Unfortunately, the so-called progressive UK Guardian has an Australian economics editor who is anything but…
Recent podcast and some thoughts on trade
I don’t have much time today as I am travelling a lot in the next few days for various work commitments. But recently I did a podcast for Real Progressives in the US about trade and the external economy. I started the discussion with an interesting quote that I will reproduce here. Regular readers will know that there are several so-called progressive critics of Modern Monetary Theory (MMT) who focus on the way we construct the external economy. They claim it is ridiculous to think of exports as a cost and imports as a benefit and extend that argument to narratives about the advantages of maintaining a strong export-oriented manufacturing sector. Whether we want a strong manufacturing sector is a quite separate discussion from the trade issue. That is what the podcast was about.
Here is the Macro’n’Cheese podcast, which was released by Real Progressives on August 30, 2025.
Thanks to Steve and Vicki and the rest of the team there for their on-going work to promote an alternative way of thinking about economic issues.
Here is the quote I mentioned. It is from the Landon Lecture series and was recorded on April 27, 1978 at the Kansas State University.
The title of the lecture was – Free Trade: Producer Versus Consumer.
I also don’t want readers to think I am promoting all the ideas that were aired in this lecture.
Some of the material also bears on the current debate about tariffs, which is worth considering.
The speaker focuses, in part, on the contradictions we elicit when considering government policy relating to tariffs.
We are led to consider the protection of the jobs of a few (say a steelworker) as being more important than the impact of that protection on the prospects of the many consumers.
The speaker says that while some people “live to work” the vast majority of us “work to live” and that:
We want jobs which will enable us to produce the goods and services we consume at a minimum expenditure of effort. In a way, the appropriate national objective is to have the fewest possible jobs, that is to say, the least amount of work for the greatest amount of product.
We would qualify that statement with ‘as long as the appropriate distributional outcomes are facilitated’.
But this bias in our thinking about why we should protect the few at the expense of the many also translates into the way we think about international trade.
Here the speaker said:
In the international trade area, the language is almost always about how we must export and what’s really good is an industry that produces exports. If we buy from abroad and import, that’s bad. But surely that’s just upside down as well. What we send abroad we can’t eat, we can’t wear, we can’t use for our houses. The goods and services we send abroad are goods and services not available to us. On the other hand, the goods and services we import provide us with TV sets we can watch, with automobiles we can drive, with all sorts of nice things for us to use. The gain from foreign trade is what we import. What we export is the cost of getting those imports. The proper objective for a nation, as Adam Smith put it, is to arrange things so we get as large a volume of imports as possible for as small a volume of exports as possible.
This carries over to the terminology we use. I have already referred to the misleading terminology of protection. But when people talk about a favorable balance of trade, what is that term taken to mean? It’s taken to mean that we export more than we import. But from the point of view of our well-being that’s an unfavorable balance. That means we are sending out more goods and getting fewer in. Each of you in your private household would know better than that. You don’t regard it as a favorable balance when you have to send out more goods to get less coming in. It’s favorable when you can get more by sending out less.
The point the speaker was making is that there is a “tendency to concentrate on the productive side of our lives and to neglect the side of consumption”.
MMT considers the purpose of production is to facilitate consumption.
And the basic starting point is well summarised by that extended quotation.
The real terms of trade (what actual imports we can get for sacrificing our resources in the form of exports) is to our advantage when we can “get more by sending out less”.
Which then brings into question the purpose of exports.
We would only want to promote exports as an investment of our productive resources in broadening the consumption possibilities via imports.
Otherwise it doesn’t add up.
Countries that pursue the IMF-mania of export-led growth – like Germany – and trying to tell the world that their trade surpluses are a sign of a well-managed economy are just depriving their own citizens of the benefits of utilising domestic resources for domestic ends.
There are many nuances to this argument but the foundational idea that at the most elemental level, exports are a cost to a nation and imports a benefit cannot be denied.
One nuance, for example, is in the case of a primary commodity exporter such as Australia.
Australia ships massive amounts of its minerals abroad on a daily basis..
