Aggregate Transaction Potential > Exports Potential

Don't get me wrong. I'm not saying there's anything wrong with exports - only that exports don't always have to be the indicator of growth and prosperity one might expect. Indeed, if multiple nations were to attempt an augmented exports strategy at once, problems with aggregate demand might ensue for some of them, as David Glasner noted. Hence my concern about a recent post from Tyler Cowen, which posed exports as a potential solution for nations in need of structural reform. My question: why does no one consider serious domestic structural reform, instead?

Any ability to reflate economies also depends on how many transactions are actually taking place in given populations. Gains in production - while they are always desirable - does not address this issue directly. What's more, sets of regulations tell stories about the kinds of transactions that are even possible. And yet, regulations represent many things that governments would just as soon forget or not have to deal with, about the marketplace.

Perhaps the wish to make things a bit simpler than they actually are, is responsible for renewed export dialogue. However, it would be more practical for policymakers to consider what populations might actually be capable of, instead of lecturing them about circumstances of which they have little ability to act upon.

In response to Tyler Cowen, Nick Rowe points out that regarding gains in overall economic activity, it does not matter where transactions actually originate. Scott Sumner also touched on monetary factors regarding exports potential with Nick Rowe in comments, in a response post for Tyler. If monetary policy does not reflect supply side efforts, in terms of output and representation, it is as though they did not even occur. Hence monetary policy has the "last word" in this situation.

Of course as my readers know, I am particularly concerned with the structural nature of potential output. Tyler's approach - rather than considering export potential impartially, seemed to be oriented towards dismissing the IS-LM model. While I don't have strong feelings about the model and agree with Tyler that credit and finance are quite muddled, I'm not sure how that has direct bearing on supply side considerations in this instance. What's more, I am also concerned that such an approach can give supply side ideas a bad name. There are far too many blogs where I do not feel comfortable expressing supply side ideas in comments, as it is.

However - and this is too often missed or glossed over - supply side efforts need to be focused more on increasing transactions among all participants. When this occurs, aggregate demand is easier to regain, particularly in depression circumstance. Nick Rowe also pointed to the fact a domestic side of this story needs to be taken into account. In the sense of individuals trading with one another, exports are not even strictly an economic function. As far as I can tell, exports would be considered a component. As Scott Sumner also indicated in this early post:

Macroeconomics should be about aggregates, not components of spending. 

When it comes to the missing marketplace, nothing could be more true. When too many vital transactions between individuals are undone - when labor force participation falls - the purpose and meaning of money can also be forgotten. Even though the periphery is suffering the most, they serve as a reminder for other nations, what happens when policymakers neglect to seek means for economic inclusion at local levels.