Exporting back to economic growth

Some people give lip service to the idea that economies can export their way back to growth. It is lip service because it is not practical.

The idea is that if the local economy is sluggish, we can increase output by selling more to others.  There are two problems with this. The downturn is world-wide and it is going to be very difficult to find foreigners with spare cash.  The second problem is that trade has to be a two-way street.  Increased sales will have to be matched with increased purchases.

Free trade is based on the law of comparative advantage which states that two countries will produce more if they specialize in items at which they are most efficient and trade even if the other country is more efficient at the items they are not producing.  This is usually interpreted to mean total output will increase but I think it could also mean more efficient production leaving more time for other activities such as leisure.

The big problem in implementing free trade is making the adjustments as some people will lose their employment and have to make changes.  Most of us most of the time, think and act in our own short-term interests.  Most economists are in favour of free trade but I have never heard it suggested that economic advice should be included and outsourced to another country.  If we really wanted to try free trade the best way would be for a country to do it unilaterally.  We should remove all subsidies and other barriers to imports and not worry about what other countries do.  If they want to support our consumption, we should not object.

This guy figures the major economic issue facing the world today is that we have used up the most easily accessible energy and mineral resources  Yes, there are lots left but they are so difficult and expensive to extract that they are probably not useful to us.  The result is that we are heading into a prolonged period of economic decline.

If this is true then trying to increase production will consume the remaining resources even faster and will bring forward a major economic collapse.  The way to deal with the crisis is an orderly reduction of production and standards of living.  Not likely to happen.

More likely people will blame Brexit and the results of the U.S. election for continued economic problems.

What ever happens and whatever the reason it appears we are in for an extended time of economic decline.  What we most need is clear and realistic thinking about economic issues.  What we least need is desperate attempts to return to growth and scapegoats.

Who’s to blame and what do we do about the economy?

One thing of which there has been no shortage during this economic crisis is words with lots of scapegoats and ideas as to what to do.  Here’s my attempt to summarize.

Who is responsible for this mess?

The two favorites are greedy Wall Street bankers and incompetent politicians who aren’t following the policies which would most benefit the speaker.  The bankers may be greedy and the politicians may be incompetent but are they any more so than their predecessors who ruled during the golden age of prosperity?

The next groups to blame are those who won’t approve stimulus spending and those who object to spending cuts. Sometimes both groups are blamed for refusing to compromise.

Others who can be blamed are the ratings agencies who gave false assurances,  those making negative statements who are thus creating a negative feedback loop and those who spreading lies to create profit opportunities for themselves.

What can we do about the economy?

One approach is to cut government spending especially that which benefits poor people or those whose finances are precarious..  Of course we don’t want to cut government spending which finds its way into our own pockets.

The second approach is to stimulate the economy.  There are several ways of doing this including government spending, creating more money (quantitative easing and the National Infrastructure Bank) or encouraging exports and restricting imports to protect jobs. We could also use people with DBS degrees (the D stands for doctor) to convince us there is no real crisis and everything will be okay.

Now here are the answers to these two questions in the view of the author of this blog.

We are all to blame.  The basic problems is that humans have used up a lot of resources, especially those that are easily accessible,  and most of us have had a part in this.  Most of us have had nice homes, designer cars, interesting vacations, frequent restaurant meals and lots of other things.  Most of us have been demanding high returns on our pensions and savings.

So what should we do about the crisis?

If the problem really is with the resource base,  stimulating the economy will only make things worse and socking it to the poor is mean – and many more  people are likely to join them.

Therefore my vote is that everyone should be expected to accept a lower standard of living starting with those with higher than average incomes supported by taxpayers (most of whom get their high incomes from belonging to a union in a monopoly field) and those with high incomes resulting from legislation that restricts competition.  This includes people whose income comes from copyright and patent legislation and those whose income is protected by licensing requirements.

It is my fear that not enough of us care enough about our neighbors for this to actually happen.

So there you have it.  This post has added 489 words to the economic hot air.

Import or export motivated trade

The following quote about trade is from an essay on economics at the time of Odysseus in archaic Greece. It is interesting to note that at that time trade was motivated by a need for imports whereas to us it is based on the need to export in order to maintain or create jobs.

Here in British Columbia where a lot of our economy has been based on forestry, mining and fishing, we might be better off if we had taken the first approach and looked for other ways for out people to have a comfortable standard of living.

Odyssean trade differed from the various forms of gift-exchange in that the exchange of goods was the end itself. In trade things changed hands because each needed what the other had, and not, or only incidentally, to compensate for a service, seal an alliance, or support a friendship. A need for some specific object was the ground for a transaction; if it could be satisfied by other means trade was altogether unnecessary. Hence, modern parlance, imports alone motivated trade, never exports. There was never a need to export as such, only the necessity of having the proper goods for the counter-gift when an import was unavoidable.

(The quote of from M.I. Finley, The World of Odysseus, Chaper 3 , reprinted in Tribal and Peasant Economies, Readings in Economic Anthropology, edited by George Dalton and published in 1967, page 411.)

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