Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Here are a few thoughts about exports. In the previous post, you read this:
When China exports to America, it expends massive amounts of energy, manpower, time and scarce resources to create products, which it sends to us in exchange for dollars, which we create at no cost, by touching a computer key. Thus, China is our slave, working and sweating essentially for nothing.
Remember also that China too, is Monetarily Sovereign. The can create unlimited numbers of their sovereign currency. So why do they want to obtain our dollars in exchange for their valuable resources? First, they don’t need dollars, and second they can get all the dollars they might want simply by buying them on the open market, in exchange for yuan.
What is true of China also is true of the U.S. When we export, what do we receive in return? Our own dollars, or a currency we can buy with our dollars, all of which the U.S. government can produce without end. The purpose of exporting is merely to import U.S. dollars. (Have you heard the expression, “Carrying coals to Newcastle”?)
The CIA Factbook tells us these were the top U.S. exports of 2011 (through October):
1. Fuel: $73.4 billion.
2. Aircraft: $70.8 billion.
3. Motor vehicles: $39.6 billion.
4. Vacuum tubes: $37.1 billion.
5. Telecommunications equipment: $33.2 billion.
All required the expenditure of natural resources and labor. Here are some specifics:
Oil – exports: 1.92 million bbl/day; country comparison to the world: 11
Natural gas – exports: 32.2 billion cu m; country comparison to the world: 9
Electricity – exports: 18.11 billion kWh (2009 est.)
Think of it. While predictions are that one day, the U.S. will run out of oil, we export 2 million barrels of this disappearing stuff, every day. What do we get in return? The same dollars our Monetarily Sovereign government has the unlimited ability to create, at no cost.
Consider excerpts from an article in http://www.ft.com:
Molycorp to start China rare earth exports
By Ed Crooks in New YorkMolycorp, the Colorado-based mining group, plans to begin exports of rare earth minerals to China following its C$1.3bn (US$1.31bn) acquisition of Neo Material Technologies. Molycorp is ramping up production of rare earths, elements that are essential for many advanced technologies including smartphones and batteries, at its Mountain Pass mine in California.
China accounts for about 95 per cent of worldwide rare earth production. Because of their use in military technologies including cruise missiles and fighter aircraft, rare earths have increasingly been seen as a strategically significant resource.
Here are metals needed for a wide range of vital technologies. They are in short supply worldwide, not because they actually are rare in the earth, but because they are spread so thinly, mining them wastes a great deal of energy. Running out of rare earths could cripple our economy. But we export them.
China and the U.S. receive in exchange, their respective sovereign currencies, which each nation, being Monetarily Sovereign, can create without limit. Is this logical?
Getting back to the title question, “What if the U.S. passed a law against exporting,” there are several considerations. Without exporting, the U.S. would expend less energy and raw materials — valuable and limited commodities — while dollars are limitless and free to the U.S. government. So, from that standpoint, the tradeoff makes no sense.
Yet, for the most part, it is not the U.S. government, but private businesses, that exports. So, if the U.S. prevented all exports, many private businesses would suffer. Unless – and here’s where it really gets complicated – unless these private businesses received the same amount of dollars from the government as they profit from exporting.
With few exceptions, private industry exports in exchange for dollars. So for instance, rather than losing 2 million barrels of oil every day, what if the U.S. government simply paid the oil companies for that oil and stored it for future needs?
While the meaningless federal deficit and debt would increase, there would be no inflationary effect. Rather than dollars entering our economy from outside our borders, the same number of dollars would enter our economy from the federal government.
The U.S. government has experience with this kind of storage. The US Strategic Petroleum Reserve stores more than 4 billion barrels of oil. The Commodity Credit Corporation began buying and storing cheese back in the 1960’s. The Federal Emergency Management Agency stores powdered and canned food for emergencies. So do the Department of Defense and the Department of Homeland Security, which also store tools and weapons.
