MMT Has a Big Hurdle to Overcome to Succeed in Europe — Carolynn Look

Reporting about MMT that is actually accurate. Winning!

Yahoo Finance
MMT Has a Big Hurdle to Overcome to Succeed in Europe
Carolynn Look, Bloomberg

Isabella Weber — What drives specialisation? A century of global export patterns

Globalisation has coincided with specialisation and wealth accumulation on unprecedented scales. By bringing together distant markets, globalisation has created an economy that resembles one big multi-division and multi-national company. This is just like Adam Smith’s concept of specialisation where the division of labour is at once the cause and the extent of the size of the market.

Patterns of production are therefore distributed unequally across countries and regions of the world. Some are predominantly the innovators and managers, some are the workshop of the world, and others simply provide the needed raw materials. This positioning in the global division of labour influences the extent to which countries participate in the creation of wealth from globalisation.

Our new research project funded by Rebuilding Macroeconomics looks at the question of what drives specialisation. Rather than rely on circular arguments around revealed comparative advantage, we reconceptualise export specialisation as a historical process drawing on commodity histories and histories of colonial economic governance. We revisit revealed comparative advantage as a descriptive measure to analyse the evolution of export patterns over time....

Sounds like mercantilism and hysteresis? Is the liberal world order a Trojan horse for neo-imperialism?

Political Economy Research Center
What drives specialisation? A century of global export patterns
Isabella Weber

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)

Timothy Taylor — Some Facts on Global Current Account Balances

Maybe the trade war with China isn't actually about MAGA at all, but just economic warfare against a rising competitor. If trade surplus are so "unfair," why is the focus not on Germany given the figures, enquiring minds want to know. Or, do Donald Trump and his economic team not realize this?

Conversable Economist
Some Facts on Global Current Account Balances
Timothy Taylor | Managing editor of the Journal of Economic Perspectives, based at Macalester College in St. Paul, Minnesota

Aabid Firdausi — International Trade and Globalization: Are Benefits Truly Mutual?

The euphoria around international trade and the general consensus regarding capitalism’s inevitable sustenance among countries of the Global South is at least partly due to the absence of an alternative after the collapse of the Soviet Union. The politics of capitalism, with its expansionary dynamics, has assumed a truly “global” avatar by aggressively pursuing a neoliberal globalization agenda. Thus, we see much hype around the numerous trade treaties that governments around the world sign, claiming they would boost economic growth and create jobs. However, a critical examination of mainstream trade theories reveals several insights as to why there has been a hegemony of thought when it comes to attitudes around globalization.

The idea that “free” trade and globalization imply mutual benefits and prosperity for all the parties involved is simply accepted as common sense. Mainstream trade theories argue that if nations engage in international exchange, then all parties will be better off. Although this seemingly innocuous assumption is based on an unrealistic worldview, it has deep implications when translated into practice. This article provides a basic understanding of some of the areas that theories in mainstream international economics conveniently ignore....

The Minskys
International Trade and Globalization: Are Benefits Truly Mutual?

Aabid Firdausi | Master’s student at the Department of Economics, University of Kerala, India

Dani Rodrik — The great globalisation lie

Third way evangelists presented globalisation as inevitable and advantageous to all. In reality, it is neither, and the liberal order is paying the price....

The fundamental thing to grasp is that globalisation is—and always was—the product of human agency; it can be shaped and reshaped, for good or ill. The great problem with Blair’s forceful affirmation of globalisation back in 2005 was the presumption that it is essentially one thing, immutable to the way that our societies must experience it, a wind of change which there could be no negotiating or arguing with. This misunderstanding still afflicts our political, financial and technocratic elites. Yet there was nothing preordained about the post-1990s push for hyper-globalisation, with its focus on free finance, restrictive patent rules, and special regimes for investors. 

The truth is that globalisation is consciously shaped by the rules that the authorities choose to enact: the groups they privilege, the fields of policy they tackle and those they lay off, and which markets they subject to international competition. It is possible to reclaim globalisation for society’s benefit by making the right choices here.…

A world economy in which these alternative choices are made would look very different. The distribution of gains and losses across and within nations would be dramatically altered. We would not necessarily have less globalisation: enhancing the legitimacy of world markets is likely to spur global commerce and investment rather than impede it. Such a globalisation would be more sustainable, because it would enjoy more consent. It would also be a globalisation quite unlike the one we have at present.

Longish article with lots of history. Worth reading all of.

Dani Rodrik's Weblog
The great globalisation lie
Dani Rodrik | Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University

Cloth for Wine: The Principle of Comparative Advantage 200 years on: Introducing a new free eBook

Two hundred years ago, with a simple yet profound example about England trading cloth for Portuguese wine, David Ricardo introduced the Principle of Comparative Advantage. In this eBook, leading trade policy analysts examine whether Ricardo’s insights remain valid in a world where services as well as good cross borders as does data and technology, where there is a rising China whose growth is heavily dependent on exports, and in the face of a backlash against globalisation.

