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Richmans' Trade and Taxes Blog
The Archaeological Evidence of the Purim Battle
Howard Richman, 3/16/2019
According to the Book of Esther, two decrees were issued by Persian King Ahasuerus (Greek name: Xerxes; Hebrew name: Achashveirosh) within a short period of time. The first, written by Haman, gave people permission to kill and loot Jews. The second, written by Mordechai, gave Jews permission to defend themselves. Here is how the Book of Esther describes the fighting that took place in the provinces of the Persian empire:
And the other Jews that were in the king's provinces gathered themselves together, and stood for their lives, and had rest from their enemies, and slew of them that hated them seventy and five thousand – but on the spoil they laid not their hand – on the thirteenth day of the month Adar, and on the fourteenth day of the same they rested, and made it a day of fasting and gladness. (Esther 9: 16-19)
The archaeological evidence for the fighting comes from a dig at Shechem (Tel Balâtah), a Biblical town near present day Nablus located about half way between Samaria, the Samaritan capital, and Jerusalem, the Jewish capital. A paper by archaeologist Nancy Lapp dated the fire and temporary abandonment of Shechem precisely, based upon the imported Greek pottery that had been burned in the conflagration. She wrote:
The latest example of figured ware, No. 9, dates ca. 480 B.C. Allowing time for its importation into Palestine and consideration for its value, a conservative terminus for the end of Stratum V at Balâtah would be the end of the first quarter of the 5th century B.C. or ca. 475 B.C.
In a 1987 journal article, William H. Shea compared the date found by Lapp with the date specified in the Book of Esther and found that they were nearly identical:
Esther 9:16 dates the fighting that broke out “in the provinces of the king” to Adar of Xerxes' twelfth year, or March, 473. (p. 244)
So how did the enmity between the Samaritans and the Jews begin? Ezra wrote that it began during the reign of Persian King Cyrus, about 70 years before this fighting took place, when the Jewish leaders refused a Samaritan offer to help rebuild the Jerusalem temple, saying: ...
There Is Less Inequality Now Than Ever Before in History
Raymond Richman, 2/12/2019
There is less inequality today than at any time in our history. There is less wealth inequality now and there is less income inequality now than at any time in our history. Those who argue that wealth is more unequal now or that income is more unequal now are using a very narrow definition of wealth and income. They exclude, for example all public goods like public education, public parks, museums, swimming pools, beaches, police and fire departments, international security, water and sewage, streets, legal courts, etc. They do not include ownership of real estate and personal property including autos, boats, clothing, and recreational vehicles. They do not include hospitals, churches, colleges and universities, clubs, voluntary associations, etc. They do not include recreation and entertainment.Baseball, football, soccer, hockey games and other mass entertainments such as movies and television exist for the masses not billionaires. ...
There Is Less Inequality Now Than Ever Before in History
Raymond Richman, 2/12/2019
There is less inequality today than at any time in our history. There is less wealth inequality now and there is less income inequality now than at any time in our history. Those who argue that wealth is more unequal now or that income is more unequal now are using a very narrow definition of wealth and income. They exclude, for example all public goods like public education, public parks, museums, swimming pools, beaches, police and fire departments, international security, water and sewage, streets, legal courts, etc. They do not include ownership of real estate and personal property including autos, boats, clothing, and recreational vehicles. They do not include hospitals, churches, colleges and universities, clubs, voluntary associations, etc. They do not include recreation and entertainment.Baseball, football, soccer, hockey games and other mass entertainments such as movies and television exist for the masses not billionaires. ...
Unpaid Family Leave - A Bad Idea Whose Time Has Come
Howard Richman, 2/11/2019
In his State of the Union speech last week, President Trump came out for paid family leave. He said:
I am also proud to be the first President to include in my budget a plan for nationwide paid family leave — so that every new parent has the chance to bond with their newborn child.
I'm assuming that he would support a mandate that would require employers to pay parents for time that they would not work. That very mandate has been a disaster in many parts of the world, including South Korea whose birth rate per woman has fallen to 1.17 in 2016, compared to 1.80 per woman in the United States.
Seemingly innocuous laws can have terrible unintended consequences. In South Korea this government mandate that was designed to help married women, ended up hurting them. Employers don't like to pay people who don't work. So, given a choice, they hire single women, not married women. So South Korean women on career paths stopped getting married. The same could happen in the United States. ...