From a financial standpoint, the federal government easily could afford to buy every product that otherwise would be exported. Of course, there would be many devils in the details, mainly regarding what to buy, how much to buy and how much to pay. Quality would be a problem. Perishables, both physical and style, would be a problem. Perhaps the program would work with standardized commodities such as oil, metals, ores, sugar, water, etc.
But would the government actually have to buy and store anything? What if the government merely said, “There will be no exports of anything. No one will be allowed to sell any product or service to any foreigner. If your current business involves exporting, adjust your business. From now on, sell only to Americans.”
No doubt, this initially would cause a great upset. All major change does. But is it workable? Visualize every other nation on earth suddenly disappearing. Could America survive as a world unto itself — at least from the standpoint of exports? Native Americans didn’t export to other nations. Could a modern America do the same?
I suspect America could survive quite well without exports, particularly if the government helped ease the transition by supplying the economy with the dollars it otherwise would have received from outside our borders. And it is even more likely the nation could survive well, if the government specified only certain items that couldn’t be exported, such as: oil, coal, wood, metals, ores.
As if all of the above weren’t complex enough, we also would have to deal with world politics. If America stopped all exporting — or even stopped exporting oil — what would the rest of the nations do? Would they stop exporting to America? Probably not. Many of them would be happy not to have to deal with competition from American exports.
The world’s reaction might be related specifically to the product not being exported. If we stopped exporting wood, the rest of the world’s forests might suffer. If we stopped exporting grains or meats, some nations might face starvation.
Clearly the subject has vast implications that require far more attention than this simple blog post. But there is a bottom-line message which is:
For a Monetarily Sovereign nation, exporting has many negatives. Exporting uses up scarce resources in exchange for the freest of resources, sovereign currency. Some of those resources simply should not be exported, as they are irreplaceable. Oil is one. Natural gas, another. Most ores, yet another. Wood shouldn’t be exported, as this denudes our forests. The export of electricity uses up the energy to make the electricity.
Despite the fact that every single item of export uses up some irreplaceable asset, it is unrealistic to expect all exporting to disappear. Too many political and economic complications. I’d begin with a law against oil exports, and then add items to the list.
Meanwhile, our protectionist politicians try to restrict imports, which cost us nothing but free dollars. Ah, the irony.
What are your thoughts?
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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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. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
RMM,
Interesting thought-piece. I have a few comments, but first a quick anecdote. I’ve thought this same thing but only specifically about oil. Energy is one of the most important resources. So long as our economies are completely dependent on large amounts of oil, it seems to me that “drill baby drill” is the exact opposite of what we sould be doing. Why should be burn up our oil? Let’s keep ours in the ground (or refined and kept in long term storage, but this is very tempting for politicians to use for political purposes) and then if there is an energy crisis in the future, at least we’re prepared for it.
***I guess this same thought could be applied to all non-renewable resources of significant value
My thoughts on your piece today:
1) This type of protectionism seems like it would lead to major tensions internationally as other countries got wind of the motives behind the actions. Sure, the lack of competition from American companies will make many of them more competitive, but everything isn’t just private sector business activity. There would likely be increasing political tension.
2) The degradation of technology and productive “skills” is something I think the MMR people say that the MMTers ignore when they suggest that imports are a net benefit. If you take your article to the extreme… why should we work at all?? “Let’s do nothing in America and have the world be our slaves and make everything we want” etc etc
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JK
1. Actually, it’s the opposite of what usually is meant by “protectionism” — i.e. protecting domestic industry by taxing imports and/or by supporting exports. Really, it’s “anti-protectionism.
2. Good point, but only if not exporting led to degradation of skills. But, why would that be a result? We still would produce for domestic consumption. We’re a big consumer.
As for “let the world be our slaves,” that essentially is the Saudi system. Not bad, if you’re a Saudi.
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I’m confused about what you’re getting at…
If the United States banned exports, then the rest of the world would have no use for U.S. dollars since we’re not willing to sell them anything. Then if the rest of the world has no use for U.S. dollars, wouldn’t they stop selling us things? Why would they accept USD if they can’t use that money to buy things back from us?
Can you clarify?
