Hand wringing: An excessive expression of distress: handwringing by some experts over the state of the economy.

Dictionary.com

There is a lot of hand wringing about the trade deficit. We are shipping people slips of paper and they are shipping us cool stuff to use. Sounds like a decent trade to me.

But even if we are worried that the celebration will end some day, here are some good reasons not to worry about the flip side of the trade deficit, the capital surplus.

We have an economy in the United States that is well capitalized. We also attract skilled workers from around the world. One estimate of world capital concludes that the human capital stock exceeds the physical capital stock.

If you take the 60% more that college educated people earn at midlife and multiply it by the number of college educated people, the 40 million college educated people in the United States are worth $1T a year to the US economy. They would cost us a lot more if we could not import them from overseas because they very much increase the returns from other assets in our economy. They are so cheap to rent because they are so common.

This puts the value of the college education portion of the human capital stock at about $20T or about twice annual GDP. This fraction of GDP is similar to the number another researcher gets for the total human capital stock in Chile.

Of the 160 million people 25 and over, about 25% have a college education up from 5% in the mid 1950s. If we continue at that 0.4% increase per year, that gives us an extra $300B/year in extra human capital stock.

If you look at another component of capital, the housing stock, there are about 72,000,000 homes in the US worth an average of $290,000 including the land or another $20T in capital stock. That average price appears to be growing at about $8,000/quarter or about $2T/year. That is just the single family housing stock, not commercial and industrial real estate, not multi-family, not equipment and not environment and infrastructure.

If you add all the human capital growth to the growth and appreciation of physical stock in the United States, you can quickly see that we can sell capital stock forever at a $666B/year rate and still continue to grow our capital stock by trillions per year. If we have $200 trillion in human and physical capital (using the envelope theorem to invert our domestic product by one over the interest rate) in the US almost all held by US citizens, selling 0.33% of it every year even as we grow it by many times more than that is no big whoop.

Whoop: Equal to the word ‘deal’. Usually used in a frustrated sort of manner, but trying to get across a point. Example: When her friend wouldn't try something new, she said, Come on, what's the big whoop, anyway?

Slangsite.com

Interesting...haven't thought of it that way before. Of course, I'm an engineer, not an economist.

While a well running economic system can be very productive, I think you overstate the amount of human capital (and real estate as well) in the US. Certainly, I don't buy that (IIRC) half a trillion USD annual capital outflows are healthy. Sure, we like what they are selling, but why are they buying our capital not our stuff?

Where is my math going wrong? Why do you care if foreigners buy houses built by American construction workers or stock in American factories instead of the factory goods?

David Brin's observations on the balance of trade issues:

Out of the world's six billion people, more than two billion have been lifted into some kind of middle class existence - with modest but clean homes, access to water, power, education and hope - as a direct or indirect result of Americans buying trillions of dollars worth of goods we never needed.

and this:

Let me reiterate this point. Far outweighing all "aid" the world ever saw, the greatest force for good in the world has consisted of Americans purchasing megatons of crap we never had to buy in the first place, under trade rules designed to favor those thousand of foreign factories.

Alas, we'll never get a scintilla of credit for this vast beneficence. Because it did not blossom out of motivations like guilt or generosity. To a large part, it flowed out of a childishly spendthrift love of shopping.

= = =

Megatons of crap we never needed in the first place? Indeed. :-)

Today there are whole cities in China that do nothing but make bras for western consumers. And Cambodia is about to launch a marketing campaign based on "We don't do sweatships here" to combat China's growing monopoly over textiles.

Karl,

Remember, its not like we're just taking half a trillion dollars, boxing it up, and shipping it to some black hole 'overseas'. We are exchanging that cash for a similar amount of goods. Don't think of it as a loss, but rather a conversion of one type of wealth into another. Consider, for example, the computer you're reading this on. Chances are that, even if assembled in the US, a large fraction of the parts were imported. However, even if we just imported finished computers, US companies use those computers to generate new wealth. I'm not terribly upset by the monetary value of a computer going overseas when a US company is using it to generate 10, 20, 50 or 100x that much wealth.

- Eric.