National Capitalism, Rather than Mixed Economy or Socialism, Best Describes Economic System
Raymond Richman, 2/11/2019
Norman S. B. Gras, Professor of Business History at Harvard in 1940, described FDR’s New Deal as an example of "national capitalism" similar to that in Fascist Italy and Nazi Germany in an article published in the Harvard Business Review. National capitalism is "a system of business based upon private enterprise publicly controlled." Because Nazism and Fascism used totalitarian methods and ruthlessly killed so many people, the term “national capitalism” should be used instead of fascism to accommodate economic systems that are more democratic and avoid the use of brute force. Gras’s description of the system as national capitalism ought to have been widely adopted by economists and business majors as well as the general public.
Economists are fond of describing economic systems as “capitalist”, “socialist”, “free enterprise”, “private enterprise”, etc. but they tend to avoid calling a system “fascist”, which is to be expected because of the odious character of the Hitler regime and Mussolini’s alliance with Germany. They avoid calling attention to the Japanese economy at all although historically it was equally odious and the Japanese government still plays a substantial role in directing and controlling the economy. The post-WWII American domination of the world has eliminated most attempts to distinguish between economic systems although the Cuban and North Korean economy are often represented as “communist”
Look about you. There are hundreds of thousands of objects in the room you find yourself, where you live, where you work, where you travel, for sale in retail stores and on line and throughout the world. Who invented these objects? Who manufactured them? Whom are they made for? Nearly all of them were invented and produced by private persons without government assistance. Socialists tend to criticize capitalism as greedy. But as Adam Smith noted in the 18th century, everyone acting in his own interest in a capitalist economy ends up acting in the interest of all....
How to end the shutdown
Jesse Richman, 1/14/2019
Shortly before Christmas, with negotiations between the White House and Congressional leadership at a stalemate, congressional authority for spending in a number of federal agencies ran out. As a result, these agencies lost the ability to spend money. Essential workers are being required to work without pay, and non-essential workers are being required to not work. Democrats recently passed bills to reopen the closed agencies (https://www.cnbc.com/2019/01/04/house-passes-bill-to-end-government-shutdown-without-border-wall-money.html) but the Senate declined to take up the bills because of the threatened presidential veto.
The Senate unwillingness to take up the bills highlights a key challenge for the Democrats' strategy in the shutdown which seems to be to crank up the pressure on moderate Republicans to the point where they are willing to abandon Trump and join veto-proof majorities to override a Trump veto. Because the Senate majority leader has major influence over whether bills are considered on the Senate floor, such a strategy would -- to succeed -- have to win over Senate Majority Leader Mitch McConnell. He is a long way from being won over now, as this Washington Post story discusses: https://www.washingtonpost.com/politics/2019/01/11/mitch-mcconnell-could-end-shutdown-hes-sitting-this-one-out/?noredirect=on&utm_term=.05bf1e8b773d. Democrats seem determined to relearn what Republicans found repeatedly during their period from 2011 through 2014: with control of the House but not the Senate, it is really really hard to get sharply partisan legislation onto the president's desk because you don't control the Senate agenda. Back then Democrats mocked Republicans many efforts to pass a bill repealing Obamacare. Today Democrats seem equally determined to beat their heads against a similar wall.
So what is the alternative path out of the shutdown? Some shutdowns are over major issues of significant national import. If this one was such a shutdown, then Democrats and Republicans might be justified in continuing it. Other shutdowns are over trivialities. This one must rank nearly at the very top of the list of shutdowns over trivialities. Whether or not the wall is a good policy idea, it is a minor one. At stake is five billion in funding out of a Federal budget numbered in trillions. To shut down the government, even part of it, with all of the chaos and costs that entails over an unwillingness to provide such funds so that the president can make a down payment on a signature campaign promise reflects a Washington in which partisan tribalism trumps policy sense. And so, arguably, does shutting down the government in order to get such funds.
The solution then must provide a way for one tribe or the other to back down. Here's an idea -- a secret ballot...
