Where GDP is usually referenced by economists and the press is as a proxy for the health and vitality of the economy. Higher GDP per capita tends to correlate well with higher standards of living and better material well-being. There are quite a few things folks consider desirable that track well with high GDP, like lower violent crime, longer life expectancy, lower infant mortality, et al. That's great, but if we're measuring prosperity, it seems kind of perverse to ding your metric for exchanges that happen in one particular direction across one particular type of border. By using GDP as a proxy for prosperity, the deck is sort of stacked against the euvoluntarity of international trade, and this is completely independent of any intertemporal, loanable funds considerations. It's almost tacitly suggesting that imports are something we have to suffer for the privilege of exporting. How strange.
I can perhaps understand how economists might want to concern themselves with prosperity maximization. I'm more puzzled by ones who translate this to "GDP maximization".
I'm sort of curious if folks' moral intuitions towards overseas trade would change if some snickering rogue could convince the profession to switch the sign on imports.GDP is clearly focused on production (given the acronym), yet intuitively one might consider wealth as the amount of obtainable goods and services. The focus on production appears to mesh well with Say’s law, in which production is the means by which individuals can obtain other goods. However, there are numerous reasons to question the validity of Say’s law including the possibility of an excess demand for money. Rejecting Say’s law, one can more readily accept that production is not the only, or necessarily accurate, means of determining one’s purchasing power.
Warren Mosler, a main proponent of MMT and a sectoral balances approach to macroeconomics, presents a similar argument in his book Seven Deadly Innocent Frauds of Economics Policy (p.59 - free pdf version attached):
Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living.
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Put more succinctly: The real wealth of a nation is all it produces and keeps for itself, plus all it imports, minus what it must export.Wilson and Mosler clearly agree that reversing the GDP accounting sign on imports and exports would more accurately reflect the “real wealth of a nation.” That these two proponents affiliate with generally opposing economic camps, suggests optimism that many others might support this change. The road won't be easy, but reversing the sign on imports is critical to preventing this “deadly innocent fraud” from further reducing our standard of living.
