In this system with money as an agent of economic activity, there is a capacity for wealth to accumulate. On the micro-economic scale, if a person is able to spend less than they earn, they will accumulate wealth. On the macro-economic scale, if a country imports less than it exports, it similarly accumulates wealth.
This simple principle is argued in many talk shows, with the result that most people believe the trade deficit should be reduced, although the possibility of protectionism, which many believe will result in retaliatory policies by competing nations is often offered as a counter-argument.
I tried to break down the general economic picture by looking at which parts of the economy relied on others to see if there was an intuitive or counter-intuitive nature to this problem. In looking at a sector, I used simple relationships of exchange. i.e. in food production, agricultural goods are sent to a facility; the facility owns or rents the land and building it houses its processing and storage; energy and labor are put into the processing of the raw goods; and some level of machinery processes, packages, or moves the raw goods along the line, resulting in a final food product ready for consumption by end consumers.
Breaking this down, inputs are:
Agricultural raw materials
Transportation
Energy
Labor
Real Estate
Machinery
and the output is Food sent to the consumer.
Accounting would necessitate that the cost of the food sent out is greater than the cost of the combined inputs. Competition limits the excess of this balance, resulting that the money spent on food is distributed to other parts of the economy, namely Agriculture, Transportation, Energy, Labor, Real Estate, and Machinery. What excess is left pays dividends to the owners, who accumulate that wealth.
Cascading through the economy through finance, health care, pharmacuticals, leisure, consumer goods, etc. some patterns arise.
The first pattern is that Labor, Travel, Real Estate, and Energy are required for nearly every part of the economy to function. These are what I would call a nation's ultimate source of wealth. This emphasizes the requirement for policies supporting proper training and health of the labor force, investment in transportation and energy infrastructure, secured sustainable energy sources, and a limiting cap for a country determined by the usable land available.
A second note is that in some areas payments do not directly pay for the services that are supplied. For example, in public education, workers pay taxes to the government, and the government pays the costs of education, which is supplied to the existing and next generation of workers.
The other large pattern, however, is that there are a few sectors which are ultimate suppliers of goods and services. Manufacturing of machinery, mining natural resources, and financing development are the three areas that have no costs other than the four primary national sources of wealth.
These collection points of wealth point to two other policy requirements.
First, within a country, the owners of these areas must not be allowed to exploit the rest of the economic workforce, or the country will face mass poverty, civil unrest, and unrepresentative influence of the owning class. Minimum wages for workers and regulation of these sectors are required for this balance to be met. The inclination of every individual is to work in their best interest, which, in the case of the owners of these sectors is not the better interest of the country as a whole; therefore these sectors will not self-regulate.
Second, with regard to foreign policy, these sectors must not be allowed to move disproportionately overseas, or wealth (and influence) will leave the country weak and unable to sustain itself from outside threat - military, economic, or otherwise. Fair competition will result in certain industries and specialties locating in one area over another. Geologic locations of natural resources will determine the flow of that portion of economic activity. However, if multiple mechanized industries move overseas, it must be due to lower costs in either Labor, Energy, Transportation, or Real Estate Costs, or more than one of these. Energy and Real Estate costs should be relatively self-regulating, and transportation costs should favor local production over foreign. Labor costs are most likely to affect trade imbalances. In this case, tariffs should be used to equalize the competitive situation, balanced with measured controls on the domestic minimum wage. Alternatively, currency manipulation by foreign powers will result in a trade imbalance not tied to any obvious natural cause. In this case, tariffs should be used without question as a protectionary measure. Long term, negotiation may bring down aggressive economic policies of other countries, but capital, once spent, takes a long time to change - manufacturing policy must have a long-view.