Letter to Prof. Martin Feldstein of Harvard U
Raymond Richman, 1/4/2019
I’ve been an admirer of Prof Martin Feldstein for many years but his op-ed in the Wall Street Journal, “Tariffs Should Target Chinese Lawlessness, Not the Trade Deficit” (12//28/2018) has got it exactly backwards. Tariffs should not be used as punishment for lawless economic behavior. Although economists believe in the benefits of trade, they know, as John Maynard Keynes did, that “beggar-thy-neighbor” trade policies that result in job-losing trade deficits for the U.K. had to be fought with counter-measures. In the absence of a common currency, the preferred policy is a single-country-variable-tariff (our invention) whose rate increases as the trade deficit widens and falls as trade is brought into balance.
Of course, trade need not be balanced with every nation but should be balanced with the world of nations. Since the General Agreement on Tariffs and Trade was signed in 1994, the USA has had huge deficits with Japan, Germany and the European Union, and China, which amounted to $562 billion in 2016 of a total of $734 billion. This resulted in booming economies in those countries and relatively stagnant growth in the USA accompanied by the loss of millions of high-paying jobs in USA manufacturing. Free trade is possible but not with predators.
A Shutdown over Trivialities
Jesse Richman, 12/27/2018
Shortly before Christmas, Congress discovered it could not agree between its chambers or with Trump concerning funding for the border wall requested by Trump. Trump has been very patient with Congress over the last two years as it has repeatedly failed to provide much of any funding for the wall he campaigned on. At last moment of the outgoing Republican Congress Trump seems to have realized that funding was not going to be coming unless he tried a different negotiating strategy. And hence the shutdown came.
Some shutdowns are over major issues of significant national import. Others are over trivialities. This one must rank nearly at the very top of the list of shutdowns over trivialities. Whether or not the wall is a good policy idea, it is a minor one. At stake is five billion in funding out of a Federal budget numbered in trillions. To shut down the government, even part of it, with all of the chaos and costs that entails over an unwillingness to provide such funds so that the president can make a down payment on one of his major campaign promises reflects a Washington in which tribalism trumps policy sense...
No Danger From Man-Made-Global Warming
Raymond Richman, 12/20/2018
President Macron’s imminent fall from power in France did not result from his proposed tax increase but because it was to be spent foolishly on addressing man-made-global-warming. Federal government, state government, and increased private expenditures wasted on man-made-global warming over the past two decades, nearly a trillion, yes a trillion dollars, on subsidies, tax credits, and private expenditures that accomplished nothing but made Gore and many others rich beyond belief. Most climate scientists believe that fossil fuels do bear responsibility for a small contribution to global warming. But the largest contributor is solar activity, which should not surprise anybody. And in less than a century, fossil fuels, a limited resource, will be displaced naturally by other energy sources. ...
No Danger From Man-Made-Global Warming
Raymond Richman, 12/20/2018
President Macron’s imminent fall from power in France did not result from his proposed tax increase but because it was to be spent foolishly on addressing man-made-global-warming. Federal government, state government, and increased private expenditures wasted on man-made-global warming over the past two decades, nearly a trillion, yes a trillion dollars, on subsidies, tax credits, and private expenditures that accomplished nothing but made Gore and many others rich beyond belief. Most climate scientists believe that fossil fuels do bear responsibility for a small contribution to global warming. But the largest contributor is solar activity, which should not surprise anybody. And in less than a century, fossil fuels, a limited resource, will be displaced naturally by other energy sources. ...
Easy to Get Entangled in an Alliance, Hard to Withdraw From It
Raymond Richman, 12/16/2018
Brexit. the withdrawal of the United Kingdom from the European Union, is a perfect example of the proposition that it is easy to form an alliance but hard to secede from it. In 2016, the United Kingdom voted to exit the Eurozone. The exit is still going on. But original French and German efforts to form an alliance were intended to prevent the United States from dominating Europe. The USA invented NATO as a military alliance against the USSR, completely eliminating the threat of a united Europe antagonistic to the USA. This gave the USA control of Europe and led to the collapse of the Soviet Union. A Europe free of communism was achieved by the break-up of Yugoslavia.
The USA took imperial advantage of its success in breaking up the USSR and Yugoslavia by getting some former parts of the USSR and Yugoslavia to join the European Community and NATO, In 1999, Poland, Hungary, and the Czech Republic joined, followed by Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia. Albania and Croatia joined in 2009. The most recent member added was Montenegro in 2017. As of 2018, there are four aspiring members: Bosnia, Herzegovina, Macedonia, and Georgia. The Ukraine, Sweden, Finland, and Serbia are considering applying for membership.