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JK,
I don’t blame you for being confused, because the post contained all sorts of possibilities, mixed together. But you’re doing just the kind of thinking the post was made to stimulate.
You make a good point IF, the government banned ALL exports, and IF the government also stopped issuing T-securities, there might be some resistance to accepting dollars.
But we still would have huge, multi-national companies that could accept dollars overseas and commodity traders who exchange dollars. Dollars even could evolve to simulate gold, which isn’t used to pay for anything, but is demanded . . . well . . . just because.
Anyway, if the government doesn’t ban ALL exports, but bans SOME exports, which is what I suggest, how about that?
Rodger Malcolm Mitchell
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It’s not a unique circumstance for 1) countries to put tarriffs on imports and exports, 2) countries to subsidize certain domestic industries, and 3) countries to ban a specific import (e.g. marijuana)… so what about a ban on an export? I wonder if there is a precedent.
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Export tariffs are pretty rare. I suppose they exist, but I can’t think of one, offhand. Very few countries wish to disadvantage local industries vs. foreign industries, which is what an export tariff would do.
Interestingly, I just saw this article:
Maybe someone is starting to figure things out.
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No, they have figured out nothing. We don’t export “oil”, we export refined products made from oil that we mostly imported. The idea behind the proposal is that exporting the refined products raises domestic prices by creating shortages. Big oil company profits come mostly from the price of crude oil, not the “crack” (refining profit, based on differences in crude price and refined product prices, all of which are publicly traded commodities). If the refined product could not be exported, most of what is exported today would instead not be produced at all, because a little bit of extra supply would drive refined prices down just enough to where refineries would be unprofitable to operate.
It’s a political grandstanding ploy, to make us think that they are “doing something” about high gasoline prices.
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They have figured out nothing. This is simple political posturing.
If those refined products that would otherwise be exported are sold in the domestic market, they will displace others which will then be exported instead, so nothing is accomplished except perhaps to switch both domestic and foreign consumers to a higher-cost supplier. And if the cost differential is enough, some of the refined products just might not be produced at all.
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“Clearly the subject has vast implications that require far more attention than this simple blog post.”
correct. actually, for the past month or so, i’ve been contemplating this very question (why export?) and the answer i’ve been toying with is basically that exporting is done mainly for “political” reasons since a “monetarily sovereign nation” obviously doesn’t need to earn foreign currency (even less so, its own).
it’s done to “discipline” labor by depressing wages (or at very least threatening to do so). i also am toying with the idea that “capitalism” (whatever that’s s’posed to be) is largely “class warfare.” it’s done to maintain what you referred to as “the gap” btw. 1% and the 99% here: https://rodgermmitchell.wordpress.com/2011/12/09/saving-america-by-closing-the-gap-a-suggestion-for-ows/
i think that a lot of “business” and “labor” is actually obsolete (which reminds me of another one of your posts here: https://rodgermmitchell.wordpress.com/2010/12/13/a-personal-musing-what-is-the-future-of-jobs-do-jobs-matter/) and that things are being done simply to maintain “the gap,” which would vanish if technology were allowed to advance faster and then, later, the monetary system eliminated altogether.
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JK,
Now that you mentioned it, I found this article:
So it happens, and for the right reasons.
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In this article I read one of the broad ramifications of this type of protectionism: “Farmers and later mills defaulted on deliveries as prices climbed and crashed, causing losses or poor results for global commodity merchants including Glencore, Noble, Olam and Cargill.”
I think there are definitely good reasons for countries to restrict free trade for the benefit of their country, but it comes with costs. The more countries do it, the more volatile global prices become… and doesn’t unpredictable prices make things more difficult for the private sectors throughout the world?
You could imagine as the United States chooses to ban X Y and/or Z, that the protection then distorts global prices. This could cause political tensions leading to “tit-for-tat” protectionism, exacerbating price stability and global markets.
