The idiocy of an export driven economy

In this post I want to discuss the simple math and logic associated with trade.  This needs to be discussed because people have been led to believe all sorts of stupid things about economies and trading.  Like just about everything else there has been a method to the madness - it was not accidental.  Someone is profiting from the madness, just not who most people think.

By way of obvious background and lead in, if people work a little they can provide the necessities of life for themselves and their families: food, clothing and shelter.  If they work a bit harder they can produce more than their own family can consume.  The problem here is that hunting, clothing manufacture and making shelters can all be done reasonably well by a single person but there is just too much to know for one person to be really good at everything. 

If you have 3 cavemen trying to survive, they can each of them go it alone or they can divide up the work so that each of the 3 can specialize and become really good at his specialty.   In fact, one really good full time hunter who has learned to use specialty tools like snares and traps can deliver more food than 3 poorly trained part time hunters.  Likewise 1 full time master clothing maker who has taken time to make specialized tools for his craft like needles and thread can outperform 3 part time clothing makers who have not had time to make special tools for making clothing because they have also had to work on shelter and food gathering.

When people produce more of a given thing than they need and then they trade the excess of what they are good at making for the excess of what someone else is good at making we call that an economy.  An economy is all about trading real stuff that took real work and skill to produce for other real stuff that again took real work and skill to produce.

All of this should be obvious so now we will get into the less obvious part.  Now imagine in that 3 person economy if the hunter decided to work extra hard.  He would produce more meat than the others could repay him in terms of clothing and shelter.  In this micro economy, there are no other choices for him to trade for.  Sure, he could find ways to preserve the meat but at some point he would just have too much stuff.  What he should be doing at this point is either relaxing and enjoying life a bit or pursuing new ways to enhance his life - perhaps finding a woman or making cave art or something.  But it is wasteful to just keep producing more and more meat after his needs are fulfilled and past the point where his excess can be traded for more clothing or a better shelter. 

Cavemen were smart enough to know this but fast forward to today and we see that central bankers have made us forget it.  Central bankers have us trade our goods and services for paper or electronic fiat currency.  They have tricked us into believing that it is just as good as receiving real stuff in return for our labor.  Because they can print an endless supply of it, we can never work hard enough to collect it all.  Thus we are on a lifelong treadmill of unnecessary and wasteful production.

So called "export economies" are the result.  They produce way too much stuff for their own people to consume and they also produce so much excess that other people cannot produce enough stuff to trade for their exports.  I'll use Germany as a proxy for all net export economies.  So instead of Germany exporting a car and getting a trainload of apples from Spain in return, Germany exports the car and Spain gives them IOUs called Euros in return (Germans can only eat so many apples after all).  Germans accept these IOUs as if they had value.  They look at their growing pile of IOUs and they think they have become rich.  So if exporting worked a little bit then more exports must be better.  Germans thus take on debt to create ever more stuff that they can't consume and that their trading partners have nothing tangible to trade for.

At some point (like right now), the net exporters begin to realize that the IOUs they have been accepting are worthless.  If their trading partner cannot trade goods for goods then what is supposed to be an economy turns into a vendor finance scam.  That is what being a net exporter actually boils down to.  Should the net importers have taken real goods knowing they could never return real goods in exchange some time down the road?  Probably not.  But expecting people to show self control is stupid.  If you put a bag of tasty candy in front of a group of children and then walk away, the bag will be empty within a few minutes.  Does it makes sense to go back at that point and be angry at the children?  Of course not, they were just following their nature.  It is up to the person who has something to reasonably protect it.  When net exporters send goods to net importers for years at a time, that is not reasonable protection.  It is giving candy to children.

The only real economy is where exports and imports are balanced for the most part.  Sure, if there is a bad harvest of apples this year perhaps Germany can send a few extra cars over to Spain anyway but only if they are willing to accept next year's bumper crop in return.  But if year after year after year Spain does not produce enough apples OR if Germans develop a dislike for the taste of apples then Germans are to fault if they keep on sending cars over.  It means they got greedy for paper profits and didn't want to figure out that they were just giving candy to children.

Keep in mind that none of these imbalances could occur without the scam created by fiat currency and fractional reserve banking.  The dishonest/fake money conditions producer nations to take on debt to create factories to produce far more than they can ever consume themselves.   They do this because they have been taught that paper profits enhance their lives and that they can export their stuff to other countries.  The problem is that consumer nations don't create enough stuff to trade back in kind so they resort to using debt in order to "purchase" stuff they got from someone else.  In the case of Germany and the PIIGS, the debt market is called the Euro.  At some point the consumer/debtor decides to stop paying on past debt.  That's when the producers/creditors begin to figure out they will never get paid because the consumers don't have enough to pay.  The producers then default on the loans they took out for their factories.  The industrial oligarch con men walk away with billions in their pockets and the debt falls to the people of the exporting nation.  The notion of export based economy is a scam (a vendor finance scam to be exact), always was a scam, always will be a scam.  Soon enough everyone will know what I am writing is correct even though it might still seem strange to many reading this today.