Peter May — Modern Monetary Theory (MMT) and international trade

This discussion has foundered on the rocks of semantics. The assertion is that imports are a real benefit and exports are a real cost. This is means that real resources are being transferred from domestic use in the case of exports, which is a real cost domestically, and real resources are being received in the case of imports, which is a real benefit domestically.

Countries trade with each other either to obtain goods less expensively than they can be produced domestically, or to obtain goods for which the country lacks enough real resources to produce.

All economists agree with this assertion based on the meaning of terms. This is simply a case of understanding economic terminology.

In every monetary exchange for goods, one party receives a good, financial or real, and the other party receives the price of the good. In so doing, the buyer receives a good and the seller agrees to save in the currency in which the price is denominated, regardless of whether the parties are households or firms. In the case of international trade, these transactions are summarized in the balance of payments in terms of aggregates of imports and exports. The balance of payments of countries is of a different order than household and firm accounting statements. Confusing or conflating them is a category error.

Progressive Pulse
Modern Monetary Theory (MMT) and international trade

Peter May

The real benefit to international trade is the opportunity to obtain goods more cheaply than by producing them domestically. The proper way to view exports is as a cost: in an ideal world, foreigners would provide us with an infinite amount of imports for free.

One reason why the EU treaty is taking so long is that one implication – foreign competition in government procurement – is being treated as a cost, when of course the possibility that taxpayers might obtain more for less should be treated as a benefit.

The Globe and Mail — Economy Lab 

Imports are a benefit, exports are a cost. Is it clear now?
Stephen Gordon | Professor of Economics, Universite Laval Quebec, QC Canada

(Published March 31, 2011 and updated April 29, 2018)

Sentaku Magazine — Russia Unrivaled in Nuclear Power Plant Exports, Crushes Market

Russia looks set to dominate the business of exporting nuclear power plants worldwide, as its share of the market has now reached 60 percent after concluding contracts with countries like India, Turkey, Egypt and Hungary for the construction of new plants and technical cooperation.

Gas station no longer.

Russia Insider
Russia Unrivaled in Nuclear Power Plant Exports, Crushes Market
Sentaku Magazine

Ari Andricopoulos — On Currency Devaluation (Deliberate and Otherwise)

It is an unstated central bank policy in many parts of the world to reduce the value of their currency to below its fair value. The reason for doing so is 'competitiveness'. A weaker currency means lower global prices for your goods and hence increases your exports, while at the same time reducing imports. Since a fundamental equation of economics says that GDP = C+I+G+X, or consumption plus investment plus government expenditure plus net exports; it would appear self evident that an increase in net exports would increase GDP.

This is, unfortunately, completely wrong. There are two ways that it is wrong, both pretty fundamental….

Notes on the Next Bust

On Currency Devaluation (Deliberate and Otherwise)

Ari Andricopoulos, principal at Dacharan Advisory AG, PhD. in Financial Mathematics

vox.ue — Fighting ‘currency wars’ with blanks: The limited role of exchange rates in export competitiveness

In the ‘currency wars’ discussion, it is almost taken for granted that exchange rate depreciations will result in non-trivial export gains. Using evidence from countries in Europe and Asia, this column argues instead that factors unrelated to prices/exchange rates often play a predominant role in shaping trade developments. Moreover, these factors affect export outcomes in a very diversified manner across countries, in part because of the interplay of global value chains.

So much for that theory.

vox.ue
Fighting ‘currency wars’ with blanks: The limited role of exchange rates in export competitiveness
Filippo di Mauro, Konstantins Benkovskis, Sante De Pinto, Marco Grazioli

Andrea Terzi — Debt and savings in the euro area: An update (and how net exports have been keeping the EA afloat so far)

The current combination of sectoral balances makes the EA highly vulnerable. If private corporations remain net savers in a weak economy, and if governments consider their current deficit levels just about good enough to meet their fiscal rules, any turbulence originating from a rising value of the euro in the foreign exchange markets or from a further slowdown in the U.S. would leave private savings with no support and set the conditions for another recession.