PDF Download (free with free registration)

vox.eu
Cloth for Wine: The Principle of Comparative Advantage 200 years on: Introducing a new eBook
Simon Evenett | Professor of International Trade, University of St. Gallen; Research Fellow, CEPR

Ingrid Harvold Kvangraven — 200 Years of Ricardian Trade Theory: How Is This Still A Thing?

On Saturday, April 19th 1817, David Ricardo published The Principles of Political Economy and Taxation, where he laid out the theory of comparative advantage, which since has become the foundation of neoclassical, ‘mainstream’ international trade theory. 200 years – and lots of theoretical and empirical criticism later – it’s appropriate to ask, how is this still a thing?

This week we saw lots of praise of Ricardo, by the likes of The Economist, CNN, Forbes and Vox. Mainstream economists today tend to see the rejections of free trade implicit in Trump and Brexit as populist nonsense by people who don’t understand the complicated theory of comparative advantage (“Ricardo’s Difficult Idea”, as Paul Krugman once called it in his explanation of why non-economists seem to not understand comparative advantage). However, there are fundamental problems with the assumptions embedded in Ricardo’s theory and there’s little evidence, if any, to back up the Ricardian claim that free trade leads to benefits for all. On this bicentenary, I therefore think it’s timely to revisit some of the fundamental assumptions behind Ricardo’s theory of comparative advantage, that should have led us to consider alternative trade theories a long time ago....

Good summary backgrounder. "It's more complicated than that," the "that" being what is assumed.

The following quote contains an important lesson about logic and epistemology.

Rather than accept that there is something wrong with the exchange rate theory itself, empirical discrepancies are explained by measurement problems and/or imperfections in the market because of currency ‘manipulation’ (see for example Eichengreen 2013 or Gagnon 2012). In fact, neoclassical trade theory is so highly regarded that economists, almost across the board, cannot imagine any reason for China’s trade surplus with the US other than the Chinese manipulating their exchange rate in order to stimulate their exports.

What has happened here is that the theoretical model become the criterion for assessing truth rather than a model to be compared with observation in measurement.

Take probability theory. Probability theory shows the outcome of a long run roll of a coin toss, regardless of whether it is an ensemble of 1000 coins tossed at once or a single coin tossed a 1000 times. If the outcome does not converge on 0.50, then the fairness of the coin becomes suspect and not the theory.

This is not necessarily the case with a scientific theory. In the case of an anomaly scientists check the experiment but after checking and finding no errors, the theory becomes suspect. Repeated failures result in re-thinking the theory.

Because it is difficult to impossible to run controlled experiments in economics in many cases, trade being one of them, the dominant theory is never questioned. It serves as a criterion of truth whose truth is privileged from question.

Developing Economics

200 Years of Ricardian Trade Theory: How Is This Still A Thing?
Ingrid Harvold Kvangraven | PhD student in Economics at the New School for Social Research

JW Mason — A Cautious Case for Economic Nationalism

How do we negotiate these three terms—nation-states, markets, and the people who we hope to represent within or against them? If you’re an economist, one natural starting point is Dani Rodrik’s widely cited formula of “the trilemma.” Rodrik argues that, of national sovereignty, democratic government, and international economic integration, you can have two of them but not all three. When Rodrik introduced the trilemma in the 1990s he, like most liberals, believed it was the nation that should go. Globalization is inevitable; if it prevents national governments from delivering what’s needed for democracy, then political authority must shift to a supranational level. But now he’s having second thoughts. Recently he wrote in the New York Times, “We must reassess the balance between national autonomy and economic globalization . . . we have pushed economic globalization too far . . . [and put] democracy to work for the global economy, instead of the other way around.”

For both liberal advocates of economic integration and for its critics, this question, the political question, is key. The strongest arguments against (and for) continued globalization focus not on the direct effect of trade and finance on living standards and economic outcomes, but on the ways in which those links constrain the choices of governments. As long as democratic politics operates through nation-states, it is likely any left program will require some degree of delinking from the global economy.

Dissent
A Cautious Case for Economic Nationalism
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Warren Mosler — Border tax comments, Redbook retail sales, International trade, Consumer confidence

Warren presents a simple model of international trade and taxation to illustrate Trumponomics.

The Center of the Universe
Border tax comments, Redbook retail sales, International trade, Consumer confidence
Warren Mosler

Vitor Mello — Using Minsky to Better Understand Economic Development – Part 1 & 2

This year the global system has seen two major shocks: Brexit and Trump. What these events have in common is their populist rhetoric that promised to bring back jobs, while also making xenophobic statements. These elections have tapped into growing anxiety over job security, which has not been addressed by most governments and has given room for demagogues to tap into the anger of the people. They reflect a problem that transcends the boundaries of any single nation: the global economy has been in a slump for almost a decade. Governments need to create jobs, and public fiscal stimulus is the way to do so. To allow it, we must rethink that system.

The Minsky's

Using Minsky to Better Understand Economic Development – Part 1

Using Minsky to Better Understand Economic Development – Part 2
Vitor Mello

Neil Wilson — A Sterling Performance

Why you can ignore most of what is written about floating rate currencies and why the commentariat always gets it wrong.

