Thread by @DeficitOwls

It's Day 5 of our online book club for @StephanieKelton's The Deficit Myth!

Today we're reading Chapter 5, and we'll post highlights below. Read along and post your favorite parts with the hashtag #TheDeficitMyth.

Happy reading🦉...

Chapter 5 is about trade, trade deals, and sectoral balances. I'm actually pretty excited to read this, since it's rare to hear a fully spelled-out MMT-informed take on trade. #TheDeficitMyth

Trade wars resonate with ordinary Americans who are concerned about jobs. #TheDeficitMyth

Kelton accuses Democrats in 2016 of giving up on working-class voters in towns that were devastated by offshoring. #TheDeficitMyth

"The truth is, a trade deficit is not in and of itself something to fear. America doesn’t need to zero out its trade deficit to protect jobs and rebuild communities." #TheDeficitMyth

Next comes an outline of the sectoral balances approach with the foreign sector. #TheDeficitMyth

Reading this, it strikes me that the term "trade deficit" is 100% arbitrary: why is imports>exports labelled a "deficit," rather than imports<exports?

Structural reform is "the polite way of describing an agenda aimed at driving down labor costs (wages and pensions) to increase competitiveness by reducing the costs of production. Essentially, it means that a country uses weaker labor as a substitute for a weaker currency."

Talking about Trump's strategy of trying to reduce the trade deficit with tariffs, Kelton says "Trump sees that as “winning” because his entire worldview is shaped by cash flows. The one with the biggest bucket of money wins." #TheDeficitMyth

"MMT recognizes that imports are real benefits. Viewed this way, Trump’s tariffs are really a tax on US benefits." #TheDeficitMyth

Kelton places the Job Guarantee as an important fixture of an MMT-informed trade policy. With full employment taken care of at home, trade deals can focus on things like labor standards and environmental issues. #TheDeficitMyth

Kelton recounts a brief history of the gold standard, Bretton-Woods, and the dollar's special place in world trade. But despite the dollar's privileged status, "Many countries possess, but don’t take full advantage of, their monetary sovereignty." #TheDeficitMyth

Given the current monetary arrangements however, "In a very important sense, America’s trade deficits are not optional. Much of the world simply must run trade surpluses with America." #TheDeficitMyth

"As MMT economist Fadhel Kaboub has argued, this position [of developing nations] at the bottom of global supply chains brings fundamental economic problems—many of them arising from the historical legacy of colonization itself."

This chapter is really good. A clear description of a wide range of interrelated issues, including monetary sovereignty and the problems facing developing nations given our current arrangements. #TheDeficitMyth

When the US fails to appreciate its international position: "Volker's rate hikes drove many developing countries into crisis, fueling a rapid economic downfall from which some countries have yet to fully recover." #TheDeficitMyth

The "free trade religion" has failed, devastating developing economies along the way. #TheDeficitMyth

"As I write this book, the International Labour Organization estimates that almost two hundred million people around the world are involuntarily unemployed." #TheDeficitMyth

And that was before the pandemic....

Finally, Kelton outlines a vision for "trade peace" that includes global full employment, developing nations regaining food/energy sovereignty, and regulated international financial flows. You should read this chapter!!

Tune in tomorrow for Ch. 6 of #TheDeficitMyth