47 thoughts on “Milton Friedman explains why we should maximize imports, not maximize exports

  1. If foreign countries want to sell their goods too cheaply and lend their dollars too cheaply to the U.S., generating a virtuous U.S. cycle of consumption-investment, and boosting their GDPs and employment, while reducing U.S. GDP and employment, then U.S. living standards improve.

    The U.S. can use those freed-up resources to expand production of higher-quality goods in older industries and create new goods in emerging industries, to further improve U.S. living standards.

  2. obvious apparent inconsistencies in what the man says.

    take textiles and other manufacturing where we lost the jobs but import from overseas what we use to make here – and provided jobs here.

    Friedman does not address the effects of imbalances in trade in terms of jobs if jobs also are being lost to overseas competitors.

    Does he presume that we’ll always end up making higher quality, “goods” that other countries won’t or can’t make and thats what makes a trade imbalance inconsequential.

    but what if the reverse was true – like it would be in a 3rd world country where most of the productivity is low wage workers making exports to other countries and the resulting quality of life is low?

    • Why would he “presume” that? Being able to import cheaper goods only allows the importer to free up capital for other uses. It’s no guarantee “higher quality” goods will be produced. I think those cheaper imports are more akin to an abundant natural resource being found and exploited, making us all better off.

      As to your 3rd world comment. I think private property rights, despotic governments etc., have much more to do with “resulting quality of life” issues than do free trade agreements.

        • @Morg

          not disputing the tariffs…

          but asking if taken to an extreme where a country imports everything and exports nothing – would that be bad?

          why is a “balance” perceived to be “better”?

          • larry-

            there is nothing wrong with having only imports and no exports so long as you have willing partners.

            you have that precise relationship with, say, you local gas station.

            why would you seek to have balanced trade with mobil?

            how would it benefit you in any way?

            of course, you need to find a trading partner. no one will give you imports for nothing. but they might not want exports. perhaps they will take debt or investment in your company.

            there is nothing wrong with that. if you take goods from me in exchange for stock in larrycorp, great.

            that works just fine.

            notions of a “trade deficit” are out of date relics from a time when central banks worried about the flow of gold.

            every trade deficit has an offsetting investment surplus.

            to argue that is trade deficit is bad is the same as arguing that an investment surplus is harmful.

            you cannot have one without the other barring charity on a massive scale.

            “balance” is not better. it’s a foolish and largely meaningless concept.

        • oops, hit enter too soon.

          taking away a tariff similarly ALWAYS causes a net gain.

          it may be bead for the folks who used to live under its protection and used it to gain outsized profits, but such gains are always more than offset by the loss to consumers. the converse of that is that consumers always gain more that producers lose when tariffs are abolished.

          you are simply not looking at the whole picture.

          free trade creates jobs it does not destroy them. every tariff destroys jobs in the imposing nation. the cost in higher prices exceeds the benefit to protected workers. the society has less wealth.

          you notions of quality goods are pure nonsense. quality gets determined by the market and consumers make purchase decisions based on cost/quality.

          you decide what is worth it to you. essentially all of the best stereo equipment in the world is made in the US. you probably do not own any. i own it exclusively. that’s the difference in perception of cost/quality. you might be happy with sony. i want mcintosh or krell.

          how does blocking imports make any difference there? would you somehow feel better off if you had to pay more/were forced to make the choice i prefer instead of the one you prefer?

          and the notion of poverty driven by exports is preposterous and so wrong it’s difficult to even know where to start.

          you posses labor. to make a living, you need to sell it to someone. to do that, you must find a use for it that creates value for which someone is willing to pay.

          imagine you have larry’s luges. you make racing sleds. unwisely, you locate your business in florida. no one buys. then, one day, you put up a website and start selling sleds to some swedes at a nice profit.

          you overcame the fact that no one locally wanted to buy your labor by selling it some someone abroad. s a result, you make money. you spend it at your local grocery store, go to a movie, buy a new lawnmower, whatever. you do better, your local economy does better.

          this is just like the third world. they are doing the exact same thing. if there are no local buyers for your labor, look for them further away and sell to them.

          if your productivity is low in any country, you cannot sell your labor for much either to locals or foreigners.

          you are mistaking the effects of low productivity with the effects of trade.

          being unproductive gets you paid little, but trade makes sure you have the broadest possible market and will at least get paid as much as possible.

          stop and think about this.

          imagine you are larry the liberian. you are dirt poor and unskilled.. you get work making plastic toys.

          now imagine 2 possible worlds:

          1. you can sell your toys only to liberians.

          2. you can export them anywhere in the world.

          in which are you likely to get paid more?

          and if you are paid more, you can spend more, promoting more local business prosperity and formation, correct?

          so you win, the locals win, and the importing economy wins.

          to claim that there are losers from trade that somehow need to be protected is literally to argue that consumers need to be forced to pay more for goods for the good of their own economy.

