MMT, trade balance and balance of payments

The trouble with Neochartalism (and called “Modern Monetary Theory” by the Neochartalists) is that what is correct is not original and what is original is not correct.
A popular heterodox blogger writing under the pen name “Lord Keynes” and blogging at Social Democracy For The 21st Century has written a post Limits Of MMT.

It’s good to see the blogger point that the main trouble with Neochartalism is the balance of payments constraint. He/she has said this in the past in posts while promoting it, so it’s good to see a special post for this. I don’t agree with many things with “Lord Keynes” but given the blog’s popularity, I think it’s a good thing to have happened.

The Case for Concerted Action

Heterodox Blogger On Neochartalism
V. Ramanan

Social Democracy For The 21St Century: A Post Keynesian Perspective

Limits of MMT

Lord Keynes

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MMT:

"Imports are a real benefit and exports are a real cost."

Transactions of real goods and services between those within the geographical confines of the U.S. and anyone outside the U.S. are generally defined as foreign trade. Exports are real goods and services leaving the country, and imports are real goods and services entering the country. By standard definition, exports are a real cost, and imports are a real benefit. Exports can be considered the cost of imports. Financial transactions are accounting information, and not considered as imports or exports.

The chronic U.S. trade deficit, for example, means the dollar price of imports continually exceeds the dollar price of exports. This puts increasing numbers of dollars in the hands of non-U.S. residents who have decided to hold dollar denominated financial assets rather than use their dollars to buy U.S. goods. This is an identity, for, if they did buy U.S. goods, there would not be a trade deficit. As holders of dollar denominated financial assets, they are net nominal savers, much like any domestic holder of dollar denominated financial assets. For purposes of this analysis, foreign dollar denominated financial holdings are considered part of H(nfa).

This is Econ 101. Nothing controversial about it. It says nothing about whether net imports are beneficial to the economy as a whole or to the nation as a whole. It's a comparison between financial and non-fiancial ("real"). A net importer is gaining "stuff in an exchange with a net exporter, and the net exporter is accumulating the currency of the net importer. Thus the net importer is benefiting in real terms while the next exporter is benefiting in financial terms. The net exporter is diminishing domestic product (real) for domestic use, and the net importer is increasing indebtedness (financial) to the net exporter.

On the other hand, net imports are beneficial to the economy and nation at full employment. 

The nation has more stuff than it would otherwise have at the current level of productivity. Because foreign workers are contributing to domestic productivity. And the country is not exporting jobs.

Unless economic policy offsets the cost of net exports in terms unemployment owing to embedded labor,  jobs are being lost to "silent" immigration. This may also involve exporting capital as domestic firms invest abroad to take advantage of less expensive labor. It can also result in the loss of industry since manufacturing is most likely sent abroad.

Center of the Universe
Full Employment AND Price Stability
Warren Molser

Stephanie Bell Kelton and John Henry address this in a CFEPS working paper and Joe Firestone in an NEP blog posst.

Hence, in the world we actually inhabit, free trade is not the panacea its proponents propagate. If we are to advance the economic interests of the bulk of the citizenry in a decent and humane fashion, we must promote a full employment policy domestically, and couple this with a flexible exchange rate regime internationally. With these institutions in place (on a global scale), exports become a cost and imports a benefit, and the conditions under which free trade is beneficial will have been established.

Center for Full Employment and Price Stability

Working Paper No. 26 — July 2003
WHEN EXPORTS ARE A COST AND IMPORTS ARE A BENEFIT: THE CONDITIONS UNDER WHICH FREE TRADE IS BENEFICIAL
Stephanie A. Bell [now Kelton].Department of Economics,University of Missouri, Kansas City and
The Center for Full Employment and Price Stability and John F. Henry, Department of Economics, California State University, Sacramento

New Economic Perspectives
Who Needs a Balanced Trade Policy?
Joe Firestone