Who’s running the smarter economy: the UK or Germany?

Many economists would make the point that imports are a benefit and exports are a cost to any economy. If you take that argument to its ultimate conclusion then it would appear to make sense to issue as many treasury bonds as the market will accept to finance as many imports as possible. The bigger the trade gap the better! Of course, the wider the trade gap between exports and imports the more the government has to deficit spend to replenish the currency that the economy needs to function. The government budget deficit/surplus and balance of trade deficit/surplus are closely related as a quick check on wiki will show, and as explained on previous posts.

The Trade Balance (In its widest sense = Current account balance*)
http://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance_as_a_percentage_of_GDP
The Budget Balance
http://en.wikipedia.org/wiki/Government_budget_balance

Germany has a budget surplus of 6.1% and a trade surplus of 7%
The UK has a budget deficit of 3.3% and  a trade deficit of 3.8%
(Incidentally it looks like the budget deficit should be slightly higher)

Of course the UK and Germany aren’t on the extreme ends of the scales as can be seen from the two lists. The United States has similar percentage figures to the UK . Their economy is structured as a net importer too.

Most economists perhaps wouldn’t  push the ‘imports are good’ argument too far, but neither would they say that a trade deficit of 3.8% of GDP was anything to worry about. Essentially the UK , and US,  act as  bankers for the Rest of the World and need to run  trade deficits to give the ROW the necessary ££, and $$ to buy government securities.

But what about Germany? Are the Germans being as smart as they think they are by running a large surplus?  They are working 7% harder than they need to be just to break even and 11% harder than the British!

They should learn to chill out more and enjoy life 🙂

* In economics, the current account is one of the two primary components of the balance of payments, the other being capital account. It is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

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4 responses to “Who’s running the smarter economy: the UK or Germany?

  1. Sounds Good @Peter and my god does this nation need to chill.

    The more of your stuff I read, the more convinced I am of the great position we hold with our own currency.

  2. I should have mentioned the one thing that concerns me? if we are better to maintain a position of importers as opposed to exporters and continue as a banking nation, how does that play out in the job market and how do we better distribute that wealth from cities to all regions? and how do we raise earnings to at least £25 per hour for all employment.

  3. @Derek, I wouldn’t say the £ should never be given away. That’s a matter to be decided in a democratic way. However, the implications of adopting the Euro should be fully understood before that happens. The issuing of its own currency is of such major importance to the independence of any country that any loss of that right needs to be ratified in a referendum. IMO.

    I don’t believe the populations of the Eurozone, particularly in the periphery, fully understood what they were letting themselves in for. It certainly wasn’t explained in any meaningful way.

    Whether the politicians themselves understood is another question.

    It is a difficult argument to explain , especially to workers who may have just lost their jobs, when their industry may have been forced to close or relocate to a cheaper location in Eastern Europe or Asia, but there is no reason why unemployment should be any different for a net importer than a net exporter, Certainly within the range of +/-5% it shouldn’t matter at all. Many economists would put the range much higher than that but I would say that high unemployment in the UK cannot be blamed on any trade imbalance.

    The main obstacle to the creation of full employment is the addiction to neo-liberal economics.

    £25 ph seems somewhat ambitious. That works out at about £36k pa The GNP would have to rise and also the distribution of income would have equalise, a lot, from what is is at present.

    The distribution of surpluses from the richer regions to the poorer is always a problem in any economy. It’s a problem in the USA which has a common taxation system. It’s an even bigger problem in the Eurozone because it doesn’t have any mechanism for surplus transfers. Moving as many Government jobs as possible into the poorer regions is one of the best solutions.

  4. @Peter, I’m kinda with you now on owning your own currency, especially in such an economic climate.You do make the case that because we can print bonds/cash then there is no reason why we should default on our deficit. Although it’s nice to be cosy I never do get any satisfaction that our neighbours and large parts of the wider world aren’t in such a position.

    I don’t see any problem in having a 50/50 split on public and private sector employment and I’m pretty convinced there are some things over and above education and health that can be publicly owned.

    Although I’ll never compete with your maths and knowledge@Peter, I wonder how much earnings have been held back in relation to GDP growth over the last 60 years? maybe the figure I gave isn’t that far away from where wages should have been?

    P.S. @Peter, thank you for your reply and all in all I’m becoming a fan!!!!!!

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