As long as banks supply liquidity to speculators, speculators can dominate markets. In external trade, as long a central banks provide liquidity to speculators, speculators can dominate international markets.

Currency is a policy tool and the government is the monopoly issuer through its central bank.

Yes, this implies that so-called capitalist free market economies are actually command systems. Central banks chose the policy to follow in any case, although they usually strive to create an illusion that the market is setting prices through competition. Even in setting interest rates, they are supposedly "following market expectations" rather than setting policy. Even Paul Krugman believes this.

Modern Money Matters
A Sterling Performance

Neil Wilson

Frances Coppola — Understanding balance of payments crises in a fiat currency system

Frances appends a note to her post:

As I don't wish to get caught up in arguments about whether governments do or don't create money when they spend, I am preserving the fiction of central bank and government separation. This means that the language in this post is that of monetarism, rather than MMT. I do not apologise for this: it is my firm belief that MMT and market monetarism are brothers under the skin, and the differences between them are largely semantic. Though there might be a difference in political ideology too.

Coppola Comment
Understanding balance of payments crises in a fiat currency system
Frances Coppola

Nils Herger and Steve McCorriston — FDI ‘waves’ and cross-border acquisitions

Foreign direct investment (FDI) has grown markedly in the world economy since the 1970s. However, the underlying growth has occasionally been punctuated by relatively short-lived reductions in FDI, giving rise to the ‘wave-like’ pattern exhibited in Figure 1. In explaining the motives driving FDI, economists have typically distinguished between horizontal and vertical strategies, the former being driven by market-seeking considerations, and the latter by the desire to access inputs such as cheap labour. Understanding the different motives of FDI is important for addressing policy issues, identifying how FDI and international trade are potentially related, as well as assessing the spillovers that might be associated with FDI. Yet, attempts to uncover the distribution of the different FDI strategies have long been hindered by access to suitable data....

Vox.eu
FDI ‘waves’ and cross-border acquisitions
Nils Herger and Steve McCorriston

Neil Wilson — Why economists fail at foreign

Here's the post that Neil has been promising.

As usual, false assumptions and wrong model.

3spoken
Why economists fail at foreign

Neil Wilson

Dani Rodrik — Back to Fundamentals in Emerging Markets

Useful post. I would take issue with the following assertion, however, which seems to be based more on ideology than fact.

China’s economic achievements are undeniable. But it remains an authoritarian country where the Communist Party retains its political monopoly. So the challenges of political and institutional transformation are immeasurably greater than in India. The uncertainty that confronts a long-term investor in China is correspondingly higher.

It's myopic. China has been so successful because of its centralized control and strategic planning. India remains mired in the past owing to the condition of its bureaucratic and dynastic political system, which, although democratic, is lumbering, cumbersome, and corrupt. China has a clear advantage here, and foreign investment in China shows that sophisticated investors realize it.

Project Syndicate
Back to Fundamentals in Emerging Markets

Dani Rodrik | Professor of International Political Economy at Harvard University’s John F. Kennedy School of Government

David F. Ruccio — Only in America

This past Tuesday, officials of AM General celebrated the production of a Mercedes-Benz sport utility vehicle for export to China in a factory in Mishawaka, Indiana that once built Hummer S.U.V.s for General Motors.

Find the comparative advantage here.

But it is shades of things to come when the now developed world is making stuff chiefly for China and India and they other populous countries like Indonesia as globalization matures. That's where the volume is.

Occasional Links & Commentary
Only in America

David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Ramanan — Ben Bernanke Embracing Heterodox Ideas

Comparison of Ben Bernanke 2015 quote and Godley and Lavoie 2007 quote. Bernanke finally wising up?

The Case of Concerted Action
Ben Bernanke Embracing Heterodox Ideas
Ramanan

Merijn Knibbe — The 10% of GDP Greek *surplus* on its services trade balance

Yesterday, as part of an attempt to raise the level of discussion about the Eurozone problems, I spent the better part of ten minutes to download a 98 page Excel-file from Eurostat containing data about the last sixteen years of European Union macro economic history. It turns out that Greece has a surplus of almost 10% of GDP on its ‘international trade in services’ account (among other things: shipping, tourism). That’s a lot by whatever standard and surely when compared with 2% of GDP German deficit. In the EU it is only topped by tiny Malta, Cyprus and Luxembourg. It is caused by the fact that Greece is not only home to one world-class economic sector (tourism) but even to two (the other being shipping), which is a lot for a country the size of Greece.… 

But the point: There is a discussion going on about the ‘competitivety’ of countries. Often, current account data are used to prove that countries are ‘competitive’ or ‘uncompetitive’. Which is a bogus discussion. Large current account deficits (or surpluses) are not a sign of ‘competitivety’ of a country but a sign of unbalanced macro-economic spending in the country itself as well as in its trade partners.…

Real-World Economics Review Blog
The 10% of GDP Greek *surplus* on its services trade balance
Merijn Knibbe
ht Random in the comments

Ramanan — Free Trade? Heterodox Dissent

Useful quotes from Joan Robinson and Wynne Godley. Definitely keepers.

The Case For Concerted Action
Free Trade? Heterodox Dissent
Ramanan