Money And The Real Economy
Debt and savings in the euro area: An update (and how net exports have been keeping the EA afloat so far)
Andrea Terzi, Professor of Economics, Franklin College, Switzerland

Tom Miles — China warns WTO its cheap exports will soon be harder to resist

China has served notice to World Trade Organization members including the European Union and United States that complaints about its cheap exports will need to meet a higher standard from December 2016, a Beijing envoy said at a WTO meeting.

Ever since it joined the WTO in 2001, China has frequently attracted complaints that its exports are being "dumped", or sold at unfairly cheap prices on foreign markets. Under world trade rules, importing countries can slap punitive tariffs on goods that are suspected of being dumped.… 

Reuters
China warns WTO its cheap exports will soon be harder to resist
Tom Miles

Also

Unplanned inventory building up.

Nandita Bose and Sruthi Ramakrishnan, Macy's cuts full-year forecast, sends shivers through retail

Not affecting China. This is one firm on one day.

Paul Carsten and Lehar Maan, Alibaba's Singles' Day sales surge 60 percent to $14.3 billion

China is also crashing the US ecommerce direct sales market through Ali Express.

Sputnik — China's leading aircraft manufacturer is about to start exporting its fifth-generation fighter jet, according to industry sources.

Xu Bangnian, a professor at the PLA Air Force Command Institute, said he expected international demand for the plane as it seemed to be the only choice for developing countries who are interested in an affordable fifth-generation stealth aircraft.

Sputnik International
China's leading aircraft manufacturer is about to start exporting its fifth-generation fighter jet, according to industry sources.

TASS — Putin: government understands need to maintain dollar value against ruble at certain level

"Exchange rate difference is more potent and works more efficiently than budget support" for the real, export oriented production, the president said.

TASS
Putin: government understands need to maintain dollar value against ruble at certain level

Dean Baker...perfect example of why the Progressive movement goes nowhere.

I'm having this crazy Twitter argument with Dean Baker. (See thread below.)

The guy is supposedly a progressive and I know he means well, but this is why the movement goes nowhere. These guys contradict themselves and end up arguing in support of the interests of the other side.

Baker wants to create jobs by boosting exports. Fine. Very admirable, but to do that you have to create demand for those exports. Lots of demand. How do you do that? Typically through currency devaluation or, wage suppression.

There's another way, too, and that is to literally "give" foreigners dollars so they can buy the goods that we produce. That's done by massive amounts of deficit spending targeted to the foreign sector. (Maybe we can rebuild all the infrastructure of the entire foreign sector, using their labor and resources.)

In the first approach, when you devalue your currency or, suppress wages, it's like a tax. You end getting less for more. You lose in real terms. So, yeah, you  might create demand for exports and jobs, however, those jobs leave people with the ability to afford less, not more, at least in the aggregate.

And Baker admits that. He says a weaker dollar is "negative for real wages." (So why is he pushing it?)

In the second approach, where you literally give money to foreigners via deficit spending isn't it jsut a better idea to deficit spend for the benefit of your country's own residents? Isn't it better  if they have the means to consume the fruits of their own labor? I think so.

So what, really, is Baker's plan? Create jobs by boosting exports, by creating demand, by weakening the currency, which is negative for real wages. Did we gain anything? NO.

There  you  have it: a leading figure of the Progressive movement giving really stupid advice. No wonder why the movement goes nowhere. Ironically he's probably against the TPP and other trade deals, yet in essense that's exactly what he's arguing FOR. We'd be outsourcing to cheap labor, but our own CHEAP LABOR. The standard of living of the worker goes down.

The best part of my Twitter discussion with him is when he gets testy and says this:

@mikenorman that' s fine that there are better ways, but it doesn't mean S**t, because we're not doing them.

— Dean Baker (@DeanBaker13) May 9, 2015

He's crying now. Like a baby. "No one is listening to me and they're not doiong anything. Whaaaa...whaaaaa." So what does he do? Like all liberal-progressives he proposes inadequate or flawed ideas. Capitulates, basically. Grand bargains. And he ADMITS IT!

Conservatives would never do that.

When you have reasonable sounding people  like Dean Baker advocating for the very same things that big corporate advocates for every day, don't expect a lot of change. The other side must be laughing their asses off..

