Class 24 - Trade Defecits are our Friends

Today we talked about what determines is jobs are shipped overseas. The answer is absolute and comparative advantage.

For example. If China produces at $2/unit and USA produces at $1.5/unit then USA has an absolute advantage. This shows wages/MPL (marginal produce of labor)-(how much stuff you get if you work another hour). But we need to find comparative advantage.

So does trade surpluses = jobs? Agriculture shows no. A trade deficit doesn't create or hurt jobs.

Trade deficit = amount export less than import

It doesn't hurt jobs because people pay for imports with exports. Specialization = wealth increase (use fewer resources). And with more money - people consume more and create more jobs. Employment increases on net.

We then discussed what the US Current Account Balance (what Americans sell compared to buy) and
the US Capital Account Balance (American assets - treasuries/bonds) were.