Tuesday , June 18 2019
Home / EconLog Library / Boudreaux’s Export Error

Boudreaux’s Export Error

Summary:
In an otherwise good critique of a recent op/ed by Steve Moore, titled “Steve Moore Is No Free Trader,” economist Don Boudreaux makes his own error. He writes: First, exporting, as such, no more enriches a country than does vandalism or arson. Exporting enriches a country only insofar as the people of that country receive imports in return for their exports. Unlike Mr. Moore, every true free trader understands that exports lead to growth only if and to the extent that exports bring in more imports. Consider those first two sentences together. When you commit vandalism or arson, you destroy wealth. But when you export, you get something in return. The exports are sold for money. And the exporter must value the money more than the exports or he wouldn’t do it. So

Topics:
David Henderson considers the following as important: , , , , ,

This could be interesting, too:

Scott Sumner writes Freedom to travel

Pierre Lemieux writes The Poverty of Protectionism and the Impact of Tariffs

Pierre Lemieux writes New Sanctions Against Americans

Amy Willis writes #EconlibReads: Russ Roberts’s The Choice

In an otherwise good critique of a recent op/ed by Steve Moore, titled “Steve Moore Is No Free Trader,” economist Don Boudreaux makes his own error. He writes:

First, exporting, as such, no more enriches a country than does vandalism or arson. Exporting enriches a country only insofar as the people of that country receive imports in return for their exports. Unlike Mr. Moore, every true free trader understands that exports lead to growth only if and to the extent that exports bring in more imports.

Consider those first two sentences together. When you commit vandalism or arson, you destroy wealth. But when you export, you get something in return. The exports are sold for money. And the exporter must value the money more than the exports or he wouldn’t do it. So the exporter gets what economists call “producer surplus,” which is the amount the exporter is paid for the exports minus the minimum amount for which the exporter would have been willing to supply the exports. That’s very different from vandalism or arson.

It’s true that when this money is used to buy imports, those who buy the imports are better off also. They get what economists call “consumer surplus,” which is the maximum amount they would have been willing to pay for the imports minus the amount they do pay.

But imports are not necessary for exporters to gain from exporting. In the extreme case where they buy zero imports, they will typically use the money to buy (1) bonds from foreign governments, (2) commercial bonds from foreign firms, (3) shares in foreign firms, or (4) real estate in foreign countries. Or they may (5) directly invest in plant and equipment in the foreign country. Indeed, because it is the United States that runs a large current account deficit with the rest of the world (in other words, the value of our exports of goods and services is well below the value of our imports of goods and services), people in those other countries do all 5 things above.

Now to Don’s final sentence. I’m a free trader and I think (I certainly hope) that Don would call me a “true free trader,” and I don’t understand that. Exports could lead to growth if exporters use the proceeds of their exports wisely, not just to purchase imports (although that might be, and probably is, a very wise decision), but also to do some or all of the 5 things listed above.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

Leave a Reply

Your email address will not be published. Required fields are marked *