Thought for Day: Buy-Sell Balance, USA versus Netherlands

Friday, 20 February 2015, 9:39 am
Opinion: Keith Rankin

We hear quite a lot about work-life balance, but what about buy-sell balance? For the former balance we ask, do we live to work or work to live?

For the buy-sell balance the question is: Is our economic purpose to make money or is it to enjoy goods and services?

In my inbox I recently received the following: No Hugs Please, I'm Dutch (Linked In Pulse, 12 Feb); The Unbalanced Global Economy: American Shopper (Economist, 14 Feb).

In my Economic Principles class at Unitec, I have used the example of these two countries to illustrate the concept of living standards. The USA has had a higher GDP per person than the Netherlands, yet has had a lower GDP per hour of paid work than the Netherlands. This is therefore an example of The Netherlands actually having had higher living standards despite fewer goods and services (per person) produced. Indeed the Netherlands' data suggested a higher degree of work-life balance than did the American data.

Netherlands does not perform so well on the second balance. The article notes the Dutch reputation for being "stingy". The reputation is long-standing. Adam Smith in his 1776 classic Wealth of Nations is far from complementary towards the Dutch who he saw as the chief architects of the "mercantile system", which was all about government and big business getting together so that the country could make a lot of money by selling more to the rest of the world than it bought from the rest of the world. And we note that James Cook lost nearly half his crew (mainly due to malaria) in Batavia (now Jakarta) because of huge delays in getting the Endeavour repaired. The main reason for the delays was the exorbitant price charged by the Dutch authorities for the repairs, and the assurances required that payment would be made.

IMF current account statistics for the Netherlands, which go back to 1995, show that this country consistently runs huge balance of payments' surpluses, meaning that year after year the Dutch sell many more goods and services to other nations than they buy from other nations. They are major recipients of interest from the rest of the world; interest that they do not spend, because the Dutch are among the world's biggest savers.

The Economist article notes that not only is the United States now playing the offsetting role – of buying much of the surpluses of the Dutch and the Germans and the Chinese and others. It is the Americans' renewed willingness to incur the debt that is needed to buy the surplus output of, for example, the Dutch. Thus it is American consumers who are now stabilising the world economy, preventing a new financial crisis from taking hold. (In the first half of this decade, it was the developing economies – the likes of Brazil, Turkey, India and Africa – that were running the deficits necessary that allowed the Dutch to keep running surpluses.)

The world economy is stable in the long-run when all countries run balance of payments current account deficits some of the time. The USA runs more than its share of deficits; so certainly do New Zealand and Australia. So too do the developing countries outside of Asia. The single principal cause of the next global financial crisis will be the failure of countries like the Netherlands to take their turn at running current account deficits.

Back to my original question posed. Statistics and cultural reputation suggest that the Netherlands does not have buy-sell balance. They are major contributors to the "unbalanced global economy" noted by The Economist. The Dutch appear to see their economic purpose as making money rather than enjoying goods and services. On this count then the Americans are both more buy-sell balanced (their economic purpose is to enjoy goods and services) and more balancing (acting as 'consumers of last resort' in the global economy).

ENDS

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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