Double Exports in Five Years? Posner

President Obama in his State of the Union Address announced a program to double U.S. exports in the next five years and by doing so create 2 million new jobs. The program mainly involves a $2 billion increase in loan guaranties to exporters by the Export-Import Bank and greater efforts to negotiate trade agreements with foreign countries and to enforce U.S. laws against “unfair” international trade practices, such as “dumping” foreign goods in United States markets, at below-cost prices.

 

Of all the “job programs” undertaken or contemplated by our government, the President’s plan to double exports in five years seems to me the most fatuous.

 

Total U.S. exports of good and services in 2009 were $1.553 trillion, and total imports $1.934 trillion (the net trade balance was therefore a minus $380.7 billion). See U.S. Bureau of the Census, Foreign Trade Statistics, www.census.gov/indicator/www/ustrade.html.  Exports were therefore about 11 percent of Gross Domestic Product. If GDP increases by 2.5 percent a year for the next five years, and exports grow proportionately, then by 2015 they will have grown by 13 percent. The President wants them to grow by 100 percent. (If they would grow by 13 percent without any governmental effort, then the President’s 100 percent program, if it succeeded, would actually have increased exports by only 83 percent—though of course the government would take credit for all 100 percent!)

 

How his program could accomplish this is incomprehensible to me. The increase in loan guaranties by the Export-Import Bank would reduce exporters’ interest costs by reducing their risk of losing money by extending credit to a foreign purchaser, but that would be a minor boon to exporters. Likewise, anti-dumping enforcement and other efforts to prevent “unfair” pricing by foreign companies importing to the United States are likely simply to provoke retaliation--limiting our exports—as happened in our recent tiff with China over imports of tires.

 

That leaves the negotiation of trade agreements with foreign countries. The problem with them, from a job-creation or deficit-reduction standpoint, is that they increase bilateral trade—imports as well as exports—and so have no average tendency to increase exports. Moreover, they are difficult to negotiate because of opposition by producers and workers, in both countries (if it is a bilateral agreement), to allowing increased imports; the opposition to increased imports is based on the fact that they can result in reduced domestic production and employment. At the same time, increased imports benefit consumers and some producers (imports are often inputs into domestically manufactured goods), but generally these effects are more diffuse than the losses of sales and employment caused by imports, and so do not have as much political weight. A Democratic Administration is apt to be particularly sensitive to union opposition to free-trade agreements.

 

Increasing exports is a standard and perfectly sensible response to an economic downturn. Exports are by definition domestically produced goods or services, so an increase in exports increases production and hence employment. But the usual way of stimulating exports is by devaluation, which increases the amount of a nation’s goods and services that foreigners can obtain with their foreign currency. Moreover, devaluation increases the domestic price of imports, which in turn stimulates domestic production to replace some of these now more expensive imported goods.

 

Our government has been trying to create a modest inflation, primarily in order to reduce debt burdens, reduce real wages (in order to reduce layoffs), and reduce hoarding (since inflation has the effect of a tax on cash balances) and thus stimulate consumption. Inflation increases the price of exports, but, especially if it is modest, is likely to be offset by a fall in the value of the dollar relative to foreign currencies. A high rate of inflation, however, which is a looming possibility because of the Federal Reserve’s "easy money" monetary policy, would probably have a significant negative effect on exports.

 

We have large trade deficits with China and other Asian countries that pursue protectionist policies, but there doesn’t seem to be anything we can do about that. We have no leverage with those countries. They accumulate large dollar reserves as a result of running large trade surpluses with us by virtue of their policies—and we borrow the dollars, becoming these countries’ debtors. The indirect effect of our foreign debt on our exports is an illustration of the gravity of our fiscal situation, to which the government seems at last to be paying some heed—though not in its job programs.

 

An improvement in our trade balance would be a good thing because it would reduce the federal deficit as well as making us less dependent on the goodwill of foreign countries, but increased exports offset by increased imports would not affect the balance.

 

Finally and most questionably, the proposal to double our exports assumes that foreign export-oriented countries like Germany and China would stand idly by while we “stole” their export markets. Obviously they would respond—with their own export-stimulus programs, which would be likely to negate ours.

Comments

[Jim]

Jack, I am not trying to minimize the problem or deny its existence. Just trying to point out that stats poorly used can make a problem seem a different magnitude than it is. The population at the very top of the income or asset curve is relatively small, the bottom is small but getting larger and the middle is very large and tending toward the bottom. From a sociological point of view, I look at it as follows: The top thinks it "buy" it's way out (house on the hill). The middle (you and me) think we can think our way out (make adjustments) and the bottom thinks it will be able to shoot it's way out and many of them are the gun buyers and owners.

[N.E.H.]

Jack, Those are impressive numbers, but there is a whole host of other products with negative or nonexistent values (products no longer produced locally and have resulted in massive importation which has also resulted in massive unemployment)that outweigh and has overloaded the scales resulting in trade deficits and a negative trade balance.