          • morganovich

            That pair of comments is one of the best arguments for free, global trade I’ve read in a long time. I can hardly wait to read your target audience’s response.

    • LarryG,

      take textiles and other manufacturing where we lost the jobs but import from overseas what we use to make here – and provided jobs here.

      Americans used to work very long hours (from pre-dawn till after dusk) making their own food, build their own shelter, make most of their clothes, etc. Now we pay other people (mostly Americans) to do nearly everything for us and we focus on whatever it is in which we specialize. Due to this, the number of hours worked dropped pretty dramatically from all daylight hours to less than 8 hours per day (Americans work 6 hours per week LESS than just just since 1950, which translates to an extra 7 weeks of leisure time per year).

      Look at all those agricultural, construction, and textile jobs lost (nearly 100% of all Americans did these things in 1800) and the fewer hours worked. Are you really claiming that the loss of all these jobs and the loss of all those hours worked has made Americans worse off?

      • @Ken – indeed we not only are having robots replace our own workers – but low skill, lower paid workers in other countries.

        Our problem is that blue-collar jobs are being outsourced and automated and those with lower skills have fewer and fewer ways to make a decent living.

        but my bigger question was – is it possible – for instance to have a high imbalance of trade and still be okay.

        I thought Morg did a good job of explaining it and I’m convinced by his argument (for once). :-)

        • Our problem is that blue-collar jobs are being outsourced and automated and those with lower skills have fewer and fewer ways to make a decent living.

          The answer is obviously yes. Profits are mostly seen by consumers as lower prices and higher quality. Clearly, lower prices help those with low skills and low paying jobs far more than those with high skills and high paying jobs.

          Let’s not forget that people don’t consume just so they can go to work and produce. People go to work to produce so they can consume. If you are able to consume more with the same amount of effort or consume the same amount with less amount of effort this is good for everyone, especially low skill, low wage workers.

          If you think not, imagine what low skilled people’s lives would be like if there existed a machine that could fabricate anything you liked for free. ALL production jobs would disappear, yet anyone could get whatever product they like for free. All they would have to do would be to request this machine to build it for you. Without exception, everyone’s life would be better off, especially low skill, low wage workers. Because of this machine, ALL material needs would be met, without ever having to work again.

          is it possible – for instance to have a high imbalance of trade and still be okay.

          Again, the answer is obviously yes. I have an enormous trade imbalance with Shoppers Food Warehouse (and amazon, and Best Buy, and Sears, and Home Depot). I buy thousands of dollars worth of products from them every year, yet they haven’t bought a single thing from me. Not only am I still okay, but I am prospering.

          There is no difference when buying foreign made products as well. And don’t forget the fact that “foreign made” is slippery at best. The most “American made” car is the Toyota Avalon.

    • Lol! Oh Larry I just love it that you, perhaps the least economically literate person in the world, presumes to school Milton Friedman on global trade. Please stop so can catch my breath.

  3. I only ever read from a silent school computer unfortunately. could someone sum up his argument? this topic is quite interesting to me.

    • Copied from the transcript here:
      http://www.aei-ideas.org/2012/09/classic-1978-milton-friedman-lecture-on-international-trade/

      In the international trade area, the language is almost always about how we must export, and what’s really good is an industry that produces exports. And if we buy from abroad and import, that’s bad. But surely that’s upside-down. What we send abroad we can’t eat, we can’t wear, we can’t use for our houses. The goods and services we send abroad, are goods and services not available to us. On the other hand, the goods and services we import, they provide us with TV sets we can watch, automobiles we can drive, with all sorts of nice things for us to use. The gain from foreign trade is what we import. What we export is the cost of getting those imports. And the proper objective for a nation as Adam Smith put it, is to arrange things, so we get as large a volume of imports as possible, for as small a volume of exports as possible.

      • Trade is a two-way street. If something is worthless, it cannot be traded.

        But, if I am a nation, and some other nation wants to send me 1,000 computers for 1,000 airplanes, that is good (2,000 total units). Now let’s say they are willing to send me 2,000 computers for 500 airplanes (2,500 units). I still say that is even better.

        • Then you bought it without understanding it.

          When you *buy* a computer from someone you give them something they value more than the computer. whatever that is, is what they *buy* from you.

          The green paper you may give them is a promise to pay later with goods or services you produce.

        • “Trade is a two-way street. If something is worthless, it cannot be traded. ”

          lol.

          spoken like someone too young to remember the 90′s internet bubble.

          i seem to recall an awful lot of worthless stuff being traded…

    • John Murphy,
      I am a big fan/follower of Friedman and his view makes great sense – if we can get $X of goods for <$X then that is a good deal for "us" as a country. But, doesn't the country with the surplus get to keep the surplus capital & invest it in govt bonds/capital equiptment etc? In that case isn't it good to have the surplus since the exporter has capital to invest for the future? I am confused here. Thanks.