It is difficult to see how we get back to full employment and wage growth, without a lower trade deficit http://t.co/4iodfQQPTG

— Dean Baker (@DeanBaker13) May 8, 2015

Higher dollar and resulting trade deficit slows job growth in April http://t.co/4iodfQQPTG

— Dean Baker (@DeanBaker13) May 8, 2015

Russia Beyond the Headlines — Russian arms exports grow approx $1 billion year-on-year

Russian arms exports are growing year after year and the country steadily ranks as the world's second arms exporter after the United States, Federal Service for Military-Technological Cooperation (FSMTC) Director Alexander Fomin told Interfax-AVN on Friday.
Russia Beyond the Headlines
Russian arms exports grow approx $1 billion year-on-year

Norihiko Shirouzu — Volvo To Sell Chinese-made Cars In U.S. This Year - Execs

Volvo Car Group plans to export a Chinese-made midsize sedan this year to the United States, and is starting to weigh the possibility of building a vehicle factory in the United States, people familiar with the Chinese-owned automaker’s plans said. 

Both moves would be significant for the auto industry and Volvo’s parent, Zhejiang Geely Holding Group Co [GEELY.UL]. So far, global automakers have chosen not to ship vehicles made in China to the U.S. market in any significant numbers, and efforts by Chinese automakers to export vehicles to the United States have foundered.…

Exporting Chinese-produced mainstream passenger cars to the United States and other advanced auto markets has been a long-standing goal of China’s indigenous automakers – an objective that has largely eluded the industry. 

"It would be a big breakthrough" not just for Geely but for China’s industry, said James Chao, Asia-Pacific director of consulting and research firm IHS Automotive. 

"Volvo is not an indigenous Chinese brand but it is wholly Chinese-owned. Perhaps this is the model or strategy that finally works for Chinese companies trying to enter the U.S. market and other markets."

Business Insider

Exclusive: Volvo To Sell Chinese-made Cars In U.S. This Year - Execs

Norihiko Shirouzu, Reuters

GOP Divided Over Oil Export Ban

Via Politico:

"The petroleum industry’s crusade to lift the four-decade-old ban on crude oil exports is shaping up as next year’s hottest energy debate, and potential White House contenders like Gov. Chris Christie and Sens. Rand Paul and Marco Rubio are already on board.

Some GOP fans of crude exports are ready to move even without party unity. Asked if he had qualms about getting ahead of his leaders in pushing to end the ban, Oklahoma Sen. Jim Inhofe said, “No. Because it’s right.”

Another outspoken export advocate is Alaska Sen. Lisa Murkowski, who’s in line to chair the Energy and Natural Resources Committee if Republicans retake the chamber.

Democrats face their own divide on the issue. The White House has left the door open to re-examining the ban, former top economic adviser Larry Summers called for its demise this month, and Energy Secretary Ernest Moniz last year described barring exports as a 20th-century policy. In June, the Commerce Department caused a stir with the news that it had approved licenses for two oil producers to export limited amounts of a lightly processed ultralight crude known as condensate. The administration appears “ready to go where the Hill is on this,” Catanzaro added."

The fact that this issue in now being seriously debated points to the stupidity and corruption of our Congress. Exporting oil and gas makes absolutely no sense for US consumers. For years, all we heard was that we had to develop domestic oil resources to rid ourselves of foreign oil imports--and the second that trend starts to reverse, the Republicans want us selling our natural resources to foreigners. Whatever you may think about fracking and drilling in environmentally sensitive areas, at the very least you should want these fuels to by consumed by Americans, since we are the ones taking all the health/environmental risks from the extraction processes.

In all honesty I hope the Repubs continue to push forward on this issue, because it would perfectly demonstrate how they never really cared about reducing gas prices-- it was always about profits for their industry donors. It would be impossible for them to ever construe oil exports as a good thing for the American consumers for whom they pretend to care so much about. And this is from the same people that always said we cant afford environmental protections because it may cause energy prices to rise. Now they want to be able to sell our oil to higher bidding foreigners, which borders on treason in my book. Selling our domestic energy for foreign fiat...brilliant idea guys!

