35 billion in loans and

assistance in 2013

Sowell Cup

Sowell Cup teams

Invisible Hands: Giselle, Gabriel, Bethany, Brendon

Physiocrats: Davis, Lucy, Calvin, Emily

The Laffer Curves: Mason, Kyrsta, Michael, Sara M.

Zero Summers: Sarah Smith, Matthew, Sophie

Assignment 5/6

Chapter 26: “Parting Thoughts”

Assignment 5/6

Chapter 26: “Parting Thoughts” During the year we skipped (sob!): Chapters 12 & 13 (investments and

speculation, risks and insurance) Chapters 4, 8, 11, 14, 19, 22 (overviews) Chapters 23 & 24 (myths about markets,

‘non-economic’ values).

Assignment 5/6

Bring food for luncheon! Mr. G is bringing his famous ham biscuits

We need drinks, casseroles, sides, desserts, chips…

Documents

INTERNATIONAL TRANSFERS OF WEALTH What is Dr. S driving at in this chapter?