What alternative use or opportunity cost is there for Australian consumers in shipping iron ore to Japan?
In other words, some resources are obviously more useful in a variety of ways than others.
There are three types of constraints that impact on decision making in an economic setting: (a) financial; (b) real resource; and (c) political.
These constraints can work independently or together to alter the feasible decision-making environment.
The problem is that many economists conflate these constraints and produce erroneous analyses as a result.
This is particularly the case when it comes to analysing the capacities and opportunities of currency-issuing governments and contextualising this analysis within an open economy setting with trade and capital flows.
MMT provides a clear framework for distinguishing between these types of constraints because it accurately constructs the way governments spend and successfully disentangles these constraints in an analytical way in an open economy setting.
MMT shifts our focus away from financial constraints towards real resource constraints.
In that regard, the external economy also requires careful analysis because of the role it plays in the availability of real resources both directly through trade but also through financial impacts on the value of the currency.
The interaction between nations is driven, in part, by a desire to expand their respective consumption possibilities.
Nations produce to consume.
From a material or real resource perspective, a particular nation benefits from receiving goods and services rather than sending them elsewhere.
Exporting goods and services incurs an opportunity cost in the form of real resources that could be used locally being made available to other nations (as raw materials or final products).
Imports occur when other nations transfer their real resources to the importing nation, depriving their own citizens of their use.
MMT thus starts with the observation that exports represent a cost and imports a benefit.
In this vein, trade deficits allow a nation to enjoy a higher material living standard.
Trade surpluses are achieved by depriving local citizens of a higher material standard of living – in the sense that they are being underpaid, under consuming, and/or working too hard.
Nations thus incur the export ‘cost’ to generate benefits that are otherwise unattainable, given their domestic resource base, to enhance the material prosperity of the nation.
MMT considers the export cost to be an investment in generating an increased capacity to import to expand consumption possibilities.
A trade deficit is a sign that the real terms of trade are working in favour of the deficit nation.
I find arguments that try to refute the above to be incomprehensible and plain wrong.
Conclusion
By the way, the presenter of that lecture in 1978 was Milton Friedman.
That is enough for today!
(c) Copyright 2025 William Mitchell. All Rights Reserved.
There’s also the small matter of identifying the exports, which isn’t quite as easy as it sounds.
It’s every easy to have exports that show up on the national accounts as GDP, but which have no material impact on the import benefits into the local currency area. That’s because the firm is just using local labour as a cheap resource and the actual export from the currency area is just the labour power, perhaps some land rent and a bit of power, not the output from the factory despite the fact that it gets folded into the GDP calculation via a statistical currency conversion.
Doubling the productivity of such a factory benefits the foreign currency area, not the local one.
All of which sheds new light on operations like the Argentinian Beef trade and foreign owned car factories.
Not only does an MMT view reveal anomalies like this, it allows us to work out which type of exports are best encouraged. Less tourism, which has a heavy local resource demand and more automated locally owned factories, which have a lighter local resource demand.
As Bill says the export of goods and services or real resources is a cost for the people of the exporting nation as the people of other nations get to use those real resources. OK I agree.
The sale of the goods and services produced by a business including to foreign customers (exports) provides income to that business which enables that business to employ people, to establish supply chains, earn a profit and pay dividends. So exports are benefit for the business that exports as the income from sales is clearly more desirable to the business than the handing over of ownership of those goods and services that were produced to the purchaser.
It appears to me that exports are a cost in terms of real resources but exports are a benefit in terms of money for the enterprise that exports. So in terms of the objectives of the business which is to earn money, exports are a benefit.
For a nation however with its own fiat currency the national government can attain full employment by increasing net spending. The economy is then running at its productive capacity so perhaps there is little to be gained from increasing exports?
A nation with a current account surplus will in general benefit from an appreciating currency which will make foreign goods and services cheaper for local consumers AND more exports enables more imports without altering the exchange rate.
So even nations that are optimally humming along, utilising the macroeconomic understandings of MMT and have full employment, benefit from exports through cheaper imports and an ability to import more for a given exchange rate.
