Thursday, November 17, 2016

Rote Teaching

This MMT thing: "imports are good and exports are bad!" is a good example of a rote lesson.


Ignacio said...

Is a shortsighted and contextual statement yes. No systemic insight in that assertion.

Tom Hickey said...

It's superficial economics.

The refined view is that imports are benefits in real terms of trade at full employment.

Otherwise the embedded labor will drive down the wage share in the labor market toward the cost of the embedded labor.

The problem is that workers in developed countries not only will not accept wages competitive with those of emerging economies, they can not because of existing debt service obligations, for example.

The MMT view is that full employment is always achievable by a currency sovereign through a JG.

However, that too is somewhat superficial in that good paying job may tend to be substituted with low paying jobs, reducing workers standard of living.

This is not sustainable politically.

Government also has the fiscal space to create new jobs and new industries to replace good jobs with jobs at least as good by funding R&D and new technology, as well as increasing the general level of education.

But these things take time and the transition period needs to be managed or asymmetries will develop that workers perceive as distortions. This has political consequences as well as economic.

Then there is the whole question of economic rents that is ignored.

beowulf said...

What Tom said. The worst part about the trade deficit is that it requires the budget deficit to be at least $500B/y or so to counteract the demand leakage created. Economically, that should be a good thing for US, but the terrible political reality is it gives deficit hawks a motive and an opportunity to asphyxiate the economy by shrinking the budget deficit to smaller than the trade deficit.

Auburn Parks said...
This comment has been removed by the author.
beowulf said...

The flip side of that is China is very dependent on Persian Gulf oil. It doesn't even take the US Navy controlling the sea lanes to mess that up, the Saudis and our other Gulf oil allies could be persuaded to have an opportune refinery accident or two.