The Exchanges

Q I have a question here. Some countries have a trade surplus. Some have a deficit. Fewer have a surplus, more have a deficit. What happens if this continues 10 years, 20 years down the line?

A Well, one answer potentially is nothing. You know, it depends. There's nothing inherently sustainable or unsustainable about deficits and surpluses. There are reasons why certain places might want to be spending more than they are producing. The canonical example you'd have is a society where you say you have a lot of younger people, it's relatively under-invested infrastructure, a lot of growth potential, maybe it's poor or less technologically developed. That's a kind of place where you would expect that the needs of the people to invest and grow rapidly And their future productive potential are such that it makes sense for people in the rest of the world to invest there, uh, you know, lend them money, export, you know, advanced machinery, things like that, and they could have persistent trade deficits for a while and grow rapidly, and that'd be beneficial for everyone. Um, the flip side is you can imagine a society sort of in the opposite situation, maybe it's older, uh, already at the technological frontier, there's less growth potential, they have already advanced goods, and maybe they would be exporting.

AI assessment note: “Well, one answer potentially is nothing. You know, it depends.”

Q Are tariffs an answer? I've never heard economists say so, but maybe you're the rare exception.

A I'm not convinced they would. I mean, look, strictly speaking, the currency is the thing that you'd expect to move. And what's striking, I mean, Ning has said that China's currency has moved more relative to how it used to do, but it's also striking that the current, the exchange rate now, the sort of trade weighted basis, especially if you account for the fact that China's had a lot less inflation than the rest of the world, um, is actually much lower now than it was, say, five, six years ago. Which is striking because that is the time period when Chinese goods became much more competitive on world markets. And so normally one might think if we sort of have a sort of standard model, that's when your currency would appreciate that if you're making, if, if, if you and your, if your company, your country's workers are making things that are better and more valuable for the world, one way they are rewarded for this is that their purchasing power, purchasing power goes further internationally and basically their wages are worth more internationally in the current, but because the currency goes up and they can import more. And the fact is that it's actually been reverse in the past six years. And obviously a lot of moving parts here in terms of China's not a fully open capital account, what's going on with the invention and all that, but it is striking that that is so sort of resumi…

AI assessment note: “I'm not convinced they would. I mean, look, strictly speaking, the currency”

Q I'm asking you all the questions that I don't have answers to. And I wish I knew. Why is American debt or American treasury, say T-bills, twenty-year long-term debt, why is it still being bought at four percent? With the amount of debt that America is sitting on, I don't get why the world is buying this debt at four percent.

A So mostly it's not the world. Some of it's actually, it's Americans. So I guess that's one point. And in general, and I'm sure Ning has a lot of thoughts on this as well, but I mean, in general, bond yields for countries that have their own currencies, like the US, like China, like the UK, um, the interest rates mostly are a reflection of what people think inflation and growth are going to be in the future. And it's, Essentially a question of, this is, you know, if I have a choice between buying this thing that's going to pay a fixed amount over time versus, you know, stocks are going to go up a lot more. You know, that's essentially what sets the interest rate. And people, they can borrow money if they want to buy it, if they think it's too, the yields are too high, or, you know, things like that. And that's mostly what's driving it. And that the, the amount of debt outstanding is more of an issue insofar as you think it's going to affect inflation in the future. Um, But even then, it still gets back to sort of what you think inflation's going to be.

AI assessment note: “the interest rates mostly are a reflection of what people think inflation and growth are”

Q Are there any direct correlations between demographics and economics? Like, the world is aging. India, which was a very young country, is aging too. What changes from an economic policy thinking, in a way, when the world is older?

A So, in theory, what people would say is that you have less need for investment because you're not having the extra growth of more people. Well, older, I guess, a couple things. There's a population growth rate, then there's like the age composition. Those, those things tend to be really, but not quite the same. So if the growth rate of the population is slowing, you should expect to have less investment. That should push down interest rates. Um, All those, you know, not changing. There had been research about saying that aging populations should actually lead to higher interest rates, but if you look at what the samples were, they were all based not on the actual age structure, but the dependency ratio. And the dependency ratio of the societies we're looking at were all ones with lots of kids, which means they were actually growing rapidly. So it's a very different dynamic than having a lot of old people. So even if it's the workers to non-workers ratio looks the same, they're going to have a very different kind of perspective there. I mean, the only real example we have of a country that's sort of done this is Japan. Although, interestingly, Japan now, you've seen interest rates go up a bunch recently, so, you know, who knows? There are a lot of moving parts. Demographics are clearly important, um, but how they translate everything else, I mean, I'd love to know what, you know…

AI assessment note: “So if the growth rate of the population is slowing, you should expect to have less investment.”