The US dollar however maintains a high exchange rate even though the US has a consistent current account deficit due presumably to the steadily increasing savings of US dollar reserves and US Treasuries held by foreign nations. But I assume the US is unique in this regard?
So the US has the best of both worlds, the benefit of the net surplus of goods and services utilised by US consumers produced by foreigners, and a high exchange rate which makes foreign produced goods and services cheaper for US consumers.
But the US, the EU, Australia and Canada for example in comparison with China, are nations with rapidly declining manufacturing sectors, millions of unemployed manufacturing workers, a squandered technological advantage, increasingly feeble supply chains and extensive areas of urban decay.
Bill will no doubt say these unemployed manufacturing workers could have been more gainfully employed elsewhere if the national government fostered new industries like renewable energy or by providing services like aged care and environmental care.
However the issue of national defence and even minimal self sufficiency in the events of pandemics and other calamities, necessitates that sufficient manufacturing capacity be maintained in most advanced countries or collective regions like the EU, otherwise more powerful authoritarian and predatory states like China and also Russia may choose to add another nation to their sphere of influence, and another……
I conclude that moderate levels of trade protection for the manufacturing sector, subsidies and effective anti-dumping laws are therefore needed in most advanced countries so that the labour cost advantage of low labour cost and technologically capable nations like China and Thailand for example are factored out. Not to prevent all manufactured goods imports but to maintain a better balance and to sustain sufficient local production capacity and economic sophistication.
I do recall Warren Mosler wrote (paraphrased) that if a defence industry is your national objective then a knowledge of MMT can help government’s achieve this.
That’s enough whipping of this dead horse for the moment.
Andreas Bimba: You are blurring the distinction between the real economy and the monetary economy. In other words, you are blurring the distinction between the real stuff that is produced within the real economy – the stuff that ultimately matters (i.e., has use value) – and financial assets, which have nothing but exchange value (i.e., have no use value). Yes, a financial asset is a financial claim on real stuff for sale, but until it is spent on the real stuff that matters, it’s yielding no benefits whatsoever. A person who spends her entire life with a billion dollars in her bank account but never spends it, is, ceteris paribus, no better off than someone with zero dollars in his bank account.
Exports are a cost to a nation because what has been handed to foreigners is real stuff with use value. The income generated is not a benefit because it has no use value. Of course, when the income is spent, it is usually spent on something real with use value. But it is the latter, not the former, that is the benefit. It is because some of the goods subsequently purchased might be imported goods (i.e., goods handed over by foreigners), that imports are benefits.
You say: “The sale of the goods and services produced by a business including to foreign customers (exports) provides income to that business which enables that business to employ people, to establish supply chains, earn a profit and pay dividends. So exports are benefits …”. To demonstrate my point, what if the central government – a currency-issuer – pays everyone involved in the production of the exported goods the same monetary value as the foreign importer, but instructs the relevant business (outsourcing) to build a hospital instead of flashy goods for wealthy foreigners? The same number of people are employed (let’s assume), the incomes of everyone involved are the same, the profits are the same, as are the dividends paid out to shareholders. Indeed, the nation’s GDP is the same. In the GDP = C + I + G + X – M equation, X falls and G increases to compensate. Is not this country better off? Yes, because instead of useful stuff disappearing to the ROW, it is now remaining in the country yielding useful services. Meaning what? The exports that were once benefiting foreigners are now different goods benefiting people at home.
GDP counts what a nation produces, not what it consumes/uses. A country that net-exports is a country that incurs more export costs than import benefits. A country that net-imports is the opposite. For all Donald Trump raves on about China, what he doesn’t realise is that the USA has long benefited from the generosity of China. China hands over goods for Americans to enjoy because it likes to save in US dollar denominated financial assets, many of which are US Govt bonds that the US Fed Govt can repay with computer keystrokes (i.e., the USA gives up nothing real and useful). It also indicates that the Chinese central government doesn’t net-spend sufficiently to satisfy the net-savings desires of Chinese people. Hence, they are forced to net-export to meet their net-savings desires and incur a huge net-export cost for doing it.