Developing story- Former NY Fed bank examiner releases secretly recorded conversations

The radio show "This American Life" did an extended interview with a ex-bank examiner from the Federal Reserve Bank of New York. This woman, who has since been fired from the Fed, secretly recorded conversations between herself, her bosses, and Goldman Sachs employees. She was a permanent on-site examiner at Goldman Sachs during her brief tenure at the Fed, and claims that the Fed's lackadaisical approach to supervision led her to record, and later release, these conversations.

While she claims that she was unfairly terminated for speaking out about the captured culture of the FRBNY,  its worth noting that she also sued her former employer and sought a $7 million settlement. If you haven't picked up on this story yet, its worth checking out. You can also read the FRBNY's official response here.

There is no lending solution to an income problem

Working people need more income, not more debt. Yesterday’s release of Home Mortgage Disclosure Act (HMDA) data revealed that lending to African-Americans slipped to 4.8 percent in 2013 from 5.1 percent in 2012, while whites are taking a bigger chunk of the mortgage market-- 70.2 percent ofborrowers last year, and 69.9 percent of borrowers in 2012. While this new information is terrible and unsurprising, I fear that it could lead to a renewed push for weakening of lending standards, under the banner of expanded credit opportunity.

In my experience as an intern in the Consumer Financial Protection Bureau’s Office of Community Affairs, I regularly interacted with advocates from community, religious, ethnic, and consumer protection groups. They were all lovely people who were smart, passionate about what they did, and tough as hell. The success, and even the existence of the CFPB is testament to their ability to stand up against powerful banking lobbyists, who were usually paid much more than them. And while I agreed or at least sympathized with most of what these folks advocated, there was one issue where I found their means to be questionable. 

While I think the ends  that they were advocating for (equality of opportunity, empowering minority groups and the poor, fair lending) were all fantastic, the means that they advocated for often left me shaking my head, especially when it came to credit availability. The overriding thought process of these advocates was that minorities needed more access to credit, aka debt. Unfortunately, this often meant that these advocates supported weaker lending standards, and found themselves in the odd position of agreeing with banking industry lobbyists. This was especially true during the development of the Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) rules.  

However, I always felt that these folks were advocating for the wrong tools. The economic struggles of the poor and minorities stem from a lack of income, not a lack of debt. It is high levels of unemployment and deterioration of unions that have caused a collapse in incomes, and therefore creditworthiness, in these communities. Therefore, restoring income growth should be the primary focus of minority and consumer advocates.  Lowering lending standards to meet these lower incomes is certainly not the solution to this problem, as we already tried this experiment in the last decade. No amount of lent money can replace a lack of earned money, and deliberately weakening underwriting standards to paper over insufficient incomes is a fool’s errand. As we now know, it was minority groups, especially African-Americans, who lost, and have not recovered, the most wealth in the financial crisis, since most of their wealth was in their homes. And of course, at the height of the bubble, many fly-by-night originators were more than happy to push out ARM NINJA loans to minority communities, who were rarely able to make payments after the teaser periods expired. 

The political implications of this are even scarier. We already know how conservatives love to blame the entire financial crisis on the federal government incentivizing lending, (through the GSE's and Community Reinvestment Act) to “those people.” I fear that trying this experiment again will not only set minorities back, but it will further inflame the lunatic fringe that empowers the very politicians who make income inequality worse.

As far as I know, the MMT community is the only one that clearly elucidates the relationship between national spending, incomes, lending, and debt. I think it’s vital that the ethnic/community/consumer groups come to fully understand MMT and the stock/flows that we describe. Without it, they may continue to walk down the beaten path, and over the cliff once again. 

Winterspeak — Flexible Exchange Rates, MMT, and the Ruble Crises of MMT

Winterspeak addresses some of Ramanan's observations.

A point of clarification. Winterspeak says, "One of the more interesting MMT insights, as stated by Mosler, is "exports are a cost, imports are a benefit", which is the opposite of the usual narrative where export driven economies, like Japan, are hailed while import driven economies, like the US, are said to be more vulnerable." 