The incorporation of countries formerly parts of the Soviet Union and of Yugoslavia has induced Russian to take counter measures in the Ukraine, Georgia, Syria, Turkey, Iran and elsewhere. American media are united in considering Russia the aggressor while Russia considers NATO the real aggressor. ...
Easy to Get Entangled in an Alliance, Hard to Withdraw From It
Raymond Richman, 12/16/2018
Brexit. the withdrawal of the United Kingdom from the European Union, is a perfect example of the proposition that it is easy to form an alliance but hard to secede from it. In 2016, the United Kingdom voted to exit the Eurozone. The exit is still going on. But original French and German efforts to form an alliance were intended to prevent the United States from dominating Europe. The USA invented NATO as a military alliance against the USSR, completely eliminating the threat of a united Europe antagonistic to the USA. This gave the USA control of Europe and led to the collapse of the Soviet Union. A Europe free of communism was achieved by the break-up of Yugoslavia.
The USA took imperial advantage of its success in breaking up the USSR and Yugoslavia by getting some former parts of the USSR and Yugoslavia to join the European Community and NATO, In 1999, Poland, Hungary, and the Czech Republic joined, followed by Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia. Albania and Croatia joined in 2009. The most recent member added was Montenegro in 2017. As of 2018, there are four aspiring members: Bosnia, Herzegovina, Macedonia, and Georgia. The Ukraine, Sweden, Finland, and Serbia are considering applying for membership.
The incorporation of countries formerly parts of the Soviet Union and of Yugoslavia has induced Russian to take counter measures in the Ukraine, Georgia, Syria, Turkey, Iran and elsewhere. American media are united in considering Russia the aggressor while Russia considers NATO the real aggressor. ...
Worthington Hardware Versus Home Depot
Jesse Richman, 12/14/2018
At a holiday party the other day I had an interesting conversation with a local Home Depot manager. I told him about how in the last year I had replaced two major kitchen appliances. I told him that in both instances when the appliance failed I first went to Home Depot in search of a replacement. But I ended up buying at Lowes because Lowes kept a large selection in stock while Home Depot required the customer to order everything and wait days for delivery. His response surprised me. I thought perhaps he would be concerned about the fact that his company had lost thousands in business from me because of its stocking policy. Not at all. Instead he noted that Lowes had recently hired a Home Depot executive who was bringing the same stocking approach to Lowes. So... soon I would have to wait to weeks to get the appliance from either store.
Perhaps Home Depot and Lowes know what they are about. But I don't think so. It strikes me as short-sighted maximization of the efficiency of their capital and the taking of oligopoly profits at the expense of serving customers well.
By contrast, the old fashioned independent hardware store Worthington Hardware (https://www.facebook.com/pages/category/Home-Improvement/Worthington-Hardware-218045868210376/) typifies a different approach built on stocking what the customer needs. The motto of the store seems to be "if we don't have it, you don't need it." And they have everything....
Time to Require Reciprocal Free Trade
Jesse Richman, 12/7/2018
The most recent US trade deficit statistics highlight the challenges faced by the piecemeal approach to the effort to balance trade currently under way. Trading partners' retaliations and a strong US dollar (those are not necessarily separate events) have led to one of the largest deficits in years. The goods deficit was 77 billion. https://www.politico.com/story/2018/12/06/us-trade-deficit-china-europe-1047317
It is time for the US to consider rolling out a principled pro-free-trade settlement, one that automatically balances trade irrespective of the mercantilism of the other side.
There are several good alternatives available to accomplish this objective, some of which could be put in place using existing powers granted by Congress to the President.
Because of its immediate feasibility and a range of other desirable properties, the best approach is a reciprocal free trade trade tariff or scaled tariff. http://ww2.odu.edu/~jrichman/workingpapers/MechanismstoBalanceTrade.shtml....
Easy to Get Entangled in an Alliance, Hard to Secede
Raymond Richman, 12/2/2018
Brexit is a great example of the proposition that it is easy to form an alliance but hard to secede from it. In 2016, the United Kingdom voted to exit the Eurozone. The exit is still going on. The USA and the European Union are involved in a military alliance. But original French and German efforts to form an alliance were intended to prevent the United States from dominating Europe. The USA invented NATO as a defensive military alliance to prevent the USSR from establishing itself in Europe. This gave the USA control of Europe and led to the collapse of the Soviet Union. A Europe free of communism was achieved by the break-up of Yugoslavia.
