Recent podcast and some thoughts on trade

September 4, 2025
bill
Debriefing 101, Framing and Language, Trade
0 Comments

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.