What Warren and MMT economists say is that ""exports are a REAL cost, imports are a REAL benefit," implying a monetary system in which an independent currency ("sovereign" currency) is neither a real good nor backed by a promise of the issuer to exchange it for anything real. I don't believe that is controversial in economics. 

The notion that n export-driven economic is superior to an import-driven one is a holdover from the metal standard, e.g., where international trade was settled in gold or silver and the wealth of a nation was measured by its stock of precious metal. 

That's the mercantilist position. While it is over, the same thinking persists, some would say irrationally. Now, the rational position is to prefer an advantage in real terms if it is possible to achieve, since national prosperity is measured in consumption rather than either financial claims or gold stock.

winterspeak.com
Flexible Exchange Rates, MMT, and the Ruble Crises of MMT

On matter related to trade that often doesn't enter the discussion in economics is relative power. Power has been demonstrated  in the extreme historically in imperialism and colonialism, and the slave trade, for instance. However even in contemporary, and supposedly, post-imperial and post-colonial times, power imbalance also results in economic and financial imbalance in trade, and usually this is in favor of the more powerful nation in the trade relationship.

Dimitri Papadimitriou — Is an R&D-Led Export Strategy Our Best Shot?

Dimitri Papadimitriou, in Reuters’ “Great Debate” series:

The U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade.It’s the best shot the U.S. has to energize its weak economic recovery. R&D investment in products sold in foreign markets would yield a greater contribution to economic growth than any other feasible approach today. It would raise GDP, lower unemployment, and rehabilitate production operations in ways that would reverberate worldwide.…For our R&D/export model, we posited a modest infusion of $160 billion per year — about 1 percent of GDP — until 2016. We saw unemployment fall to less than 5 percent by 2016, compared with CBO forecasts that unemployment will remain over 7 percent. Real GDP growth — instead of hovering around 3.5 percent, by CBO estimates, on the current path — gradually rose to near 5.5 percent by the end of the period.

The Multiplier Effect

Is an R&D-Led Export Strategy Our Best Shot?
Michael Stephens

George Osborne promises a surplus

Here’s our serious plan for a grown-up country. First, sound money. The bedrock of any sustained recovery and improved living standards is economic stability.

That is what the hard work and sacrifice of the last three years has all been about.
In that time we have brought the deficit down by a third. And the British public know that whoever is elected will face some very hard choices.

Let me tell you the principles I bring to that task. Our country’s problem is not that it taxes too little.

It is that its government spends too much. So while no responsible Chancellor ever rules out tax changes, I think it can be done by reducing spending and capping welfare, not by raising taxes.

That’s my plan. And surely the lesson of the last decade is that it’s not enough to clean up the mess after it’s happened?

You’ve got to take action before it happens. It should be obvious to anyone that in the years running up to the crash this country should have been running a budget surplus.

That’s what we mean when we say they didn’t fix the roof when the sun was shining. Let us never make that same mistake again.

Never again should anyone doing my job be so foolish, so deluded, as to believe that they have abolished the age-old cycle of boom and bust.

So I can tell you today that when we’ve dealt with Labour’s deficit, we will have a surplus in good times as insurance against difficult times ahead.

Provided the recovery is sustained, our goal is to achieve that surplus in the next Parliament. 

That will bear down on our debts and prepare us for the next rainy day. That is going to require discipline and spending control.

For if we want to protect those things we care about, like generous pensions and decent healthcare, and buy the best equipment for the brave men and women who fight in our armed forces, all of us are going to have confront the costs of modern government – and cap working age welfare bills.

And only if we properly control public expenditure will we be able to keep lowering taxes for hardworking people in a way that lasts.

I’ve never been for tax cuts that are borrowed. I want low taxes that are paid for.
We also want to go on investing in the essential infrastructure of our country - the roads and railways and science and communications that are the backbone of the future economy.

So we should commit, alongside running a surplus and capping welfare, to grow our capital spending at least in line with our national income.

 He doesn't see that this is contradictory.

These principles will form the foundation of our public finance policy and I will set out the details next year.