Does this mean that a nation should not export stuff to the ROW? Of course not. But, if it is being sensible, it should only export stuff it already has too much of (and which it is likely to be able to produce in great abundance, perhaps because of favorable environmental conditions) and exchange it for (import) stuff it has difficulty producing in the quantities it desires. That’s the entire basis for trade. International trade has lost its way for many reasons, not the least because it is based around chrematistic principles – that is, “I’ll produce something at lowest possible cost, even if that means shifting my operations to exploit Third World labour and avoid stringent environmental regulations, and sell it to whoever in order to increase my financial claims on real, useful stuff produced by whoever. To hell with what it means for the people involved, my home country, foreign countries, and future generations.”
The Bretton Woods institutions were never perfect (the USA made sure of that), but the Bretton Woods System in its original form was premised on a nation being a community of like-minded people who could introduce laws at home to serve domestic social purposes, and the world as a federation of national communities tied together by international treaties to serve global goals. It was the sort of stuff that is needed to have a global economy operating on oikonomic principles. The BW institutions have morphed into organisations that are unrecognisable and completely at odds with their original charter.
Failing to understand that exports are costs and imports are benefits, and blurring the distinction between the real economy and the monetary economy, is consistent with chrematistic thinking, not oikonomic thinking.
Having followed both Bill’s and Steve Keen’s alternative position I am convinced that:-
Some exports/imports are beneficial and some exports/imports are harmful.
The global drug market might just satisfy all four options, depending on market segment and legality.
I see many complicating factors that confound a single theoretical conclusion, because neither argument fully includes the resource management factor (which includes energy inputs).
The fundamental underlying position has to be that :-
“Earth cannot meet additional demands on non-renewable natural resources (materials, energy), even should it be decided to finance the purchase of yet more goods. ……………
Overall, the issue today is not about whether we can finance new goods. The issue is that the Earth cannot provide more goods, whether we can finance them or not.”
Many resources are finite but economic theory persistently fails to distinguish between renewable and non renewable inputs.
Trade occurs across many sectors of the economy, but cannot necessarily be aggregated as either positive or negative without looking at individual trade categories.
Surely a resource analysis is needed to establish whether any particular trade segment is positive or negative and then, over what timescale ?
The primary question in terms of any physical export is whether it is renewable or not.
Should there be a reduction in the renewable resource capacity of the exporting country then it is permanently degrading its own environment, and hence there is a material loss.
Locally, we have one lorry a week that exports shellfish to Spain from Scotland.
If this lorry includes creel caught prawns, then, as this fishing method is sustainable, so is the export. However, if the lorry includes dredged scallops, then this fishing method is unsustainable, as it damages the marine environment, and so is the export.
The notion that Ukraine might retain its large surplus annual grain harvest for domestic consumption and not export it is questionable.
Surely it cannot be an advantage to either reduce production, or store grain indefinitely?
Very fertile Chernozem soils cover two thirds of Ukraine, providing a globally significant bread basket.
This sustainable grain export cannot be seen as a ‘real cost’.
However, that view has to be conditional on sustaining soil fertility, (a massive continuing issue in equivalent monocultures in North America), and using energy inputs which are ultimately not from fossil fuels.
The relative status of trading nations has always had a major impact on whether exports are a benefit or a liability. All importing/exporting nations are equal but some are more equal than others.
Adam Smith railed against “the tendency of the powerful to rig the economic and political systems against the rest of society.” just as the UK was vastly expanding its Empire.
Supply of renewable raw materials like cotton, sugar and tobacco from its empire colonies, notably using slave labour, had a huge positive impact on UK economic development.
UK industrial power was built on extracting physical resources from its colonies and then processing these in the UK.
That export trade did not necessarily facilitate comparable growth in the colony of origin, which had/has the status of a subservient client state.
The benefits were disproportionate with the nation where ‘added value” was created acquiring most advantage.
Gandhi certainly understood this concept in his orchestration of the cotton disputes that then ruined so many mill communities in Lancashire.
