The following quote is what I wish to discuss.
I dispute the premise of this argument—the part that Mitchell said is "undeniable"—but for the sake of argument, I'm going to accept it here. So exports are a cost, imports are a benefit, and for its own good, a country should attempt to run a trade deficit.
MMT advocates take this as an argument in favour of attempting to achieve a trade deficit.
If this argument were correct—and when I have time later (much later), I'll argue that it is not—then I would take it instead as a reason to set up an international body and policy standards to stop economies deliberately running trade deficits.
Why? Because unlike government deficits, which all countries in the world can run simultaneously, a trade deficit for one country necessarily means an equivalent trade surplus for the rest of the world. If there are countries deliberately running trade deficits, then they are forcing others to run trade surpluses. Since on this MMT argument, the trade deficit countries are the winners and the trade surplus countries are the losers, the former are behaving parasitically towards the latter. That should not be allowed if we are trying to achieve a harmonious global economy.There are two problems with the argument.
- The "imports are a benefit" idea is usually discussed in the context of developed country macroeconomics. If you are a developing country, export-led growth behind trade barriers is a standard strategy. The U.S. followed this, as did Canada, then a string of countries after World War II (starting with Germany and Japan; China is the current exemplar of the strategy). Having a competitive export sector is viewed as a benefit. However, this advantage disappears once your country has reached a comparable level of development. Until every country on the globe reaches a similar level of development (I am not exactly holding my breath waiting for that event), this "every country wants to run deficits" story does not apply.
- If we confine the discussion to intra-developed country trade, there is no mechanism to set the level of the trade balance under current institutional arrangements. Trade is managed by various bilateral and multilateral pacts, and tariffs are generally not supposed to happen (although Republican presidents love slapping around Canada early in their presidencies). The only way to directly create a trade deficit is to deliberately destroy one of your industries that faces international competition. Domestic politicians are too beholden to business interests to pursue that option. Alternatively, you are stuck with indirect means -- loosen fiscal policy, for example. However, what matters for trade would be the relative fiscal stance: if everyone loosens fiscal policy simultaneously, we would just be making a simultaneous run at the dreaded "inflation barrier," and trade balances would remain where they were.* There are arguments that loosening fiscal policy is somewhat of a free lunch, but no body politic in 2018 wants to test that theory to destruction.
Steve Keen is transitioning towards the post-Keynesian economist preference for hoping that we are back in 1945, and re-negotiating Bretton Woods. Let us all throw away our national economic sovereignty and hand it to multi-national institutions! Observers on this side of the Atlantic point out how well that worked out for Greece, whereas Europeans appear to think that situation was just a minor misunderstanding.
In reality, this discussion has very little to do with MMT, rather the world view of post-Keynesians. Despite being told "no thanks" for decades, they appear to believe that just a little bit more lecturing will win everyone else over to the joys of handing over your economic sovereignty to an unelected multi-national bureaucracy.
* If we put aside cases involving large price swings in some goods (key example being oil prices), the usual reason a country has a greater trade deficit versus developed peers is that its domestic demand is growing faster than its competitors. (The total trade balance at present for developed countries is largely determined by how fast Asian exporters are hollowing out a country's manufacturers.) Loosening fiscal policy leads to faster growth, and thus imports grow faster than exports. This is often viewed as a "demand leakage," but it can be viewed as a bit of a free lunch. By drawing in exports, it is taking advantage of excess capacity in the foreign countries. This means that it will face less inflationary pressures. However, this can be cancelled out by the other country also loosening fiscal policy to stimulate its growth, in which case both country's exports and imports grow at the same pace. This is why multi-lateral control of trade imbalances is politically toxic, it would give foreigners veto power over fiscal policy. In a country like Canada -- where fiscal policy is shared at the provincial level, and even the Federal government does not have veto power over provincial policy -- "non-starter" is the most polite description I can give such proposals.
Chapter 6 of An Introduction to SFC Models Using Python discusses such effects using simple stock-flow consistent models.
(c) Brian Romanchuk 2018