13. International aspect of profit achieving strategies

To sum up the strategies of countries trying to achieve profits with additional view of international impact we can divide them into:

Debtors – are pursuing quest for profit through growing state debt. The missing buying power is being supplemented through state transfers financed from profit and savings created during previous periods.  The debt is constantly growing until it reaches psychologically unacceptable levels where nobody is willing to finance it any more. The result is most likely reverting to inflation or default.

Money printers – this group of countries are just adding additional currency into circulation through central bank monetary easing and the result can be increasing number of zeros at the banknotes and their reprinting from time to time with some nulls crossed out. If the inflation is steady but under control, not reverting to hyperinflation, this system can continue with periodic reduction of zeroes at pay slips, price tags and banknotes forever.

Predators – is the last remaining option and is based at trying to achieve sales in external environment through trade surpluses. This strategy is most domestically acceptable as it is not creating debt or inflation but winning over your neighbors’ means that they are losing the very same amount as the country pursuing this strategy is gaining, therefore the term predators.  Such strategy is creating imbalances which will in time explode and is contributing to tensions between nations which will in time make this strategy unsustainable.

However laughable may be the high inflation in some countries and constant reprinting of currency with more or less zeroes on it, this strategy is long term sustainable, without afflicting other countries. The inflation is domestic matter, it is not hindering the development of its neighbors. The mutual trade can continue at levels desired by all participants, with no pressures to gain permanent advantage.

The same applies to debt driven growth. As long as the debt is financed from internal sources, however high and criticized by debt hawks, it is also neutral to other countries and their development. If internal players are willing to continue walking that path, they can do that forever. If they fail in their resolve and bust follows, it is again only that country problem.

Predatory strategy is however a different story. Its success is irrevocably bound with suffering of somebody else. It cannot be used by everybody as from the principle of it not everyone can have trade surpluses. Somebody have to be the loser. Therefore, it is not advisable to follow this route as it is leading only to ever increasing conflicts and imbalances built as result of this strategy will have to be reconciled someday eventually. So I am seeing pursuing this strategy as an immature performance, one that cannot be given as an example. Nations managing their economy in this way are less developed in moral aspect of their thinking and they will still just have to learn how to live within their own territory in peace, without economically abusing their neighbors. So succeeding in this way is not a measure of success, it is more of a failure to find a fully functional economic model, one that does not need such crutches.  The imbalances won´t last forever and then they will be forced to rethink their ways once again. The reconciliation can be (and history teaches us) grossly painful.

Was Hitler´s quest for Lebensraum truly motivated by acquiring land per se?
Or was it an inevitable consequence of need of new markets, as demand in homeland was not sufficient to meet supply because of category of profit, as my theory says?  Sometimes the true origin of dissatisfaction and need is not recognized by nations, they see only its surface manifestations as lack of goods, money, soil, resources and their leaders transform it into wrong aggressive policy.
The ordinary people agree with it as they feel in their sub consciousness that something is wrong, they are missing something and our primitive nature is never short of aggressive conduct.

However, what is was/is wrong is our own financial system, which is creating these feelings of deficiency and such stimulating need for action, often at the expense of our neighbors.

The example of pointless globalization and creation of oversized trade areas would be proposed USA – EU trade union. What could be the point of it? How could somebody benefit from it?

 You are American. You wake up in the morning and are going to clean your teeth.
Are you going to use American toothpaste or some EU made brand?

If you use American blend, you are giving the sales and consequently jobs to American workers. The EU companies will have nothing from the trade union as they will not realize any sales.
Do you choose EU brand? In that case your money will go to EU and their companies will record sales and job creation will be there. American companies will have to reduce the headcount and will achieve lower profits and so pay lower taxes. Consequently there will be less money for USA teachers, policemen…

Whatever your preferences, one thing you are not going to do for sure:  you are not going to wash your teeth twice, first with USA toothpaste and then second time with European one, just to prove that trade union is actually bringing benefits to all parties.

The same applies to cars, household items, financial services and so on. Fact that there will be twice the supply does not mean that your demand, based on your individual buying power will double as well. It won´t. If some say that by economies of scale there will be price reduction and customer will benefit from that they are somehow mistaken. That would apply only if companies fully passed the increased productivity to their customers but if they were thinking along these lines, they could have done that even without new trade union. The economies of scale were already there, the unrealized sales were the reason why there was the need for increased market. But with passing the productivity onto the customer the companies are not realizing any new profits, that is why they didn´t lower the prices at present size of market. And what would be the purpose of doing that? By losing profits at the size of passed productivity they would gain nothing.

 So efforts to gain new markets either through new trade unions or other measures are always only aimed at gaining the upper hand against the trade partner. That is the only way how companies can gain bigger profits. The buying power stays the same, so the consumer has to decide who will win and who will lose. It is never the both parties, as this is the true zero sum game.

The possible outcomes from international trade (based on look from country trying to gain new markets) can be identified in following chart:

The generally positively perceived outcome of increasing trade zones is based on myths of mutual benefits. In fact, any benefits are only short time. Long-term outcome is no additional profits at aggregate level and deficits and unemployment at one party or there are no profit benefits at all. Economies of scale are working only at a country level, with cross border trade their impact is negated by unemployment and trade imbalances.