Bulk raw materials like ores are irreplaceable. Their export prevents future use by the supplying nation, and limits internal development in product processing, curtailing the generation of ‘added value’. Chile cannot secure its own non-ferrous metal industry prospects if it just exports the ores, nor will it ever be able to develop this industrial sector beyond primary refining. So much for comparative advantage.
Japan industrialised without having any cheap availability of local fossil fuels, hence requiring imports.
Whether the fossil fuel exporting countries of Australia and Indonesia have equivalently benefited is debateable.
We were taught this in A-level Geography 50 years ago.
Yet it is undeniable that Russia has currently benefited from its gas export markets in negating sanctions and financial restrictions, providing the potential for military expansion and pursuing the Ukraine war.
So, although it cannot be seen as a long term trading advantage, it is clearly expedient in providing an immediate trading surplus in many cases, in the current world order of short term energy empires.
Then we have to look at human inputs. Do those that are inputs into export trade in services then displace internal labour requirements within the national economy? That would definitely be harmful.
But there may be a definite benefit in exporting, if the labour inputs required cannot usefully be utilised in the domestic economy, or absorb spare labour capacity, lowering unemployment.
(However, this assumes that increased employment is more desirable than increased leisure).
All the usual discussions on surplus labour can be brought to bear, one way or another.
The opportunity cost / human capital arguments and labour theory of value are all applicable to considering service imports and exports at some level, but without necessarily providing a single clear cut answer.
The application of experiential labour, with its intellectual and creative elements, may well divert from internal priorities and be disadvantageous. Although Steve Keen’s argument that there is a definite stimulus to growth in export entrepreneurism may well counterbalance that to some degree, the international mobility of labour, technology and creativity tends to support multinational corporatist rather than national interests. It’s another double edged sword.
I’d prefer to see an analysis using the principles of sustainable resource stewardship as per Donella Meadows systems approach.
It seems to me that future iterations of MMT need to include sustainability criteria, just as MMT is predicated on the Keynesian principle of full employment as a central macroeconomic goal.
Thanks Phil that’s quite an answer, thanks for that. I had to do a search on chrematistic and oikonomic and it is interesting the ancient Greeks have covered so many aspects of human nature.
In accordance with the conventions of your profession I cannot disagree with your conclusions. My perspective is as a lay person and therefore I value both money and goods/services more or less equally even if there is a delay before a purchase or investment or some other use for that money is found.
Your point that an exporting business, or those productive resources of that business, should instead build a more beneficial local hospital than exported goods for the rest of the world and could achieve the same local benefits of the same number of people employed, the incomes of everyone involved are the same, the profits are the same, as are the dividends paid out to shareholders, is a good point except that building the hospital requires effective government action while exports could be achieved by a business operating independently which is easier to achieve when we are ruled by neoliberal governments.
Similarly I see the US coming out worse and worse off with free trade, and no I do not endorse Trump’s chaos and incompetence, with China over time if the US government fails to act to ensure full employment and fails to ensure that government services across the board are maintained at a reasonable level. Given the neoliberal governments the US has had for many decades and that full employment and adequate government services are clearly not a priority of the ruling circles in the US, I believe a more balanced level of trade would benefit the American people and would be more attainable politically.
Yes China is being paid with FED keystrokes for hundreds of billions of dollars worth of goods and services but look at the trajectory of each nation (ignoring the few bright spots such as the Chips Act, or some recent big investments in US manufacturing).
China has the productive industries, the well trained workers, the technological advancements, the high levels of productivity, the large and complex supply chains, the big R&D spending and innovations, the excellent infrastructure, the rapidly rising wages, the high economic growth rates, the much brighter future prospects and now even has a larger defence industry and the geopolitical power associated with that. Sweat shops will likely turn into good employers to retain workers and as they move up the complexity chain and as the Chinese government prioritises the welfare of workers as has usually happened elsewhere in the world.
