Monday, March 15, 2010

The purpose of Exports - Part II

It is generally accepted that a weak currency is good for exports. But what are exports good for? Again, conventional wisdom would have us believe that exports are good for the economy. But from what perspective? Yes, exports give us access to a larger global market, but is that a end in itself, or a means to an end. It it's the latter, then what is this end.
In this context Professor Paul Krugman, winner of the 2008 Nobel Prize in Economics says,
"International trade is not about competition, it is about mutually beneficial exchange. Even more fundamentally, imports, not exports, are the purpose of trade. That is, what a country gains from trade is the ability to import what it wants. Exports are not an objective in and of themselves: the need to export is a burden that the country must bear because its import suppliers are crass enough to demand payment."
In other words, exports are 'means' which allow a nation to import, which is the 'end'. Given this wisdom from an unimpeachable source, it is obvious that economic & monetary policy should be designed to allow the nation to IMPORT whatever it wants to, and support EXPORTS to the extent required to do so.
This is in stark contrast to the design and structure of our economic and moentary policies. And the unwitting victims of this travesty are the citizens of India.

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