A trade surplus is a transfer of wealth, but which way?

On a foreign adventure on the shores of macroecomonics, the Psy-Fi blogger  is telling us that the German trade surplus with Greece is a transfer of wealth from Greece to Germany.

If we look back at operational flows it seems to be a bit debatable:

  • A car is manufactured in Wolfsburg
  • At the end of the process, there is +1 car on the car park outside the factory, Germany is wealthier: it has one more car
  • The car is exported to Greece: there’s -1 car in Germany and +1 car in Greece

So, a car has been moved from Germany to Greece, and it’s Germany that’s getting wealthier? Of course, one could argue that euros have flown back the other way. This is correct, but that’s just a ledger entry in a digital account book somewhere. But what is a ledger entry useful for? You can’t eat, ride, or fuck a ledger entry. This ledger entry is a token for future wealth, it’s a claim on future Greek work or assets, but it will become real wealth only if the claim is ever effected, and transformed from a ledger entry into wealth and claimed back by the Germans who made the original car or their proxies.

Will they ever do so, and if so will they do it in a way that they get something that’s worth at least as much as the car, plus a reasonable compensation for the time value?

That’s doubtful. People who run surpluses tend to get short changed, because they’re exposed to their debtors failing to deliver their promise of future work or assets on the appropriate scale. Even ignoring the fact that states can use various tricks to escape paying back debt, any debtor can choose to remain poor to avoid paying back debt (it is the rational behaviour in the face of a debt mountain commensurate with or higher than their expected lifetime productivity), or being stuck there through mere bad luck.

Will the Chinese ever get back what the trade surplus they are having with the rest of the world is worth in actual goods and services? Probably not in the lifetime of any Chinese alive today. They shouldn’t run a surplus in the first place, and rather buy at least approximately as much stuff as they export and enjoy it or use it for further development. For a deficit country, the bargain is reversed: it gets real wealth in exchange of mythical future wealth.

On a tangent, we’re also told:

German industry offers high quality products of superb design at fiercely competitive prices. The country is modern, efficient, possessed of wonderful communication links and a superb technical education system. Its government bureaucracy is staffed by intelligent and incorruptible officials who believe that serving their country is the highest duty.

It makes you wonder if our correspondent has ever been to Germany. The country is doing OK, but there’s plenty of inefficiencies to be observed just walking around the place. Bureaucracy might be less corruptible than elsewhere but it’s also quite rigid, which can be fair but counterproductive, there’s so much you can do with formal rules, however intelligent and well meaning, and administering a rule system is always a cost. The education system is not doing too well either, being middling in most international rankings, and rightly so. Germany’s current comfortable position is at least in part due to fortunate headwinds that may not last: due to an effective internal devaluation within the eurozone (tight salaries, no minimum wage) which may not last to the same extent as German workers may at some point claim their dues; the efficient export industries are probably at most a quarter of the economy, and very sensitive to a global slowdown. In the long term it’s also sensitive to other technical countries reducing the competitive gap.


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