The USA took advantage of its success in breaking up the USSR and Yugoslavia by getting some former parts of the USSR and Yugoslavia to join the European Community and NATO, In 1999, Poland, Hungary, and the Czech Republic joined, followed by Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia, and Slovenia. Albania and Croatia joined in 2009. The most recent member added was Montenegro in 2017. As of 2018, there are four aspiring members: Bosnia, Herzegovina, Macedonia, and Georgia. The Ukraine, Sweden, Finland, and Serbia are considering applying for membership. The incorporation of countries formerly parts of the Soviet Union and of Yugoslavia has encouraged Russian counter measures in the Ukraine, Georgia, Syria, Turkey, Iran and elsewhere. American media are united in considering Russia the aggressor while the Russia considers NATO the real aggressor.
A formal military alliance is “permanent” and “entangling. Thomas Jefferson, in his inaugural address, declared his devotion to "peace, commerce, and honest friendship with all nations, entangling alliances with none", using a phrase which is often attributed to Pres. Washington.
Trade agreements are non-military alliances. ...
How we settle problems in the United States -- my recent op-ed in Virginian Pilot
Jesse Richman, 11/28/2018
My recent op-ed for the Virginian Pilot has reached more than 15 thousand shares on Facebook. Here are the first few paragraphs:
RECENT EVENTS have made heartrendingly clear that some people who pretend to be my fellow Americans haven’t the foggiest idea of the most basic principles on which our experiment in self-government rests. Their vicious actions of hate demonstrate that they do not understand how we settle problems around here.
These are passionate times we live in. And that passion has at times inspired the worst to do their worst. Some people confuse harassment and shout-downs for debate. Others “go in” for vicious violence, shooting innocent worshipers, concert and club goers, or members of Congress. Or they deliver bombs to the doorsteps of former presidents and the politically active. They demonstrate that they have forgotten the fundamentals of what it means to be an American.
Lest we let their hate breed more of the same evil, perhaps we all need to take a deep breath and remember these principles.
Disagreement is fundamental to democracy. It is inevitable that with more than 300 million of us, we won’t always see problems or their solutions the same way. We will disagree. Sometimes fundamentally. Sometimes passionately. But we do not let disagreement become hate.
Fundamental to democracy is the way we resolve these disagreements. We talk about them. If you think I am wrong, you are welcome to work to persuade others that I am wrong. You might even persuade me, for which I will thank you. We debate. We deliberate.
To read the rest of the essay, follow the link to https://pilotonline.com/opinion/columnist/guest/article_df3d1014-e39b-11e8-9db2-efca95e310de.html.
Robert Skidelsky on the case for compensated free trade
Jesse Richman, 11/16/2018
According to his Project Syndicate biographical sketch, Robert Skidelsky is "Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999."
Skidelsky's latest column for Project Syndicate is a tour-de-force summation of the trade challenge and the appropriate solution -- a mechanism to automatically shift trade towards balance. The column can be read at https://www.project-syndicate.org/commentary/compensated-free-trade-allows-protectionism-by-robert-skidelsky-2018-11.
He begins by framing the issue as follows:
According to Harvard’s Dani Rodrik, the nation-state, democracy, and globalization are mutually irreconcilable: we can have any two, but not all three simultaneously. In fact, there may be a solution to Rodrik's “trilemma.”
And that solution in Skidelsky's view is compensated free trade.
The scaled tariff is a similar mechanism and would also achieve the same end, albeit in some what different ways....
Doing the Right Thing on Trade
Jesse Richman, 11/15/2018
The Trump Administration is right to pursue a policy aimed at addressing the trade deficits faced by the US around the world. But the current policies are having only limited effect on the overall US trade deficit -- so far more than counterbalanced by the consequences of the tax cuts and higher interest rates which have pushed the dollar higher and kept imports cheap.
The right approach going forward is to begin moving towards what Frank Kirkland calls a "closed loop" approach to the trade balance, or what Masch calls Compensated Free Trade, what we have termed the Scaled Tariff, or the country-specific import certificates. This is particularly crucial because at some point, whether in 2021 or 2025, the Trump Administration will leave office. And the advocates for Trump's trade policies...
