–Which is better for the U.S.: Increased exports or increased federal deficit spending?

Economic austerity causes civil disorder. Reduced money growth cannot increase economic growth. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Which is better for the U.S.: Increased exports or increased federal deficit spending? Answer first, then please read the following article, which appeared in the online version of Time:

Time: Can China Help Prevent a U.S. Tailspin?
Posted by Roya Wolverson Wednesday, August 10, 2011

China’s $31 billion trade surplus in July is an irksome reminder to U.S. officials of the advantages China reaps from its undervalued currency. China has repeatedly dismissed U.S. demands that it let the yuan appreciate faster, which would help boost the U.S. recovery by making its exports cheaper.

Many economists think that, for the U.S. economy to get back on track, exports have to grow faster. Although only 10% of U.S. GDP comes from exports now, export growth has driven more than a third of the increase in U.S. GDP over the past year. Those gains are partially due to a falling dollar, fueled by fears about the U.S. economy’s future and the Fed’s bond-buying sprees. A faster appreciation of the yuan would only help a U.S. export bender.

According to Ms. Wolverson, an increase in U.S. exports would be stimulative. And she is right. But why would sending our goods and overseas benefit the U.S. in any way? Why, for instance, does it help America for farmers to work and sweat, growing and harvesting corn, and then to send this corn to a foreign land? Where is the economic benefit in that?

The obvious answer: Exporting goods and services is just another word for importing dollars. It’s not the goods and services leaving America that benefit us. It’s the dollars coming in, that stimulate our economy.

A growing economy requires a growing supply of money, and exports (i.e. the import of dollars) is one way to increase the money supply. That is the sole benefit of exporting.

There is another way to increase the money supply: Federal deficit spending. When the U.S. government buys goods and services domestically, it credits the bank accounts of the domestic sellers. This creates dollars, adding them to the economy. The U.S. government is America’s biggest customer, bigger than China, bigger than Canada, bigger than any other nation.

The financial effect of federal deficit spending is identical with the financial effect of exporting. Both increase the dollar supply; both stimulate the economy. Yet inexplicably, most old-line economists favor exporting while simultaneously disfavoring federal deficit spending. As with so many economic beliefs by old-line economists, this makes no sense.

Fact is, federal spending could be viewed as a better stimulative than exporting, because federal deficit spending does not require us to send valuable goods and services overseas. We can keep them right here, enriching America.

Summary: Financially, federal deficit spending is identical with exporting. Both add stimulative dollars to our economy. And deficit spending has the advantage of not requiring us to send our valuable goods and services overseas.

So the next time someone tells you we need to export more, ask him or her, “Should the federal government increase deficit spending?” If he says, “No,” grab him by the throat and as sweetly as possible, scream, “You idiot.” Then show him this post.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings


11 thoughts on “–Which is better for the U.S.: Increased exports or increased federal deficit spending?

  1. Economists favor exports over deficit spending because they are still trapped in the out-dated gold standard paradigm. They think money is gold, and that we need to give stuff to foreigners in order to get their gold so that we can have more gold.

    They do not understand that all we are really getting from foreigners today are ‘pieces of paper’, so to speak, that we could just as easily create ourselves while keeping the goods we produce at home for our own use.

    I know you know this Rodger. I’m just fleshing it out a little.


  2. Hi Rodger,

    In the comparison between deficit spending vs exporting, a few questions came to mind:
    1 – The whole concept of paying foreign parties interest on the money they’ve made off us from our purchase of imports amounts to “hush money” in a way. It’s like we’re encouraging them to take our money and never return it to us. Just leave it in your interest earning account. Is that a fair statement?
    2 – What would happen if the Chinese decided to “cash out” their $1.4 trillion of securities and buy 4 million Ford F-150 trucks? (An extremely unlikely scenario, I know, but perhaps a useful visualization). Would the cost of sending “real goods” over to China out weigh all the good from the increased employment of all the additional auto workers, plant openings, steel workers, ect?
    3 – Without decisive and productive channels for deficit spending, where should all the deficit spending dollars go? By your scenario, it feels like we’d be better off paying the auto industry to pay a factory full of workers to stand around all day and do anything but create something that would go overseas.
    4 – Your example of farmers sending corn seems scarier because they would literally be taking “food out of our mouths.” Corn prices would sky rocket for us in that scenario. With US auto (and general manufacturing) production currently under capacity, the same price inflation wouldn’t be likely. Wouldn’t increased exports in manufacturing be a good and total different animal than farm exports?


  3. Broll,

    1. The whole concept of borrowing is obsolete. Paying interest is part of that.

    2. I have trouble with extreme “drink the ocean” concepts. (Drinking water is healthful, but what if I drank the ocean?) I’m not sure what you mean by the “cost of sending real goods.” Cost to whom?

    3. Human wants never are satisfied. In answer to your question, how about fully paid, universal health care and fully paid up Social Security without FICA? More support for R&D in all sciences, more support for education, more support for the states, counties and cities, most of which teeter on the edge of bankruptcy. No problem finding beneficial places to put money.