As for Tariffs and Duties, yes, it is a complicated regimen, but something that is manageable for the interests of the Nation.

Jim, Never fear. It has become a well known sociological fact, that the descent into poverty usually results in increased criminal activity by the long term unemployed to cover their daily wants and needs. Just consider it to be an alternative "blackmarket" employment program. And everything becomes fine again. ;)

As for the increase in violence, it is a common sociological phenomenon. Just remember, when it was formalised under Marat and the Committee on Public Safety, resulting in the Reign of Terror and the elimination of the Ancien Regime. I won't even mention the English Civil War or the Russian Revolution. Talk about watering the Tree of Liberty.

[Jack]

Jim: I understand. However some stats tell a story it's hard to deny and lagging incomes for those doing the work are one of them.

I just happen to have a few other stats here to go with those of the gaph:

1. 150 million: The number of poorest Americans it takes to equal the income of the richest 300,000.

BTW.......... that richest group includes the Walmart heirs who were a major factor in the Bush push to repeal the "death tax" while the employees generating that wealth are among the poorest group and subsidized by the US taxpayer to the tune of one billion each year. Cool?

2. 15.2% the inflation adjust wage increase for average Americans from 1970 to 2005

3. 2,193% the increase in average CEO pay for the same period

4. $105,000 Average increase in pay for the one year 2004 -2005 for the richest 1% of households.

5. $250 increase for those in the lower 90% for the same period.

6. 1929 --- The last year incomes were as skewed as in 2005

7. And the frosting on the cake? 44.5% Average fed taxes paid by the richest 1% in 1980 while in 2005 that number was 30.4%

Trouble is, it simply will not work. No way "we" can pay Docs a million/yr, soaring H/C premiums, energy costs and educational costs out of flat and declining wages. Just will not work. Kinda like the last rounds of a Monopoly game or .......... 1929

[Jack]

NEH Yep........ It seems to me that if we don't export roughly as much as we import we're pretty much like a couple of wastrels having inherited a ranch. They party hearty in town and then pay the bills by selling off the back 40 until there's nothing left to sell.

Without taking WTO (based on decades of GATT) apart my political approach would be that of INSISTING on improving working conditions, pay and environmental protections, OR facing a "poor world citizen" tariff for access to our huge market and that of the Eurozone. Still I'd think a larger chunk of our success will come from putting our own house in order as is the case for most businesses facing stiff or even unfair competition.

Also, I think North America could gain from working more closely with Mexico and some SA nations. Mex has an energetic young work force with half of their 100 million population having been born since 1975. As in Euro, Spain etc there must be some mutually beneficial equation employing our tech and their surplus labor.

Time to roll out the long forgotten "Can Do" spirit?

[N.E.H.]

Jack, We seem to be pretty much in agreement on the problems, causes and solutions to our economic problems and demise. Just a couple of details to add to your current list:

1. H/C prmium costs are set to rise 39% this year alone, 250% over the last ten years - oral evidence given at a congressional inquiry.

2. Education Costs, students are borrowing $45K to pay for four years of college (in my day we could do it for $20K that's an increase of over 100% in twenty years)and the loan payoff value is $105K. talk about inflation not only at the tuition/room-board/books level but also the interest on the loan. Interesting how that value of loan payback, $105K neatly fits the average annual increase for the richest 1% of households. Guess what industry those are in. Dare we call it Conspiracy? Or is it just Circumstantial? Either way, "something is rotten in Denmark".

Such inflation is unsustainable, in fact we may have reached that level already. Which clearly points to another regimen that must be implemented, "Price and Wage Controls" (and this has problems). And yet, the official inflation rate has been "low" over the past few years (problems with the method of calculating the "inflation rate" - skewing the numbers to hide financial malfeasance and enrich the upper 1% of the income brackets). Ahh... if only I were a member of the new Aristocracy - then I could be indifferent to it all and believe in the idea of, "well, let them eat cake".

[Jack]

NEH: Both 1. and 2. are big problems that require attention. But, consider, over a 40 year period productivity per capita has doubled. Roughly speaking that should point to a doubling of incomes had the income distribution curves remained similar to that of 1970.

For example had the 1970 min wage that had a purch power then of $9 in today's currency it would be in the range of $18 today. Similarly, median household incomes would have increased on the order of 40% higher than they are today. With those income increases many of our problems would still be problems but less insurmountable. This is mentioned so rarely by "econ pundits" et al that we've come to believe that, somehow, we're supposed to deal with these growing expenses AND save up a 401k for retirement on a virtually fixed income. If we don't it's because we've "acted irresponsibly".

Politically we've been beaten down so far that most of the rap is about how to beat down the incomes of public employees or those of the unions members instead of supporting those going up against the combine for the share those doing the work should have.