Another Economist Discovers the Scaled Tariff -- A new and perhaps more marketable name too
Jesse Richman, 11/14/2018
Vladimir Masch first presented his idea similar to our scaled tariff idea back in 2004. He gave it a more marketable name though -- Compensated Free Trade of CFT for short. We seem to have been working in parallel for much of the last decade and a half without knowing of each other's work.
...
A good idea who's time has come will be invented simultaneously or sequentially by many authors. So far we know of three groups who independently developed it: the Richmans, Masch, and Frank Kirkland. Warreb Buffet also came up with a related approach. This is an idea who's time has come.
Tariffs to Balance Trade Do Not Violate Free Trade Policy
Raymond Richman, 8/20/2018
The media are all hyped up about trade wars. Where were they when the trade deficits showed up endlessly in the USA Gross Domestic Product accounts and slowed economic growth? They still do not mention them except to deride Pres. Trump when he mentions it. John Maynard Keynes, the famous economist, long a free trader, made an exception when depressed conditions existed in the markets for labor, writing that the trouble with free trade was the assumption “that if you throw men out of work in one direction you re-employ them in another. As soon as that link in the chain is broken the whole of the free trade argument breaks down.” He argued that labor would resist a cut in money wages. But they would accept a cut in real wages brought about as a result of rising import prices. However, he feared that the tariffs would become permanent. This problem is solved by imposing variable tariffs which diminish automatically as trade become balanced. We argue that balanced trade with rest of the world should be that appropriate goal.
Balanced trade is easy to achieve, not by tariffs on particular products, which invited counter measures by our trading partners but by scaled tariffs, single-country-variable tariffs, that work like devaluing a currency, the traditional method of achieving balanced trade. Our problem is with only a handful of countries. Countries that have huge chronic trade surpluses with the U.S. which in 2017 included China $ 375.6 billion, Japan $68.9 billion, the European Union $151.4 billion (including Germany $63.7 billion), and Mexico $70 billion. Balancing trade with those few countries would reduce our trade deficit over 80%. ...
Legalize All Drugs and Tax Them As We Do Alcohol.
Raymond Richman, 8/16/2018
Nearly all of our domestic violence is caused by laws “prohibiting” citizens from what is popularly considered evil conduct: consuming drugs. The U.S. government has spent more than $1 trillion on its war on drugs. In 2015 alone $36 billion was spent on the war on drugs and about an estimated $40 billion as the cost of imprisoned drug-offenders. In 2017, federal, state and local revenues from taxes on alcoholic beverages amounted to $10 billion. Revenues from taxes on the production and sale of drugs could easily be double that. ...
Bretton Woods and Balanced Trade
Jesse Richman, 8/13/2018
In a recent piece in Project Syndicate, Roger Farmer gets some things right and some things wrong in assessment of the link between globalization, populism, and trade. What he gets right, first, is the significance of the end of the Bretton Woods system of exchange rates in shaping the modern era.
"After World War II, the world adopted the Bretton Woods system, whereby countries maintained fixed exchange rates against the dollar, and capital was largely immobile at the international level. When tourists from the United Kingdom traveled to France, Italy, or Spain, they faced restrictions on how many francs, lire, or pesetas they could buy; and international investment was constrained by a pervasive system of capital controls."
And then the decline of the Bretton Woods controls as the harbinger of what has come since:
"With the breakdown of the Bretton Woods system in 1971, the world embarked on a bold new adventure in globalization. The result was a massive reduction in global inequality, as capital flowed to places where wage levels were a tiny fraction of those in Western democracies."
But his next rhetorical move assumes an answer in economic theory that does not exist:
Much Ado About Trade Wars
Raymond Richman, 7/26/2018
The media are all hyped up about trade wars. Where were they when USA factories were shutting down and moving overseas costing millions of Americans good-paying manufacturing jobs and when the trade deficits showed up endlessly in the Gross Domestic Products accounts causing slow economic growth? They still do not mention them except to deride Pres. Trump when he mentions it. Nor are economists free of blame. Balanced trade is easy to achieve but not by tariffs on particular products but by scaled tariffs, variable-single-country-tariffs that work like devaluing a currency, the traditional method of achieving balanced trade.