My feeling is that for devloping countries, there is an absolute need to protect infant industries. Likewise, in developed countries it is wise to protect industries related to national security (food, energy, etc). But trade is good! We get things that we can’t or don’t produce. And if trade is leading to unemployment at home, then we need the government to step in with the necessary deficit spending to keep the domestic economy humming and progressive.
I really like the idea of government subsidized prizes offered to advance public purpose. For example, the government brings together a panel of experts that determine that XYZ specifications would be needed in order to cost-efficiently build a solar-farm in nevada that could power the entire country’s electricity. In addition, XYZ specification are needed in battery/storage technology to be able to transport and store elctrcity efficently… etc etc and so on…
And the offer $200 billion for this, $50 billion for that, etc. Let the private sector compete to win prizes. In essence, “steer” industries toward public purpose. What do you think?
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We did this. The government offered a prize for a light bulb that used less energy, or some such. The guy was paid $millions. His light bulbs cost $50 each.
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Right reasons? They are also a big textile exporter, so they protect the cotton supply in order to help the exports of the higher-value product.
More generally, economists have taught politicians that GDP is good, more is better, and exports add to GDP while imports subtract from it. Export industries employ people whose output does not have to be purchased from the incomes of the local population, so that private sector saving is possible without causing unemployment.
Even more generally, trade is a two-way street. People work to make export goods so that they can earn the currency to buy the imports they want. Nobody will accept your money unless it can be used to buy something they want.
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Every government act affects prices. Had India not acted, prices also would have “roiled.” My opinion: Steady prices are a greatly overrated goal — as well as an impossible goal.
Anyway, I don’t mind the private sector competing. What I mind is America shipping our natural resources overseas at the cost of even more natural resources, and receiving nothing in return. Do you really like exporting oil, wood, coal, electricity, fish, food, etc. at no national return?
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RMM,
I see what you’re getting at… but there must be some national return, even if it’s difficult to quantify. Meaning, are we able to buy things from foiregners that we want precisely because we are willing to sell them things that they want from us (oil, wood, coal, electricity, fish food, etc). And the more we limit exporting natural resources that other people want to buy from us, maybe the more they will limit exporting to us things that we want?
I think this is an interesting topic, but it seems like there would be tit-for-tat trade “wars” if we started enacting laws that prevented industries from exporting.
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The “national return” is that the importers pay the wages of the workers in the export industries. Otherwise, those workers would be unemployed, at great social cost, mainly in countries whose currencies are not strong enough, without the exports, to be able to purchase the imports they need.
Nobody in Texas worries about exporting their natural resources to Arizona. If you adopt a global perspective rather than a nationalistic one, is this really a problem?
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“We” signed away all of our natural resources to the multi-national corporations a long time ago. These institutions are not loyal to sovereigns even if they might be planted on “our” soil. They are interested in converting the resources to strip-mining dollars without particular care for what flag anyone happens to be flying.”We” might get a few “jobs” which helps us ignore all the real costs in the form of externalities from these institutions.
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Trade prevents wars! Fact!
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Great video http://www.prageruniversity.com/Wisdom-of-the-Masters/The-Power-of-Profit.html
George Mason is a great university
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Simplistic. He skipped over the fact that profits also motivated banks to make the “liars loans,” which were bundled by other crooked banks, then sold by crooked brokers, and ultimately caused the great recession.
Like all motivators, profits can work for good or for evil.
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I don’t believe anyone expected liars loans to be profitable for the banks. The loan officers believed they would be lucrative for their bonuses, even though a disaster for bank profits.
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I don’t believe anyone thought liars loans would be profitable for the banks. The loan officers thought they would lead to lucrative bonuses for themselves, even though a disaster for bank profits.
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They’re profitable if you can sell them to some other sucker, which is exactly what the banks did.
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Were they not sold “with recourse”, so that the seller of the CMO would take the hit if defaults exceeded the expected rates?
If they were so profitable for the banks, why did the banks need to be bailed out, and not the investors?
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….with a horrible economics department. They are one of the only departments in the nation that consider Austrian economics valid.
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golfer,
Some were; some weren’t. So when the bottom fell out, everyone took the hit.
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