What’s the rationale of a country like Germany wishing to run a perpetual current account trade surplus? Some $250 billion last year and expected to rise to $300 billion in 2015. That’s a bigger surplus than the Chinese. That desire seems to be causing a lot of trouble in the Euro Zone right now. Of course, everyone knows surpluses are good and deficits are bad. But, is that really the case?
Running a trade surplus in euros means running a trade deficit in real goods and services. That deficit must mean that German living standards aren’t what they should be. As anyone who has visited Germany recently will know, there are many Germans who aren’t at all wealthy, and struggle to get by.
If the Germans sell more to the UK in one year, that then gives them more ££ in their kitty to buy more stuff from the UK in the following year, which would of course be fair enough. But what is the point of their wanting to continue to do the same thing year in year out? They are just building up large reserves of UK government securities denominated in ££ which they won’t ever spend. That is, until they decide to become a net importer, but that seems totally contrary to German economic “philosophy.” If that’s the right word!
It’s the same story with America and many other countries too.The Germans like to accumulate US$ which they can never spend. What’s the point of always swapping 4 pigs for 3 equally valuable sheep and taking an IOU to make up the difference? They end up with more IOUs for sheep than they need and more than the sheep producers can possibly supply.
The Germans could do just as well by selling cars to the fictitious state of Atlantis. They could sell as many BMWs, Audis and as much of whatever else they make as they liked, then just dump the lot in the middle of the Atlantic ocean. They would get paid in pretend Atlantis dollars which they could never spend of course. (Except perhaps with the Chinese?) But, as they seem happy to accumulate large reserves of other currencies which they have no intention of ever spending, what would be the difference?
There needs to be a general rethink of how countries should balance their trade. It seems to make little sense to wish to have a perpetual surplus of exports for the exporters. If the importers were wise to the ways of MMT then they might not worry about their deficits, both external and internal, quite so much as they do. That doesn’t seem likely to happen any time soon, unfortunately, so the next best thing would be for everyone else to be challenge the big exporting countries like Germany, Denmark, Singapore, Switzerland and China and ask them why they are so keen to earn money which they can’t or won’t spend.
Modern Monetary Theory: Real Economics 