  4. “Milton Friedman, in his view, the “worst case scenario” of the currency never returning to the country of origin was actually the best possible outcome:

    The country actually purchased its goods by exchanging them for pieces of cheaply-made paper. As Friedman put it, this would be the same result as if the exporting country burned the dollars it earned, never returning it to market circulation.”

      • Larry, the currency is not “worthless.” It becomes “worth less” through changes in inflation rates, interest rates, and currency exchange rates.

        And the U.S. not only attracts imports and capital, it attracts the owners of that capital themselves, which are benefits to the U.S. economy.

      • Larry, if pieces of paper are traded for imported goods and those pieces of paper never return to be redeemed, then what is imported is free stuff.

        Imagine if you kept paying at the grocery store with a check and the grocer kept burning your check each time. the groceries you bought would be free.

        And, what do you mean “our” real estate? If I sell property I own to Harry Lee in china it is now Harry Lee’s property. It has never been “our” real estate.

        If I sell property I own to Joe Blow in Phoenix it is now his property, not mine. It has never been “our” real estate.

  5. There’s been an absolute decline in U.S. living standards, since the economy peaked in 2007.

    Per capita real GDP (output = income) remains below the 2007 peak.

    And trade deficits shrunk from a peak of $800 billion in the mid-2000s to $500 billion, which also reduced living standards.

    It doesn’t seem the U.S. economy will begin a self-sustaining cycle of consumption-employment soon.

    Without continued (and unsustainable) government life-support, the economy will fall into recession.

    Updated Chart:

    http://www.advisorperspectives.com/dshort/charts/indicators/GDP-per-capita-overview.html?Real-GDP-per-capita-since-1960-log.gif

    I stated before, we need to get the economy off government life-support and into full employment.

    • any comments on this:

      ” Conditions where trade imbalances may be problematic
      Those who ignore the effects of long run trade deficits may be confusing David Ricardo’s principle of comparative advantage with Adam Smith’s principle of absolute advantage, specifically ignoring the latter. The economist Paul Craig Roberts notes that the comparative advantage principles developed by David Ricardo do not hold where the factors of production are internationally mobile.[6][7] Global labor arbitrage, a phenomenon described by economist Stephen S. Roach, where one country exploits the cheap labor of another, would be a case of absolute advantage that is not mutually beneficial”

      • whoever wrote that does not understand ricardo, pure and simple.

        comparative advantage still exists in a world where one side has absolute advantage in the production of every traded good and thus, the benefits of trade still accrue and the production possibility frontier can be expanded by specialization and trade.

        the argument roberts is making literally does not make any sense at all.

        the notion that using lower wage workers is not mutually beneficial is absurd.

        the workers get jobs that pay better than they otherwise would have. if the jobs did not, why would they take them?

        they produce a product that is cheaper/more desirable than before. why move there if it were not?

        thus, consumers in the rich country get a better deal/better selection/etc.

        that is also beneficial.

        i am not familiar with these 2 alleged economists, but the argument made there does not even make enough sense to be called wrong. it’s just nonsense.

        they sound like neo marxists and protectionists ranting about “exploitation” as though somehow, offering someone a better paying job is exploitative.

        half of that argument is literally unparseable. the alleged damages arising from trade deficits are never even identified. it’s just a muddle of barely related ideas linked incorrectly based on misunderstanding of the theories being discussed (a surprising number of people find ricardo difficult to grasp or deliberately misuse him) punctuated with the preposterous and unsupported claim that trade is not beneficial if it takes place with a low wage country.

          • Larry, it’s possible, in international trade, the social costs, e.g. air pollution, water pollution, negative health effects, deforestation, desertification, etc. can exceed the economic benefits, e.g. through an extreme “growth-at-any-cost” policy.

  6. “… factors of production are internationally mobile….where one country exploits the cheap labor of another.”

    If “cheap labor” is being exploited in one country, why would workers stay in that country or move to that country?

      • Peak’s rather cryptic message may be referring to Mexicans immigrating to the US where many work for very low wages. Some people would call that “exploitation”, but the question is: Why would they come to or stay in the US if they are worse off than they were in Mexico?

        If it’s not that, there is no telling what Peak meant.

          • Their opportunities in the US despite the uncertainty and risk must be preferable to staying in Mexico or they wouldn’t do it. No one acts to make their lives worse.

          • well.. if you think you have nothing to lose, and you end up wrong.

            better to be a labor slave in the US than starve in Mexico?

          • better to be a labor slave in the US than starve in Mexico?

            Apparently so. You would have to ask the people actually involved. If people find that conditions in the US are worse than in Mexico, it is even easier to return to their previous life that it was to get to the US. If they remain in the US it must be because they prefer it.

            Give people a little credit for being able to understand their own condition and make rational choices to improve their lives. Just because you are unable to do so doesn’t mean nobody is.

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