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Yet More on Exports as Costs and Not Benefits

Summary:
Here’s a letter to Gil Leonard, a reader of Cafe Hayek who writes that he “still cannot see why exports are not benefits”: Mr. Leonard: Thanks for your e-mail. Suppose that you’re in negotiations with foreigners to export to them shipments of mousetraps that you produce in your American factory. You receive the following e-mail from their agent: “We hereby present you with three options. If you wish to do business with us, please choose one and only one of them: Option 1: You export to us 10,000 mousetraps and we send to you M. (Initial here ___)  Option 2: You export to us 10,000 mousetraps and we send to you absolutely nothing. (Initial here ___) Option 3: You export to us absolutely nothing and we send to you M. (Initial here ___)  By initialing one of these options, you will

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Here’s a letter to Gil Leonard, a reader of Cafe Hayek who writes that he “still cannot see why exports are not benefits”:

Mr. Leonard:

Thanks for your e-mail.

Suppose that you’re in negotiations with foreigners to export to them shipments of mousetraps that you produce in your American factory. You receive the following e-mail from their agent:

“We hereby present you with three options. If you wish to do business with us, please choose one and only one of them:

Option 1: You export to us 10,000 mousetraps and we send to you $1M. (Initial here ___) 

Option 2: You export to us 10,000 mousetraps and we send to you absolutely nothing. (Initial here ___)

Option 3: You export to us absolutely nothing and we send to you $1M. (Initial here ___) 

By initialing one of these options, you will bind both of us legally to this contract.”

Which option will you choose?

This decision is, as people these days say, a no-brainer. You’ll choose option 3. And by choosing option 3 over options 1 and 2, you thereby prove that the act of exporting is not a benefit, for in option 3 – unlike in options 1 and 2 – you export nothing.

But if, contrary to fact, exports are indeed themselves benefits, then if you were presented with only option 2, you would accept that option.

In reality, obviously, you’ll never accept option 2 – a fact that proves that exports are costs: you must be paid to produce and part with whatever outputs you export.

Of course, if you were presented with only option 1 you might well take it. But this fact doesn’t mean that exports are benefits rather than costs. It means instead that exports can be costs worth incurring – costs that yield, in exchange, greater benefits.

It’s essential to keep in mind that costs worth incurring are nevertheless costs and not benefits. As I noted in an earlier letter, it’s worthwhile to me to incur the cost of going to work; I do so because I get paid to do so. But if my employer stopped paying me, my incurring the cost of working for my employer – the cost of my exporting to my employer my labor services from my household – would no longer be worthwhile to me. For the same reason, shipping exports to foreigners is itself a cost and not a benefit; the exporting that occurs is a cost worth incurring only because foreigners pay for these exports.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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