Thursday, 16 April 2015

In which I agree with Paul Krugman

No, seriously!

I have in the past argued that the benefits that flow from trade are not due to what we export but rather from what we import. I have argued, for example, that Imports good; exports bad and have asked Looking for new tools to help exporters: Why? and have noted that Protectionists are to economics what astrologers are to astrophysics, and so on. This, it seems, is not a view shared by many commentators. How often do we see calls to do things to help exports but not things to help importers? When the exchange rate is "high" we are told something must be done since it hurts our exports. No mention is made of help it gives to those of us who import.

Now thanks to Jim Rose at the Utopia – You Are Standing In It! blog I see I am not the only economist who thinks like this. It turns out that Paul Krugman, of all people, takes the same view.

The following comes from Krugman's paper "What Do Undergrads Need to Know About Trade?", 'The American Economic Review', Vol. 83, No. 2, Papers and Proceedings of the Hundred and Fifth Annual Meeting of the American Economic Association, (May, 1993), pp. 23-26:
Even more fundamentally, we should be able to teach students that imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import things it wants. Exports are not an objective in and of themselves: the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment. (p. 24)
We need to be able to teach this seemingly simple point not only to students but also the likes of commentators, journalists and politicians etc.

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