2026-04-25 19:19:22
The trade accounts are among the most pernicious statistics ever collected. It’s long been remarked, for example, that merely by calling something a “deficit” it seems bad even though a current account deficit is matched by a financial account surplus. Put that issue aside, however, because the real problems are much deeper. The international accounts make it appear that individuals, in their ordinary buying and selling, bind us all in a collective endeavor. The accounts take millions of voluntary, mutually beneficial transactions between individuals and firms and repackage them as a relationship between nations—as if “America” were buying from “China”. Many, many experts get this wrong—not just non-economists who are misled by terms like “deficits.”
Don Boudreaux at Cafe Hayek gives a truly excellent example in replying to a reader who asks:
The USA ran trade deficits for 50 years. Those were offset by foreigners’ investments in the USA. Foreigners expect returns on these investments. Doesn’t it mean Americans eventually have to pay those returns to foreigners?
Don’s answer:
No.
The only Americans who are obliged to pay anything to foreigners are Americans who borrowed money from foreigners. (This number includes U.S. citizens-taxpayers whose government borrowed money from foreigners.) But no such obligation exists for other investments that foreigners made in the U.S. – those other investments being equity investments in the U.S. (for example, foreigners buying a restaurant in Houston), purchases of real estate in the U.S., and holding U.S. dollars.
If, for example, the foreign-owned restaurant in Houston goes bankrupt, the loss is fully borne by its foreign owners; no American is obliged to pay anything on that account to foreigners.Of course, foreigners do expect positive returns on all of their U.S. investments, regardless of form. But with the exception of Americans’ repayment of principal and interest on funds that they borrowed from foreigners, no returns that foreigners earn on their investments in America are paid by Americans. If the foreign-owned restaurant in Houston is profitable, those profits are newly created wealth – wealth that’s created by that restaurant’s foreign owners.
In the international commercial accounts, when the restaurant’s foreign owners realize returns on their restaurant – say, by being paid dividends drawn on that restaurant’s profits – it appears that Americans are paying foreigners. This appearance comes from the fact that dollars flow from the U.S. to abroad, and so are recorded as payments from America to a foreign country or countries. But this appearance is misleading. America, as such, doesn’t pay those returns to the restaurant’s foreign owners. Nor do any flesh-and-blood Americans pay those returns. Those returns, again, are new wealth created by the restaurant’s foreign owners; economically, those returns are paid to the restaurant’s foreign owners by the restaurant’s foreign owners.
But the international commercial accounts mask this economic reality. What appears in the commercial accounts as payments by America to foreign countries are no such thing. This accounting mistakes geography for economic reality. Untold confusion is unleashed by supposing that, just because these dollar-denominated returns are created in the U.S. and then sent abroad to foreigners, these dollar-denominated returns are necessarily paid by Americans to foreigners.
As Don says, the trade accounts commit a kind of category error: they categorize geographic location, a where, and treat it as a who, as if “nations” traded. But nations don’t trade, people trade. This confusion wouldn’t matter too much if the statistics stayed in the back pages of government reports. But they don’t. They land on the front page, they shape policy, and they frame negotiations. When a president claims that “we lost $500 billion” to “crazy trade” with China, he is reading the international accounts as a story about nations in competition. The accounting creates the narrative. the narrative creates the policy. Bad accounting leads to bad policy. We would, in fact, all be better off if the trade accounts simply disappeared.
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2026-04-25 15:31:04
…Double-entry book-keeping – John and I believe, with some evidence, that he may well have been the person to bring double-entry book-keeping to the UK from the Low Countries. In turn an Italian invention of the 13th century…
Business exchanges rather than markets – Gresham certainly brought the idea of an exchange or bourse from Antwerp (in turn from Ghent) to England. It really was a radical idea. No phone directory, no advertising, no internet – we used to block of Cornhill with chains so merchants could meet at regular times in the mud and rain to establish ventures, principally voyages, and fund them. The Exchange became more and more populated as the Low Countries fought with Spain. People don’t bring money to a war zone (or a cybersecurity hazard). Thus, it was the vessel into which poured the extensive wealth of the Low Countries and turned London from an outback sheep town of 30,000 at the beginning of the 1500’s to a city of over 200,000 by 1600. Markets for cattle, sheep, produce, chickens, all existed – but a market for intangible things?
1st English Shopping Mall? – Gresham also brought the idea of a shopping mall to England. We have many examples of similar complexes and galleria from ancient times, but not in England. At the time it was the upper floor of his Exchange. The concept of shops not adhering to a physical locality – Bread Street, Milk Street, Boot street, etc. – was more radical than it sounds to modern ears. Amusing then to have England referred to in later centuries as “a nation of shop keepers”.
From Michael Mainelli, here is my original post on Gresham.
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2026-04-25 12:54:38
Around Hormuz, however, the Portuguese always had to be on guard. Many naturally protected sandy coves (khors in Arabic) practically invited “pirates.” The Nakhilu, or Banu Hula, were Sunni arabic speakers on the Gulf coast of Persia whose descendants still inhabit the Gulf coast of Iran. For decades they set up upocket ports in the many hidden bandars and byways of the mountainous shore and created an underground economy that rivaled Hormuz’s. These “pirates” were a major drain on Portuguese revenue, regularly attacking ships that paid the feed for the cartaz, and docked at Hormuz.
That is from Allen James Fromherz, The Center of the World: A Global History of the Persian Gulf from the Stone Age to the Present. From this same book I learned that Milton refers to the Straits in Paradise Lost, but under the name of Ormus:
High on a Throne of Royal State, which far
Outshone the wealth of Ormus and of Ind[ia],
Or where the gorgeous East with richest hand
Showrs on her Kings barbaric pearl and gold,
Satan exalted sat, by merit rais’d
To that bad eminence
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2026-04-25 03:31:53
Relatively flat US output growth versus rising numbers of US researchers is often interpreted as evidence that ideas are getting harder to find. We build a new 45-year panel tracking the universe of US firms’ patenting to investigate the micro underpinnings of this claim, separately examining the relationships between research inputs and ideas (patents) versus ideas and growth. We find that average patents per R&D input are increasing, the elasticity of patents to R&D inputs is flat or rising, and there is no systematic evidence of a secular decline in patenting after controlling for research inputs. We then document a positive, significant, and fairly steady relationship between firms’ growth in ideas (patents) and labor productivity. Average firm growth after controlling for idea growth, however, declines. Together, these results suggest that innovative efforts play a key role in sustaining growth that has not diminished over the last four decades.
Here is the paper by Teresa C. Fort, Nathan Goldschlag, Jack Liang, Peter K. Schott, and Nikolas Zolas.
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2026-04-25 00:17:29
1. Luis Garicano on the task is not the job. And jobs and the Jevons paradox.
2. The lived experience of aphantasia.
3. Shruti on delimitation in India.
5. Leibniz on symbolic computation, from the unpublished papers.
6. A History of Christian Political Economy, by Ballor and Matson.
7. Michael Tilson Thomas, RIP (NYT).
The post Friday assorted links appeared first on Marginal REVOLUTION.
2026-04-24 16:52:17
An FT poll of 4,000 workers in the US and UK shows adoption is heavily skewed towards the best-paid workers: more than 60 per cent use AI daily, compared with just 16 per cent of the lower earners.
Link here. Note also that the youngest workers are not those who use AI the most, rather it is workers in their 30s. Men in the workplace are using AI more than women are. A very good piece by Madhumita Murgia and John Burn-Murdoch.
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