And for those who ask: Is this necessary?I say: What is the alternative? To run a deficit for ever? To leave our children with our debts? To leave Britain perilously exposed to the next storm that comes?

This crisis took us to the brink. If we don’t reduce our debts, the next could push us over.
Let us learn from the mistakes that got Britain into this mess. Let us vow: never again
This time we’re going to run a surplus. This time we’re going to fix the roof when the sun is shining.

Much more nonsense. Read the whole speech.

This plan is based on wage suppression and increasing exports to run a fiscal surplus by offsetting domestic consumption by growing the export industry in an attempt to emulate Germany, Japan, and China as surplus countries.  It's the same old mercantilist "beggar-thy-neighbor" stance that made Britain of old a colonial, imperialist power.

politics.co.uk
George Osborne's conference speech in full
(h/t Ralph Musgrave via email)

Xinhua Business — China to become top U.S. export destination by 2022: report

China will overtake Canada and Mexico to become the United States' largest export market by 2022, according to a report issued Tuesday.

U.S. exports to China will at least triple from the current level to reach 530 billion U.S. dollars, according to a report compiled by the China-United States Exchange Foundation, the China Center for International Economic Exchanges, China's Ministry of Commerce, and the U.S.-based Center for Strategic and International Studies.

Exports to China will create a GDP worth 460 billion U.S. dollars for the United States, as well as create more than 3.34 million jobs, an increase of 2.63 million compared to 2010.
If the United States loosens its export restrictions on high-tech and energy products, the export volume could be much higher, the report said.

Xinhua Business

China to become top U.S. export destination by 2022: report

The whole entire media has got it ass backwards

It's really amazing sometimes when you see the shallow level of thought that goes into the current reporting on economics. Or for that matter what comes out directly from the economics community or our lawmakers. (No surprise on the latter.)

I came across this headline on Yahoo! Finance: "Can natural gas help America's trade balance?"

Apparently, like so many other people, the author is quite perturbed by the negative sign in front of our nation's trade balance. He's obviously been influenced by the rest of his colleagues in the mainstream media or by the usual, bullshit propaganda coming from the clueless economics profession or perhaps the greedy crooks and liars on Wall Street.

His"big idea" is to erase that horrible, terrible, negative sign in front of our nation's trade balance by selling off our cheap, abundant, supply of natural gas.

I'm always amazed at the lack of even the slightest bit of follow-through in the reasoning process of most people. They get some idea in their heads (usually planted there by some cynical, manipulative, person or entity) and rather than think it through all the way to its logical conclusion they'll just take it as given and run with it.

Hey, yeah...getting rid of that horrible, terrible, negative sign in front of our trade deficit would be great (that's what he's been told, of course), but he fails to follow through and see what the ultimate consequences of that plan would bring. Remember, his plan was to sell off a large portion or maybe even all, of our cheap, abundant, natural gas supply.

What these clowns are proposing (and FYI there is currently a bill floating around in Congress that proposes to do exactly this) is to rid ourselves of all of our cheap, abundant, natural gas, which we use as a fuel to power our electric generating plants, heat our homes and propel a large part of our municipal transportation fleet, so that we can have a plus sign in front of our trade balance. Can he not see the ridiculousness of this? Can others not see the ridiculousness of this? This is NOT how we look after our interests, it's how we IMPOVERISH ourselves!!

Look...the negative sign in front of our trade balance is really a positive to us in real terms. It means we get the stuff--clothes, cars, television sets, computers, electronics, fuel...in essence, all the things we use in our everyday lives and which define our standard of living--in exchange for our paper money that we can print all day long. It's the foreigners who are the clear losers in this, not us. Yet this guy and many others like him, including a majority of members of Congress along with our own president, want to turn it around the other way and send away our real assets for the benefit of foreigners so that we can earn some...yuan?? Really???

All I can say is, we are screwed.

Dani Rodrik — The New Mercantilist Challenge

Short summary of mercantilism v. liberalism.

Project Syndicate
The New Mercantilist Challenge
Dani Rodrik | Professor of International Political Economy at Harvard University’s Kennedy School of Government

Neoliberalism combines features (and bugs) of mercantilism and liberalism.