Just looking at the manufacturing sector of the US economy; and I accept a portion of the decay is a result of harsh fiscal austerity, the destructive practices of Wall Street and unrestrained greed; excessively free trade with ultra competitive nations like Japan initially but later also South Korea, China and Thailand for example is I believe the primary reason the US manufacturing sector has more than halved as a percentage of GDP since 1980. Australia is much worse. Many US industries have largely disappeared, millions have become unemployed and have not been able to find work of similar quality or have remained unemployed, entire cities like Detroit have declined severely, infrastructure is crumbling and future prospects are poor. The US has maintained a substantial defence industry but even parts of that such as naval and military sealift ship building are now hugely outmatched by China.
You wrote ” the USA has long benefited from the generosity of China”. I disagree and take the view that China’s leadership has no generosity for any outsiders and is instead engaged in exploiting the wants of the US and other Western consumers to further China’s now predatory economic ambitions and geostrategic goals of first dominating near neighbours and then incorporating them into China’s sphere of influence through force, reincorporating Taiwan if necessary through war and first matching militarily the US and ultimately out matching the US and any Western allies so as to be the hegemon of East Asia and beyond. Yes this is political but it is the application of economics of various flavours that brought us here.
TiPi hopefully Phillip Lawn will see and respond to your comment as his speciality is environmental and ecological economics and you two should get along like a house on fire.
I agree that the world must be ecologically sustainable otherwise the consequences are catastrophic. I also believe we need to maximise the good things and discourage the bad things but I also believe human creativity and enterprise is a limitless resource and it is indeed possible to have economic growth and a diminishing environmental burden at the same time as long as we collectively manage society to bring about this outcome. I still hold out some but diminishing hope that competent and enlightened national, regional and local democratic governments remain the most viable way of achieving environmental sustainability and improved human welfare but current politics is not encouraging.
Andreas Bimba
Oh, I think Bill’s position on imports and exports really does describe most conventional and historic trade and only needs rephrasing in terms of sustainability criteria, and that his assessment and Steve Keen’s are based on different assumptions, hence their disagreement.
I see the MMT “exports are a cost, imports are a benefit” proposition as being quite close to a resource appraisal approach.
It assumes there is a material loss from exporting goods, and hence there is an unspecified future opportunity cost to the exporting nation.
Yet I think defining those circumstances where exports may be beneficial and/or imports damaging needs qualification.
Firstly, we have resources, products and services as different forms of imports/exports.
Secondly, each has different impacts on the national importing/exporting economy.
Thirdly, the nature of the resource, whether sustainable, renewable or finite, is crucial.
Fourthly, the structure and state of the labour market of the exporting country is relevant.
Fifth, the assumptions within the notion that more labour is by definition a good thing, ain’t necessarily so. Keynes and others did see leisure as replacing endless labour growth, but neoliberalism has put so many folks on the hamster wheel of the Puritan work ethic.
Conversely, the stated benefits of exporting are not always clear cut, and contain a number of assumptions. .
“Sales revenue from exports enables exporting companies to invest more than they could invest with domestic revenues alone. A country in which these firms dominate importing companies so that a trade surplus is generated is more likely to improve its productive capabilities and grow more rapidly than a country where the converse applies. The same stimulus to innovation is not likely to come from an equivalent government deficit.” Steve Keen
The underlying assumptions here are the belief that growth in production and productive capacity is automatically a benefit, and that carries a presupposition of future unconstrained growth. Clearly, that is not compatible with our current resource overshoot, or any notion of sustainability on a planet with finite resources. That ‘Club of Rome’ principle is what informs my own view that the upsides and downsides of trade have to be qualified.
It also requires that productive growth is the critical driver to management decision making in exporting enterprises, so we have an underlying foundation of rational expectations. I’ve always been more than suspicious of this. Does those expectaions really exist any more with the continuing process of financialisation and value extraction rather than production? Is homo economicus now a pure rentier?
Andreas Bimba and TiPi: The ‘exports are costs and imports are benefits’ is aside from the resource cost and other costs incurred to produce goods. The resource costs exist whether a good produced domestically is consumed domestically or exported to the ROW. If the goods are exported, that constitutes an additional cost.
