The Cons and Cons of Lots of Exports

Just read two interesting posts, basically what I should have written for the Jakarta Post (cos they asked) but I ended up not...

When people think of countries they sometimes liken them to firms. If your revenues are higher than your costs, you are doing well, you are obviously earning profits.

But international trade is a more subtle game.

You could liken it to cups, where there's a ball under one of three cups, and your opponent tries to use slight of hand to ensure you can't find the ball.

Or maybe it's like pass the parcel, but the parcel is a booby prize.

In trade you have to look at who ends up with the cash.

Whoever has massive piles of cash is a clear loser, cos they have swapped all their goods and services for pieces of paper.

Not only that, but in the two blog posts below, many govts of poor countries seem to be holding onto pieces of paper which don't offer much return at all. In fact they are giving (generously) as much as 5% of the gains from their hoard to developed countries.

Indonesia for example has $50bn hoarded away for a rainy day which earns near nothing year on year. As 'Sarapan points out, $50bn * 5% = 2007's budget deficit.

But that's nothing, China has almost $1000bn hidden away for a rainy day when it will have to defend its currency peg. Something like 20% of the income the whole of China generates a year. The peg is kinda nice, because we outside China can exchange less paper to get more fun electronics and cool clothes etc. The Chinese end up being the with the paper! - suckers!!

Of course China is doing well, but they are doing well because of their huge labour force and general stability, not because of their hoard of US dollar and TBills. Non economists worry too much about money, money is just an illusion, don't hoard it, get rid of it!

http://pgpblog.worldbank.org/almost_a_free_lunch_lawrence_summers_at_the_world_bank
http://sarapanekonomi.blogspot.com/2006/09/lending-to-world-at-low-real-rates.html