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Exports are not going to save us

Towards the end of the video in New School titled “Obama wrong on the economy”, Mike Norman is asked about what he thought about the Obama Administration’s goal of doubling exports in the next five years.  Mike’s response was very constructive.  There is nothing wrong with attempting to do so but we must be realistic and we must understand that exports alone will not provide the economic growth we need to create more jobs.

Obama Administration has set a goal of doubling exports in five years and creating 2,000,000 new jobs.  How do they propose to do that - not by more trade agreements but by more “promotion” and more rigorous enforcement of trade rules.  Sorry, that’s not going to cut it.  A slew of more “free trade” agreements could possibly double exports but it certainly won’t create that many jobs.

As of June 2010, exports were $150,451,000,000 and imports were $200,345,000,000.

U.S. and UK are pushing hard for export-led economic growth.  There are many problems with this focus.  First, not every country can be a ‘net exporter’ (meaning exports more then imports) that’s the nature of the balance of trade and being a ‘net exporter’ is what it will take to have export-led growth.  Germany, Japan and China are examples of larger economies that are export driven.  U.S. has not been a ‘net exporter’ (on a consistent basis) since the 1960’s.  Second, it will take some rather drastic changes in policy and possibly living standards for Middle and Working Class Americans.  The living standard issue is what Mike Norman was talking about.  In order to compete with other exporting countries such as China, other Asian countries and Latin America labor costs (wages) and working conditions would have to be significantly lowered.  Third, we have a floating rate fiat currency system meaning our exchange rate is allowed to ‘float’ against other currencies - there is no active intervention or other means to manipulate the dollar’s value by the Fed or Treasury Department.  The same cannot be said about other ‘net exporters’/trading partners - specifically China and possibly Japan if its export position is threatened. 

Imports are suppose to be a benefit to a country.  This seems contrary to reality but the idea is that producing real goods and services to export for someone else to consume provides no economic benefit, UNLESS you get to import and consume the real goods and services others produce in return.  That’s not happening.  The real wealth of a nation is all it produces and keeps for itself, plus all it imports, minus what it must export.

The problem is NOT trade or imports.  The problem is globalization and economic policies that have prevented us from keeping what we produce at home.  Why?  Because, globalization and economic policies have worked to suppress wage growth of U.S. workers so that workers cannot afford to keep what it produces plus imports. 

Instead of focusing on export policies that are even too weak to increase exports, the Obama Administration should be developing and implementing policies that encourage wage growth and increase domestic demand.  One place to start is with Job Guarantee Program (which includes re-training).  With a floating exchange rate (which we have) and a Job Guarantee, we can truly capitalize on the benefits of imports and stop stressing about “free trade”. 

Good luck.

Suggested Reading:

*7 Deadly Innocent Frauds By Warren Mosler
*When Exports are a Cost and Imports are a Benefit: The Conditions Under Which Free Trade is Beneficial By Stephanie A. Bell and John F. Henry