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PeakTrader:

Milton Friedman died (in 2006) when the U.S. had record trade deficits, roughly 6% of GDP. The U.S. was consuming up to $800 billion a year more than producing, in the global economy, although the U.S. was technically at full employment (i.e. below 5% unemployment rate), in the mid-2000s.

Milton Friedman:

“The “worst case scenario” of the currency never returning to the country of origin was actually the best possible outcome: the country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.”

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Marque2, like always, you don’t know what you’re talking about. Over the past 30 years, since the U.S. became more of an open economy, U.S. manufacturing shifted from producing low-end to high-end goods, much of it with market power.

Also, the U.S. shifted from the Agricultural and Industrial Revolutions, through massive efficiencies, into the Information and Biotech Revolutions, where the U.S. not only leads the world, it leads the rest of the world combined (in both revenue and profit).

The World’s Reserve Currency
October 3, 2007

“A reserve currency is money that’s held by many countries as their foreign exchange reserves. It’s also the currency that’s typically used to price commodities, such as oil and gold, that are traded between countries.

A country whose currency is the predominant reserve currency benefits tremendously. In the case of the dollar, the U.S. benefits from the increased demand for the dollar that the reserve currency status creates.

Other countries give the U.S. valuable goods in exchange for dollars issued by the Federal Reserve. They also lend the dollars they’ve accumulated back to the U.S. at low interest rates. Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars.”

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From the data I’ve seen, covering over 30 years, U.S. export growth has been faster than U.S. nominal GDP growth (real growth and inflation).

I saw in a recent article (I think in Forbes) from 2002 to 2012 (which includes an expansion, contraction, and slow recovery), U.S. nominal GDP growth averaged 4.0%, while U.S. export growth averaged 8.8%.

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Yes, since the 1970s, many emerging markets developed in the U.S., which attracted foreign investors.

Also, foreign investors were attracted to the relative safety of the U.S., compared to other countries.

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http://www.aei-ideas.org/2013/10/milton-friedman-on-the-anti-consumer-politics-of-sugar/#comments

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PeakTrader:

Paul Krugman makes an interesting case how the U.S. economy has changed, particularly since 2000, and how a combination of efficiency and regulation led to lower wages and weaker demand:

Profits Without Production
June 20, 2013

“Economies do change over time, and sometimes in fundamental ways.

“…the growing importance of monopoly rents: profits that don’t represent returns on investment, but instead reflect the value of market dominance.

…consider the differences between the iconic companies of two different eras: General Motors in the 1950s and 1960s, and Apple today.

G.M. in its heyday had a lot of market power. Nonetheless, the company’s value came largely from its productive capacity: it owned hundreds of factories and employed around 1 percent of the total nonfarm work force.

Apple, by contrast…employs less than 0.05 percent of our workers. To some extent, that’s because it has outsourced almost all its production overseas. But the truth is that the Chinese aren’t making that much money from Apple sales either. To a large extent, the price you pay for an iWhatever is disconnected from the cost of producing the gadget. Apple simply charges what the traffic will bear, and given the strength of its market position, the traffic will bear a lot.

…the economy is affected…when profits increasingly reflect market power rather than production.

Since around 2000, the big story has been one of a sharp shift in the distribution of income away from wages in general, and toward profits. But here’s the puzzle: Since profits are high while borrowing costs are low, why aren’t we seeing a boom in business investment?

Well, there’s no puzzle here if rising profits reflect rents, not returns on investment. A monopolist can, after all, be highly profitable yet see no good reason to expand its productive capacity.

And Apple again provides a case in point: It is hugely profitable, yet it’s sitting on a giant pile of cash, which it evidently sees no need to reinvest in its business.

Or to put it differently, rising monopoly rents can and arguably have had the effect of simultaneously depressing both wages and the perceived return on investment.

If household income and hence household spending is held down because labor gets an ever-smaller share of national income, while corporations, despite soaring profits, have little incentive to invest, you have a recipe for persistently depressed demand. I don’t think this is the only reason our recovery has been so weak — but it’s probably a contributory factor.”

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PeakTrader:

The economics terminology of Krugman’s point is Apple can sell its iPhones at a higher price, and therefore produce less, to maximize profits, similar to a monopoly.

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Neither an oligopolist that controls mostly the high-end market nor an oligopolist that controls mostly the low-end market can boost profits from a price war.

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