I read an article in the Financial Times earlier this week (September 23, 2023) -…
It is Wednesday and so a shorter blog post today while I spend more time writing other things. But there was one issue that was raised in the comments in the last week following my blog post – Build it in Britain is just sensible logic (July 26, 2018) – that I thought warranted attention. The government is not a household is a core Modern Monetary Theory (MMT) proposition because it separates the currency issuer from the currency user and allows us to appreciate the constraints that each has on its spending capacities. In the case of a household, there are both real and financial resource constraints which limit its spending and necessitate strategies being put in place to facilitate that spending (getting income, running down savings, borrowing, selling assets). In the case of a currency-issuing government the only constraints beyond the political are the available real resource that are for sale in that currency. Beyond that, the government sector thus assumes broad responsibilities as the currency issuer, which are not necessarily borne by individual consumers. Its objectives are different. Which brings trade into the picture. Another core MMT proposition is that imports are a benefit and exports are a cost. So why would I support Jeremy Corbyn’s Build it in Britain policy, which is really an import competing strategy? Simple, the government is not a household.
The trilogy of blog posts is my most recent discussion of issues relating to trade:
1. Trade and finance mysteries – Part 1 (May 8, 2018).
2. Trade and finance mysteries – Part 2 (May 9, 2018).
3. A surplus of trade discussions (May 23, 2018).
Household consumers are users of the currency and aim to use their disposable incomes to create well-being, primarily for themselves and their families.
We exhibit generosity by extending our spending capacities to others when we give gifts.
But our aims are to get the best deal we can in our transactions. That means we like goods and services that satisfy our quality standards at the best price possible.
Which means that we will be somewhat indifferent to geography. If local suppliers are expensive and imported goods and services are cheaper, then as long as quality considerations are broadly met, we will purchase the imported commodity and be better off in a material sense.
If other nations are willing to send more goods and services to us than they get back in return then the real terms of trade are in our favour.
Exports require we give up our use of those real resources while imports mean we deprive other nations of the use of their resources.
There are nuances obviously.
A nation with lots of minerals (Australia) may not feel it is too much of a ‘cost’ to send boatloads of primary commodities to Japan or China.
We also individually might ascribe to broader goals in our purchasing decisions, although the evidence for this is weak.
For example, some of us believe that imports are only a benefit if they come from nations that treat their workers reasonably (no sweat shops, killing trade unionists etc) and do not ravage the natural environment in the process of producing the goods.
I would guess those concerns do not dominate our decision making generally because if they did China would not have huge export surpluses.
But there are nuances.
However, a government is not a household. It has a wider remit (objectives) than a household and must consider a broad range of concerns when it uses its currency-issuing capacity to shift real resources (as goods and services) from the non-government sector to the government sector to fulfill its elected mandate.
In that sense, imports remain a benefit but the broader concerns make the net decision more complex than it is for the non-government sector.
The government must consider regional disparities. When a household is making a decision to purchase a good or service, what is happening elsewhere in the nation might not rank very high in the decision.
The government must consider how best to maintain full employment. A household is really only concerned with their own employment although that doesn’t preclude us being generally concerned with high unemployment rates.
But ‘buy local’ campaigns typically do not work when they try to steer household consumption expenditure.
The government can always maintain full employment through its fiscal spending decisions. We know that because it can always purchase the services of all idle labour that wants to work and receive payment in the currency of issue.
So from that starting point, there is no question that mass unemployment is a policy choice not some uncontrollable outcome of a ‘market’.
In that context, the challenge for government is to work out how to frame the spending capacity to get the best employment outcomes.
* Direct public employment – that is, obvious.
* Subsidy of local non-government firms – that is, operate by lowering the unit costs for firms to render them profitable when they otherwise would not be.
* ‘Build it in Britain’ – that is, use procurement policies to sustain sales for local firms rather than subsidise their costs.
None of these full employment strategies negate the insight that imports are a benefit to a nation.
But the government has to consider broader concerns than just getting a good or service at the cheapest ‘market’ price.
There are more considerations but that is how we can understand this issue.
What I was listening to today
More on the John Mayall theme, although in this case, Mayall had little to do with the genius of this track.
I have listed this track before but it is on my frequent play list and never stops amazing me.
It is from one of my favourite guitar players – Peter Green – who recorded this after replacing Eric Clapton as the guitar player in John Mayall’s Bluesbreakers.
The whole album from John Mayall’s Bluesbreakers – A Hard Road – which was recorded in 1966 is exceptional, but this track – The Supernatural – is one of the best guitar tracks of all time.
The control he gets on his reverb and sustain is something else.
2:57 minutes of pure tone!
Event – Launch of Anti-Privatisation Book – Sold Off Sold Out, Sydney, August 2
I will be speaking in Sydney tomorrow night (August 2, 2018) to launch the new edition of Sold Off Sold Out – which exposes the costs of privatisation in Australia.
The event will run from 18:30 to 20:00 and will be held at the Information and Cultural Exchange (ICE) centre located at 8 Victoria Road, Parramatta, NSW 2150.
The promotion page says:
Over the past 30 years, there has been a massive sell-off of public assets to private corporations right across Australia. For the public there is no upside. We have been robbed in multiple ways by privatisations.
You can find details – HERE.
I look forward to seeing Sydney readers at the event.
Event – The second international MMT Conference in New York – September 28-30, 2018
The second international MMT Conference will be held in New York between September 28-30, 2018.
I will be speaking and most (if not all) the founding MMT group will be in attendance, contributing in one way or another.
The Conference Home Page has been launched and you can register for the conference through that page.
It will be great to see as many of you as possible at that event.
In the two weeks following, I will be giving talks in:
1. Galway – Wednesday, October 3, 2018.
2. Dublin – Thursday, October 4, 2018.
3. London – Friday, October 5, 2018 – Launch of the new Gower Initiative for Monetary Studies.
4. Lisbon – Sunday, October 7, 2018.
5. Glasgow – Wednesday, October 10, 2018.
6. Wurzburg – Saturday, October 13, 2018.
I will have more details of that lecture tour in due course. More dates might be added once confirmations are made.
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.