Monday, December 24, 2012

Clint Balligner — Modern Monetary Theory & International Trade

Warren Mosler said in reply to Prof. Cesaratto here at MNE.
in a monetary union like the US or EU, for purposes of this analysis the only kind of regional problem you can have is an unemployment problem. In other words, if there happens to be full employment in all regions there's no problem, regardless of what the inter regional trade numbers happen to be. If there is unemployment, it's a problem whether related to trade or not, and subject to the same adjustments regardless of source. 

When some regions are at full employment it can be problematic to simply increase aggregate demand at the macro level to sustain full employment in all regions. Should that be the case the 'answer' becomes 'fiscal transfers' where the central govt. directs public spending to the areas of high unemployment. While this works well to sustain full employment throughout the region, it's unfortunately misunderstood as a transfer of wealth to the areas of high unemployment from the taxpayers of the low unemployment regions. 

In fact, while it's an addition of nominal wealth to the high unemployment regions, the production and exportation of public goods and services to other members of the union is in fact a reduction of real terms of trade for the high unemployment regions doing the production relative to the low unemployment regions doing the consumption, as exports are real costs and imports real benefits.

So while fiscal transfers for the production of public goods and services that serve the entire union are commonly presumed to be benefits to the high unemployment regions and costs to the low unemployment regions, in real terms the reverse is almost always the case. 
October 12, 2012 4:52 PM
But this may be moot at this point. Here is Prof. Cesratto at MNE:
NEW: Things have changed in the meanwhile. Stephanie Kelton has showed great understanding for us, and I believe that her feeling is shared also by other MMTs. We are thinking about having an event together in Rome during her visit to Italy (with Auerbach and Mosler). Even if we shall not be able to organize it, the very fact that we tried is very encouraging.
I have not heard the outcome of this, but the MMT economists are doing their best to iron out differences with other PKE economists over issues like this so that they can present a concerted front against neoclassicism and the "Keynesian" neoclassical synthesis. However, there are at present still some disagreements as far as I can see.
Those who economists or otherwise up on the material can come to their own conclusions.

Clint Balligner
Modern Monetary Theory & International Trade

1 comment:

Clint Ballinger said...

I just saw your foreword- VERY interesting - I will be looking at it more closely.
I never did the follow up post to this (Schumpeterian growth stuff) - I will as soon as I get some free time.
Clint Ballinger: On good urbanism, sane economics, & problems in the social sciences