President Obama made his case for exports in his State of the Union (Photo: Pablo Martinez Monsivais/REUTERS)
President Obama and several policy wonks think they have come up with a solution to America's jobs crisis: Exports. Last week, in Obama's State of the Union he reiterated that he thinks boosting the amount of goods we ship overseas should be a top priority in the battle against unemployment:
To help businesses sell more products abroad, we set a goal of doubling our exports by 2014 "“ because the more we export, the more jobs we create at home. Already, our exports are up. Recently, we signed agreements with India and China that will support more than 250,000 jobs in the United States. And last month, we finalized a trade agreement with South Korea that will support at least 70,000 American jobs. This agreement has unprecedented support from business and labor; Democrats and Republicans, and I ask this Congress to pass it as soon as possible.
The emphasis on exports is not in short supply these days. Last week, in Davos at the World Economic Forum, both US Treasury Secretary Tim Geithner and former President Bill Clinton said exports are the key to job growth. Geithner said emerging markets are where the growth is, so the US should be there. President Clinton cited Germany's ability to penetrate the Chinese market as one of the reasons that country's economy has continued to do well.
The problem is that a number of economists think boosting exports to produce jobs growth is, as one economist put it, a "mugs game." Says Dean Baker, of the Center for Economic and Policy Research, "If we really think exports create jobs, we should just import a bunch of stuff from Mexico and then send it to China." Problem solved.
The worry is that emphasizing exports over making goods that are consumed here will only shift employment, not boost it. Worse, exports, at least for now, produce significantly fewer jobs as the same amount of economic activity when companies are producing goods and services that will be consumed in the US. So is all this emphasis on exports misguided? Perhaps. Here's why:
On the face of it boosting the amount of goods we ship overseas does sound like a very reasonable way to create jobs. We export relatively very little. In 2008, we exported $1.7 trillion dollars worth of goods. That sounds like a lot of stuff. But considering we have a $14 trillion economy, our exports are kind of pathetic. What's more, boosting exports could solve another problem--our trade deficit. We import nearly $500 billion more than we export a year. The gap with China is even more striking. In the first 10 months of 2010, we bought $334 billion worth of stuff made in China. The Chinese, on the other hand, bought just $82 billion worth of American goods. Consuming more than you make forces you to borrow money to pay for all that stuff. Just another reason why we continue to have a debt problem in the US.
So boosting exports seems like the low hanging fruit and a way to get out of debt. The issue is exporting our way to job growth is harder than it appears. Here's why: According to a recent study by the Department of Commerce, US exports have to rise $185,000 to produce one job. Our non-export economy tends to produce a new job at a rate of about $120,000 of economic activity. That means we have to produce an extra $65,000 of work to produce the same job when we go down the export route. The reason has to do with the fact that the types of goods that are exported-manufactured items-tend to be less labor intensive than the service and information jobs that drive our domestic economy these days. Few restaurants have replaced their waiters with robots.
Translate that back to this year's predicted GDP growth and you get the picture of what the export trade off is. The International Monetary Fund recently predicted the US economy would grow 3% in 2011. That equates to a $420 billion boost in economic activity. If all that extra activity came from exports, then the economy would create 2.3 million jobs. Not bad. But if all that growth came from jobs that produced things that were consumed by US customers, and not exports, that same 3% GDP growth would produce 3.5 million jobs, putting an extra 1.2 million people back to work.
Barry Bosworth of liberal think tank Brookings, which has been pushing this emphasis on export growth, agrees that the mix will have to change. He says that as we boost our exports we will have to start producing more goods that are more labor intensive, that way as exports grow it will become a more productive engine of job growth. But that doesn't appear to be happening so far. Two years ago, it took $165,000 worth of exports to produce a job, $20,000 less than the estimated amount today.
So what's the answer? I'm not sure. Exports are probably part of the answer of where we will find job growth. But that doesn't mean promoting jobs that produce things for other Americans isn't important as well. TIME's Joe Klein found a lot of disgust with our free-trade policies on his road trip across America last year. The feeling was that China steals American jobs. Many economists would say people don't understand the way trade works. Maybe they understand better than those economists think.