The resource cost equals the opportunity cost of foregoing the production of other goods (i.e., if X, Y, and Z are produced then J, K, L, M, N. etc. are foregone) because resources can only be used once (a labour hour, a machine hour, and a saw log used to produce wooden product X cannot be used to produce wooden product Y). As I said in another post, if the resource is non-renewable (iron ore), there is an additional user cost because iron ore used today reduces the iron ore that can be used tomorrow. In the case of renewable resources, it is different. A saw log used today does not necessarily reduce the saw logs available for use tomorrow because trees regrow. However, there is a user cost associated with the use of saw logs that represents extraction beyond regenerative capacity because the extra (excessive) saw logs used today reduces the number of saw logs available tomorrow. The user cost only applies to those used beyond regrowth rates.
These costs apply for the production of any good. We supposedly incur these costs because there is a benefit to it. The benefit is the consumption/use of the finished good. All benefits come at a cost. Many costs come with a benefit, but not all. However, if some goods are exported, a nation does not enjoy the consumption benefits. Hence, the foregone benefits constitute an additional (export) cost.
I did not suggest that fancy goods should not be exported to enable a hospital to be produced and enjoyed at home. It could have been the other around. I could have said that when a domestically produced prefabricated hospital is exported, a nation foregoes fancy goods at home. What is produced and exported was not important in terms of my explanation. The fact is that when something real and useful is exported, the nation (people within it) does not get to enjoy it, but foreigners do. That represents a cost to the nation on top of the OC of the real resources that were used to produce the exported good (like the production of all goods).
Of course, it matters what we produce, export, and import. And it matters what the costs are. Ideally, the costs are minimised and the benefits are maximised. From an equity perspective, it also matters who gets to consume the goods. From a sustainability perspective, it matters if the rates at which we extract resources to produce goods and the wastes generated are within or beyond the ecosphere’s regenerative and waste assimilative capacities.
International trade is worthwhile if the import benefits are greater than the export costs. Because of the way the global economy is structured, I don’t believe this happens much of the time. The relatively free and easy movement of capital across international borders has allowed large corporations to relocate production activities to take advantage of underpaid labour and reduce environmental and social compliance costs (which occurs when environmental regulations and social/workplace standards are scant). You constantly here economists talking about ‘comparative advantage’, but many economists don’t realise that the CA case for trade rests on capital immobility. When capital is mobile, trade and the global location of production activities are governed by the principle of ‘absolute advantage’ (i.e., lowest absolute cost as opposed to lowest relative cost). It also rests on the assumption that trade is balanced (i.e., exports equal imports). It is easy to show that trade governed by AA can be detrimental, but I won’t do it here.
“…There are three types of constraints that impact on decision making in an economic setting: (a) financial; (b) real resource; and (c) political. These constraints can work independently or together to alter the feasible decision-making environment. … This is particularly the case when it comes to analysing the capacities and opportunities of currency-issuing governments and contextualising this analysis within an open economy setting with trade and capital flows…”
In light of the above, since forex currency movements due to inter-nation real physical trade constitute somewhere less than 10% of total forex currency volumes (Ref. John Harvey Youtube @37m “The Impact of MMT Policies on Exchange Rates” – Levy Inst.) would not the impact of unconstrained (parasitic?) capital flows exceed the financial impact of many nation’s ‘real trade’ balance?
In this neoliberal era of central banks & politicians unwilling to ‘stare down’ bond vigilantes etc., uncontrolled capital flow poses an ever present and unpredictable threat to citizen consumption possibilities – especially those in poorer/developing nations.
In short, allowing foreign entities free rein to manipulate one’s national currency exchange rate (independent of the real trade balance) is granting them the ability to extract parasitic value from one’s nation – thus diminishing one’s ‘terms of trade’.
Thank you for the podcast. I found it very useful for explaining the ‘stop go’ era of fixed exchange rates so cleatly. Thank you again for your content. It is one of the few media places where I feel like I learn something new when I visit.