A Realistic Analysis of the Market Oriented Capitalist Economy
New Directions in Post-Keynesian Economics series
Chapter 9: Globalization, international trade and international payments
Keynes’s general theory explains that increases in spending on goods and services create additional profit opportunities for business firms. It follows that the managers of these business firms would be encouraged to hire additional workers whenever additional profit opportunities exist. In the closed economy model of most textbooks, where all transactions are among residents of the same national economy, it is implicitly assumed that the additional spending would come from domestic households, domestic business firms and/or federal, state or local governments to be spent to purchase the output produced by enterprises located in the domestic economy. Once the analysis is placed into a globalized market system involving many separate nations things change somewhat. For example, spending by US households, business firms and/or government to purchase products produced in foreign nations (i.e., imports) creates profit opportunities and jobs in the foreign nation and not in the domestic economy. On the other hand, demand by foreigners for the products of domestically located business firms (i.e., exports) creates profits and jobs for workers in the domestic economy. If, in any year, exports from the United States approximately equals the imports into the United States, then the foreign job creating effects of US imports and domestic job creation in US export industries will approximately offset each other.
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