The analysis of exports vs. local consumption sounds fair. 120k vs 180k is a reasonable number.
But I think that the un-addressed problem here is what exactly are we going to export? and to whom? Especially at 180k per worker?
There is definitely some work that can justify this high price tag, but most work simply cannot. And with high levels of unemployment associated with the least trained people in the economy, it's going to be very difficult to bring those people back in to jobs that demand a lot of value creation.
"So boosting exports seems like the low hanging fruit and a way to get out of debt."
Except for one small detail. Getting out of debt is totally unnecessary for a Monetarily Sovereign nation.
We could get out of debt tomorrow. Instead of creating T-securities out of thin air, then trading them for dollars we previously created out of thin air, we merely could create the dollars and pay the debt.
This does nothing to cause inflation, as it adds the same number of dollars to the economy. Creating and selling T-securities is a relic of the gold standard days, and should have been abolished long ago. No T-bills; no debt.
Unfortunately, the author of this post does not understand the difference between personal finance and Monetary Sovereignty.
Rodger Malcolm Mitchell
Mr. Rodger Malcolm Mitchell, the author of this post, -Stephen Gandel - understands and knows a heck of a lot more about economics than you will ever know. You're the one who is dreaming in cloud nine in your make believe fantasy world....I tell you what, why don't you go to Washington DC and see your good buddy "helicopter" Ben Bernanke and try to convince him to implement your idea? This the man you ought to see, for he has the keys to the money printing presses ...he just loves to load his helicopter with tons of freshly minted fiat dollars, get up in his machine and shower Wall Street with easy cheap fiat dollars from the thin air....however even crazy "helicopter" Bernanke would kick you out the door with your pretentious presumptuous preposterous theory....
You keep on writing here in this blog that the US as a Monetary Sovereign nation can just keep on printing fiat unbacked paper dollars indefinitely, forever, with absolutely no adverse negative effect....that the US Fed could pay the 14 trillion accumulated national debt tomorrow with all the necessary money printing...that it could pay all additional trillions of the states and municipal debts just by printing money out of thin air....that the USA could get out of debt tomorrow just by printing all the money it owes....
Please just stop for a second and look yourself inward..if you have any intelligence at all you would immediately discern the total idiotic ridiculous stupidity of your proposal...why even a total lunatic would realize that such plan is totally preposterous for the simple reason that if this unlimited money printing could actually be done without imploding the economy and destroying the currency, "helicopter" Bernanke and company would have already been doing it a long time ago,,,, along with all the other central banks throughout the world..they wouldn't need you to tell them about it in the first place....but the truth of the matter is it cannot be done without recking the economy with rampant runaway 3 digit inflation and gutting the currency.... Your friend Mugabe in Zimbabwe thought just like you do.....Mr. Mitchell have you been to Zimbabwe lately and paid for a cup of coffee with a 20 million dollar bill because a cup of coffee cost 19 million and nine hundred thousand dollars? Do you even start to realize how destitute and poor people in Zimbabwe are with 1000 per cent inflation? That is exactly what would happen to the US if your so called "solution" was implemented.
Thus the question you have to ask Ben Bernanke is > " Why the heck aren't you printing money until the cows come home? Listen I am the Big time Rodger Mitchell and I alone have the solutions to all our economic and debt problems..I have a instant magic solution" < ...just wait for his answer and I guarantee you that you will be coming out of his office in a straith jacket and immediately sent to the nut house.
Mr. Rodger M. Mitchell, why don't you come down from your cloud nine, why don't you stop dreaming in your preposterous dream make believe world, why don't you wake up, shake your thick head, smell the coffee, smarten up, face reality and get on the ball? After all it is a real shame to see a man of your age living so long without acquiring any wisdom and being so recklessly irresponsible...you are in your sixties, but your brain is that of a 12 year old, in fact, even some 12 year olds have more discernment that you.