    4. Yes. Corn was just an example of a different point.

    Rodger Malcolm Mitchell


    1. 1. I don’t think I brought up the concept of borrowing. I was trying to frame what is actually going on as: we are paying people to not spend the money that they rightfully earned so that new money can be introduced. Seems to me the idea is that idea would be we’d rather the government deciding where to spend those new dollars rather than private and foreign interests.

      2. I said “the costs of sending real goods” to China because of your statement of the action “to send valuable goods and services overseas… We can keep them right here, enriching America.” I paraphrased your own statement, so I don’t see where your disconnect is.

      3. I agree all these are things we should strive for and with an advanced society these are things we should have. Unfortunately in practical execution, its probably too Utopian for our flawed species. Aside from the economics involved there’s a lot of political, cultural, and ideological BS to sift through before any of that could be addressed appropriately.

      4. “Drink the ocean” back at you… you picked the corn example because it fit neatly with your narrative. I feel like you glossed over my counter because it didn’t.

      I apologize if these reads as contentious. I do not mean it that way. I’m a fan of your website and your writings. I really want to wrap my head around all this and the best way, for me, is to sometimes play devil’s advocate.

      I truly appreciate and look forward to your responses.


  4. Broll,

    1. You referred to paying interest. On what else do we pay interest but borrowed money?

    2. O.K., in answer to your original question, No. China would pay for “the cost of sending ‘real goods’ over to China.”

    3. You asked, “Without decisive and productive channels for deficit spending, where should all the deficit spending dollars go?” I gave you “decisive and productive channels” where the money could go.

    4. O.K., change my original comment to, “Why, for instance, does it help America for people to work and sweat, creating goods and services, and then to send these goods and services to a foreign land?” Is that better?

    Broll, I get the impression you are disappointed when I answer your questions, as though you were hoping to stump me. This isn’t a contest. If you truly want to learn, you’ll do your best to understand rather than to misunderstand.

    Rodger Malcolm Mitchell


    1. Rodger,

      Trying to “stump” you is the furtherest thing from my mind. It is not my intent. Nor am I trying to “misunderstand.” I’m trying to have a dialog through which I can more completely understand all aspects of the topic. I merely asked some pointed questions and offered some alternate examples.

      The disappointment you perceive from me in your answers is indicative of perhaps your answers not being fully clear. From where I was sitting, you resorted to dismissive responses from the start.

      I’m on your side, and I do want to fully understand so as to speak to others more confidently on the topic.

      Back to the original set of questions… If you can comment on them one last time, I’d be in your debt. If you choose not to, I’ll respect your decision to shut down the conversation. Either way, I promise not to have this particular dialog go around again. So you may have the last word…

      1. I did mention “interest”, which as everyone must admit is indeed what we call what we pay to holders of our treasury securities. I’m suggesting that just our use of the word “debt” is inappropriate, perhaps “interest” is the wrong term as well. Seems to me, that functionally, we’re incentivizing treasury buyers to not spend the dollars they already have over a defined term of time with new dollars.
      2. China has tremendous purchasing power currently sitting idle (partly due to our incentive to keep it that way and I can only assume partly due to they don’t want any of our stuff). If that purchasing power were to be unleashed, would that not be good thing?
      3. Yes, I think the ultimate Utopian outcome of this question has been answered, but the specific steps and means of how to achieve this, given current political and ideological realities, remain elusive.
      4. Asked and answered.

      Thanks again Rodger.


  5. Broll:

    Your first question was, ” It’s like we’re encouraging them to take our money and never return it to us. Just leave it in your interest earning account. Is that a fair statement?” Answer: No. I know of no current motivation to do so, nor is that the stated purpose of U.S. borrowing. Also, the “never return it to us” part of your question makes no sense in terms of the borrowing process.

    Your second question was, “If that (China’s) purchasing power were to be unleashed, would that not be good thing? Answer: It’s not “leashed,” but increased exports would add dollars to the U.S. economy, currently a good thing, because Congress refuses to add dollars. Otherwise, exports would be, on balance, bad, because they us cost labor and assets while importing dollars we can produce at will.

    Your third question was, “Without decisive and productive channels for deficit spending, where should all the deficit spending dollars go?” Answer: I gave you my suggestions. You weren’t satisfied with that. So, you then asked for “specific steps and means of how to achieve this, given current political and ideological realities.”

    It seems as though you’re asking, “How do we do something Congress, the President, the media, the public and the old-line economists absolutely refuse to allow?” If I knew that, I’d do it, stop writing this blog, and go back to painting. Meanwhile, all I can do is try to educate the people who want to learn.

    Learning takes two.

    Rodger Malcolm Mitchell


  6. Quote: “Exporting goods and services is just another word for importing dollars. ”


    In order to export you need produce goods and services that people value and by producing value you are increasing the value of what you are importing backing i.e. dollars because the dollars now purchase more than they did before the production. If dollars can purchase less then they are less valuable. Wealth is physical not monetary.

    Quote: “Why, for instance, does it help America for farmers to work and sweat, growing and harvesting corn, and then to send this corn to a foreign land? Where is the economic benefit in that?”

