Monetary Expansion Isn't Zero Sum

A blog about business and economics.
June 19 2013 11:24 AM

Monetary Expansion Isn't About Beggaring Thy Neighbor

Japanese Prime Minister Shinzo Abe holds a press conference in Belfast, Northern Ireland, on June 18, 2013, following the conclusion of the G8 summit.

Photo by Peter Muhly/AFP/Getty Images

Here's some Abenomics news that shouldn't surprise people but probably will. The latest Ministry of Finance trade data is up, and it shows that Japan's nominal exports have risen, but so has Japan's nominal trade deficit.

This is what happened when FDR took the United States off the gold standard and broke the back of the Great Depression in 1933. America's output went up. America's exports went up. But America's net exports did not go up. There was simply an overall increase in demand and production. Shinzo Abe is roughly trying to replicate FDR's experience of fiscal and monetary expansion, so I'm not surprised to see the pattern repeated.

But this is at odds with the conventional narrative around "currency wars" and depreciation. This conventional view tends to see monetary stimulus as a narrowly trade-focused measure focused exclusively on net exports. Once you're inside that frame, monetary stimulus becomes subject to one of two critiques. One is that it's zero-sum and the stimulating country is beggaring its neighbors. The other is that it won't work—that the same monetary stimulus that bolsters exports will also raise the price of energy imports. Both of those points contain some truth, but they miss the larger story. Monetary stimulus might raise net exports depending on what else is going on, but net exports aren't the issue. Overall demand is the issue.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



Smash and Grab

Will competitive Senate contests in Kansas and South Dakota lead to more late-breaking races in future elections?

Stop Panicking. America Is Now in Very Good Shape to Respond to the Ebola Crisis.

The 2014 Kansas City Royals Show the Value of Building a Mediocre Baseball Team

The GOP Won’t Win Any Black Votes With Its New “Willie Horton” Ad

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?


Forget Oculus Rift

This $25 cardboard box turns your phone into an incredibly fun virtual reality experience.

One of Putin’s Favorite Oligarchs Wants to Start an Orthodox Christian Fox News

These Companies in Japan Are More Than 1,000 Years Old

Trending News Channel
Oct. 20 2014 6:17 PM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Oct. 20 2014 8:14 PM You Should Be Optimistic About Ebola Don’t panic. Here are all the signs that the U.S. is containing the disease.
Oct. 20 2014 7:23 PM Chipotle’s Magical Burrito Empire Keeps Growing, Might Be Slowing
Oct. 20 2014 3:16 PM The Catholic Church Is Changing, and Celibate Gays Are Leading the Way
  Double X
The XX Factor
Oct. 20 2014 6:17 PM I Am 25. I Don't Work at Facebook. My Doctors Want Me to Freeze My Eggs.
  Slate Plus
Tv Club
Oct. 20 2014 7:15 AM The Slate Doctor Who Podcast: Episode 9 A spoiler-filled discussion of "Flatline."
Brow Beat
Oct. 20 2014 9:13 PM The Smart, Talented, and Utterly Hilarious Leslie Jones Is SNL’s Newest Cast Member
Oct. 20 2014 11:36 PM Forget Oculus Rift This $25 cardboard box turns your phone into an incredibly fun virtual-reality experience.
  Health & Science
Medical Examiner
Oct. 20 2014 11:46 AM Is Anybody Watching My Do-Gooding? The difference between being a hero and being an altruist.
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.