The (second) graph doesn't illustrate the effect well but may be of help:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

A note on school costs: Currently there is something of a shortage of prospective students (a demographic shift) so their pricing has taken some "odd" twists. I suspect the rack rate has gone up due to the availability of student loans and perhaps tax credits beneficial to upper income earners. But beyond that published price there is a lot more help for low incomes along with scholarships that cut the costs substantially.

[N.E.H.]

Jack, As for that last paragraph on education, the low income get government guaranteed scholarships, those in the upper echelon get salary and wage increases plus tax credits. Those of us in the middle are cast to the winds and at the same time are expected to pay for it all... as the current financial round of propaganda put out by the likes of the CATO Institute, K-Street, and Wall Street, it's a good rhetorical ploy to blame or scape goat the "other" when trying to protect ones own interests or malfeasance. No wonder the "Middle Class has acted irresponsibly". Hence, driving a wedge between the poor and middle class, eliminating the potential threat of Class War and protecting the right and priviliges of the New Aristocracy (of which K-Street, Walll Street, Cato institute are members) to stand on the backs of "the other" and against all comers. Perhaps Marx and Marat were right after all.

Strange how things may change, yet fundamentally they stay same.

[Jack]

NEH --- Great! and exactly the case! And Ha! even half a century after "commie" paranoia even the mention of Marx is "risky", but in those earliest days of capitalism he deserves credit for predicting the periodic, greed driven collapse of an unregulated "capitalism" that in our era has co-opted our democracy and dealt so many rent-seeking favors from Congress that it has short-circuited the very power of capitalism itself.

Here's one "funny" example: A year or so ago Bernanke was trapped into answering a Congressman's question as to whether it would be better to A. raise the min wage, or B. increase the EITC subsidy for low income folk who can's possibly survive on their incomes.

Pressed, he answered increase the income subsidy. Interesting; here's a fairly "conservative" economist who seems to have little appreciation for a capitalism that should direct scarce resources to their most productive use, and goes further down the socialistic road of relieving the employers who benefit from their employees labor from the irksome burden of paying them a life sustaining wage.

And Ha! in the housing mess, while some simply were trying to buy themselves a home before prices completely outpaced their earnings, others played about the same, irresponsible" role played by the biggest thieve on WS, ie... "Hey the gravy train is on a roll! Grab a piece while it's running!"

[Steve Craven]

N.E.H.: Couldn't agree more with your comments on infrastructure investment. I see it whenever I visit my daughter near Cleveland and Akron, and I'm slated to be in Detroit later this year. You can also see the need for investment in Hawaii's tourism and transport infrastructure, which I blogged about just a few days ago (http://kekepana.com/blog/2010/03/01/looking-beyond-the-surfline/). For comparison, take a look at the recent Asia Times article on Asia's magnificent new infrastructure (http://www.atimes.com/atimes/Asian_Economy/LB27Dk01.html).

I'm enough of a Keynesian to know that infrastructure is where the vast bulk of stimulus funds should have gone, something our Congress and President didn't glom onto. But the Chinese did.

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is so old that it http://www.new-jerseys.com has just been abandoned in place to decay and rot away. Before we can even begin to think about exporting anything, we have to rebuild the industrial base and train the necessary workers, technicians and engineers who will build, rebuild and operate it. No easy task in five years. This crisis has only been in the making for the last twenty to thirty years and we've been screaming since the first days, but it has only fallen on deaf ears in Washington and Wall Street (whose reason for existence at one time was to capitalise industrial development

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[sesli chat]

Better Government jobs than no jobs at all. Exports? corn, soybeans, wheat, rice, oats, rye, potatoes, meat, etc., etc.. Water! We can pump down the Great Lakes to supply the Third World and the rest of the world with our fresh water supplies, not too mention pump down the Ogalala Aquifer for export supply (never mind the fact it will probably wipe out our Ag. production). As for Industrial export, that's going to be a little difficult. Since the "Finance Wizards" have pretty much given it away, by disassembling our light and heavy industrial process and shipped them overseas. Or allowed the World to buy them up at firesale prices and then disassembled them and shipped them overseas.

Strange isn't it. We started as an Ag. based economy, moved to an Industrial based economy by Governmental stimulation, then along came the Free Traders/Marketers who forced us back into an Ag.based economy. This is Progress? No wonder we're in such dire need of Government jobs.

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[Roger]

It's all about Duties and Tariffs or lack thereof on both exported and imported goods and services. In fact, if handled correctly, we could not only get our trade balance straightened out, but could possibly if not actually, pay down the National Deficit and Debt without raising income taxes. Roger http://ww.rapidsloth.com

[Roger]

It's all about Duties and Tariffs or lack thereof on both exported and imported goods and services. In fact, if handled correctly, we could not only get our trade balance straightened out, but could possibly if not actually, pay down the National Deficit and Debt without raising income taxes. Roger http://www.rapidsloth.com

[Rupert]

Free Market Capitalism as it has been practiced as of late, must die. If we are going to secure our Independence and our fundamental Economic security for ourselves and our posterity. http://www.hotfilemediafire.com

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[den]

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