    MMTers are great on describing monetary operations but they really fall down on trade issues. Trade involves physical production and therefore monetary effects aren’t very important compared to the physical effects of having highly productive farmers that can produce for export as well as for domestic production.

    If there are countries that can’t produce for themselves then why shouldn’t American farmer have the opportunity to sell to them? Do you want folks to starve?

    The simple fact is that many countries depend on the American farmer and increasing the global food supply is very good and exporting will do just that. The longer term issues of local versus distant food supply will require time to fix and this is not the time to introduce further supply shocks. National food stockpiles are very low and if exporting lowers food prices so that we can increase stockpiles global then we are doing a good thing.

    Quote: “A growing economy requires a growing supply of money, and exports (i.e. the import of dollars) is one way to increase the money supply. That is the sole benefit of exporting.”

    False. The knowledge gained by the physical process of production is the basis for industrial progress. Exporting, if it enhances the intellectual and skilled capacity of the nation, increases the nation’s wealth because the capacity to add value to production isn’t based on the money supply but the character and diversity of the skilled labor. Excessive importing destroys the cultural basis for production and the ability of labor to create value.

    The reality isn’t a either export or deficit spend but do both so as increase the productive capacity and the employment opportunity of all the citizens while increasing the total amount of physical wealth on the planet.

    A healthy economy is a mix of exporting and internal improvements where exporting is done to take advantage of excess capacity and add value to exchange value so that we can import for less and take advantage of the increased import opportunity created by having capital needs associated with having active exporting industries.

    You must practice export to improve import opportunity and import to improve productive capacity for exports and internal improvements. If you don’t do this then you’ll end like the late Spanish Empire that was awash in gold (Money) but had exported all the production to colonies and when colonies rebelled Spain was to weak remain in control while in a contest with the other European powers. MMTers need a better theory of physical economics and trade dynamics.


    1. If you export to a country, you export your unemployment to them.

      Unless you import precisely the same value back.

      Export surplus nations cause unemployment in import nations, effects of which are exacerbated under a currency peg.

      Germany is underconsuming, yet it is the Spanish, Portuguese and Italians that are suffering for it.

      Neither exporting nor importing themselves are bad things. It is the net imbalance that is silly. Exporting more than you import just means there is less real stuff for your citizens to enjoy – which is a silly policy.

      All countries should aim for an import surplus and fund the leakage in their own currency, and when everybody does that they will likely end up importing the same value as they export.


      1. Germany is being protective and the Spanish are being raped by the banking sector. The fact that Germans aren’t wreaking their productive base has nothing to do with the PIIGS letting themselves get slaughtered.

        I’m all for exporting unemployment to countries that won’t protect themselves if the alternative is importing unemployment or constant unproductive spending to stop so-called “leakage.” Exporting unemployment is the essence of mercantilism and it’s the only thing that has every worked.

        The reality is that everyone does it and the problems are caused when folks stop looking out for number 1 and pretend its a globalony world holding hands singing kumbaya.

        If you’ve read the old American protectionist then you understand that you create stability when everyone is trying to exporting unemployment and that free trade theories are completely reverse of the truth.

        The goal of economics isn’t achieving monetary balances but physical wealth production. The so called “value” you are importing backed isn’t measuring the true value only the monetary value.

        Exporting means the Nation has a correct view of value being rooted in process of production rather the Boomer idea of consumption.

        The monetary balance of the amount of money isn’t the issue. The issue increasing the diversity of the kinds of physical work the nation can do. You need to create a system trade policy isn’t measure in terms of dollars back per item traded or dollar exported but rather type and number of jobs traded or exported depending on the sector imbalances.

        You also don’t want to over export (like the Chinese) because you can create domestic instability based on foreign demand fluctuations.

        I’m just say that there is balance or “golden mean” and it’s based on the level employment and productive and technical capacity not some simple balance sheet accounting. A net monetary imbalance may be a good if you create new industry and capacity because the long value of the physical production. Japan had no reason to try and create an auto industry as America was making the best cars and trying to run a net export in cars was considered stupid at the time. But the physical effects of the creating the industry created spinoff effects that couldn’t be measured by the simple idea of adding up how much the Japanese could have brought without pouring tons of money into a useless car makers like Toyota that couldn’t possibly stand up to the Americans.

        The old Spanish imperialist made all the same MMT arguments about how they should product domestically and just import from the colonies and it doesn’t work. It has been shown again and again that importing destroys domestic demand in ways that the monetary accounting methods can’t track. A fixed exchange rate forcing the country to be productive and therefore more stable is better a global system than the last 40 years of partial fixed and floating mess of today. It’s either all floating or all fixed. I prefer dual fixed and MMT says floating and I still don’t know why. I’m waiting for the next post on NEP and I read Randy Wray’s article as to how a floating rate could be stable but it was rather weak and assumed politicians can act rationally..

        The number of crisises that happen now under (somewhat) floating rate market rule is much greater than under the Bretton Woods system. MMT is right on the government origin of money fails when it says markets should regulate the value rather than directly by Government according to treaty.


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