Joseph, I am not an expert in the field of economics so it's not my place to debate the validity of one's ideas vs. another. But your drawn out tirade above is a bit unnecessary and rude and does nothing to further the discussion. I don't necessarily agree with everything Mr. Mitchell suggests, and sometimes he sounds like a broken record but he does at least present facts. With a little prodding he'll even cite sources outside of his own blog (something that I think if he did more often, would help his credibility here) and in a previous post even had a legitimate economics professor back him up. I'm not suggesting that you don't know what you are talking about but you seem to be making assumptions that Rodger is clueless because he doesn't support your conclusions. Conclusions from which you do not present any data to back up.
The "experts" say increasing exports are supposed to be the way to improve US employment prospects, but we can't increase exports that quickly.
Would not the flip-side approach of lowering imports (while keeping consumption steady) have the same effect of promoting U.S. industry and jobs?
Why are there not tariffs on foreign goods, to level the playing field for lower wages, and worse environmental safeguards overseas, or just to help the U.S. economy? If Tea Partiers cared about putting America back on top, shouldn't they support tariffs - "Buy American, Produce American"?
Our allies wouldn't be too keen on the idea, but tariffs were the main source of federal revenue before the passage of the 16th Amendment in 1913, according to Wikipedia.
Stephen, could you explain the "mugs game" phrase for your readers, or hyperlink it? Thanks.
Sorry, can't hyperlink because it was something one of the economists that I talked to for this piece said to me on the phone, wasn't something I took from another blog. I think what he was trying to say is that just emphasizing exports is not looking at the whole picture. Even if you were to double exports, you might end up losing jobs anyway, or at least not producing that many because you lost jobs elsewhere because of imports, or you just invested unwisely in an attempt to boost exports at all costs.
Well, as mentioned in the article... Export is for sure not the complete solution for the unemployment problem, but it can't hurt to export more.... Look at many countries in Asia. Exporting goods is major business and the job-situation in Asia is booming. More and more jobs are created daily. Asia is coming strong...
We help Americans find jobs in Asia http://www.facebook.com/pathtoasia
The U.S., as a Monetarily Sovereign nation, has the unlimited ability to create money. This is an absolute fact, which no one could deny. (The PIIGS, which are not Monetarily Sovereign do not have this ability, which is why they have trouble paying their bills.) Neither taxes nor borrowing support the federal government's ability to spend money.
However, that ability does not mean the U.S. should create/spend money without limit. There is one limit, and one limit only, to the federal government's ability to create money, and that limit is inflation.
To "borrow", (a widely misunderstood term, when referring to the federal government) the government creates T-securities out of thin air, then trades these T-securities for dollars it previously created out of thin air. Because T-securities are money (called "L," one step above M3) the creation of T-securities is the same as creating money and has the same affect on inflation. When T-securities mature, the holder merely exchanges them for previously created dollars, an exchange that does not add money to the economy.
Therefore, the redemption of T-securities is not inflationary. The federal government easily could redeem all outstanding T-securities tomorrow. In fact, T-securities should be eliminated, as they are a relic of the gold standard, when they were necessary.
If you want another source for these counterintuitive ideas, go to any Modern Monetary Theory (MMT) site. I specifically recommend Warren Mosler's "7 Deadly Innocent Frauds" at http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/. Or you might look up anything written by Professor Randall Wray.
josephmateus is not unique in his anger. Those who do not understand Monetary Sovereignty scoff at it, because Monetary Sovereignty is counterintuitive The terminology and the reality are different from our everyday experience. Sadly, most mainstream economists don't understand i,t possibly because they were educated pre-1971,or read text books written by professors who were educated pre-1971, when the U.S. was not Monetarily Sovereign.
I believe Bernanke does understand it, but is afraid to try to explain it to Congress, because they would have the same angry, insulting reaction as josephmateus. Yet the foundations of Monetary Sovereignty are simple: The federal government has the unlimited ability to create money, constrained only by inflation, therefore does not need to borrow or to tax, except to prevent inflation. That's it.
Perhaps, as josephmateus says, Mr. Gandel knows more about some aspects of economics than me, but he does not understand Monetary Sovereignty, which is the basis for all of today's economics. It's like trying to understand algebra without understanding arithmetic. Can't be done.
Rodger Malcolm Mitchell
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