Nearly all economists are strong advocates of free trade. That is a hangover from the decades before WWII when the U.S. was the leading trade surplus country. When the U.S. became the world’s leading trade deficit country, economists did not change their outlook and economists were silent about the harm those deficits were doing to our basic manufacturing industries. They still are.
Prof. Martin Feldstein of Harvard wrote in a recent issue of the Wall Street Journal (7/6/2018) that he is a “strong advocate of free trade” and writes that, “If the U.S. reduces the trade deficit with one country, it must increase the net trade deficit with others to keep the total unchanged.” Notice his qualifying phrase “to keep the total unchanged.” That phrase hidden in his rhetoric is a non-sequitur; keeping the total trade unchanged is not a policy objective. He is saying that tariffs and subsidies and exchange rates do not have any effect on the trade deficits which is utterly false. Our trade objective should be to increase the total welfare of Americans by specializing in the production of goods that we have comparative advantage in producing and trading them for an equal value of goods that our trading partners have a comparative advantage in producing.
Balanced trade is always beneficial for both trade partners. When a country has a trade deficit with one of its trading partners and with the rest of the world, economists cannot show that the trade is beneficial to both trading partners.
Unfortunately, the conditions for a free trade policy do not exist in the real world. No economist should be in favor of free trade unless the following conditions are satisfied by the trading partners: a common currency, absence of any artificial barriers to trade, and free movement of capital and labor. Those conditions are imposed on the States by the U.S. Constitution. But they do not exists internationally. Being for free trade in the international community has no rational basis. Formal (tariffs) and informal barriers (especially in countries which lack free markets), industries are subsidized, artificially low foreign exchange rates are maintained vis-à-vis the USA, and barriers to the free movement of capital and labor are the rule, not the exception. Several countries have large chronic surpluses with the U.S. They acquire huge amounts of U.S. government and corporate debt, and often use the funds to acquired business assets in the U.S. The U.S. has a huge chronic trade deficit with the rest of the world....
EU commissioner to White House today: $5.1 B Google fine on agenda -- we're published in American Thinker today
Howard Richman, 7/25/2018
When European Union commissioner Juncker meets with Trump in the White House today, the $5 billion fine that he just leveled against Google (which Trump tweeted about last week) will be on the agenda. The EU claims jurisdiction over the entire world in that the fines are determined as a percentage of worldwide revenue. Furthermore these companies are being fined for benefiting the consumer and for causing economic growth.
The top 4 payers of fines under this statute were American companies:
- Google. $7.8 billion in 2017 & 2018
- Microsoft: $2.1 billion in 2004, 2006 & 2008
- Intel. $1.5 billion in 2009
- Qualcomm. $1.2 billion in 2018
- Telefonica. $0.2 billion in 2007
"Make no mistake, this statute is being used to punish American companies for being big and American. It is designed to shackle American companies so that European producers can steal their market share."
To read the entire posting on the American Thinker website:
Wasteful spending will sink our country - Ray was published in American Thinker
Howard Richman, 7/23/2018
He began:
With a budget deficit in 2017 of $666 billion, adding to the $21 trillion of debt already outstanding, $15 trillion of it owned to foreigners, time is long overdue to reduce federal government expenditures. Congress has been unwilling to eliminate any wasteful program if a significant group of voters supports it. And overspending on ongoing programs is the rule because of Congress's failure to exercise the required oversight
To read it, go to:
https://admin.americanthinker.com/blog/2018/07/wasteful_spending_will_sink_our_country.html
The Laws of Diminishing Returns and Increasing Cost Apply to Government Expenditures
Raymond Richman, 7/4/2018
Congress appears to be unwilling to eliminate any program which has been in existence for years if any citizen’s group supports it. Congress appears to be unwilling to eliminate instances of wasteful spending even when they are reported in the media and are well-known. Even worse is the overspending on ongoing programs because of Congress’s failure to control legitimate spending.
The most grievous policy mistake is to neglect two of the most important economic laws, the Law of Diminishing Returns, and its related Law of Increasing Cost. Over-spending on existing programs is probably the rule rather than the exception. The former says that given the fact that all factors are limited, e.g. capital and labor, increasing the employment of one factor relative to another to produce a particular product will result in less than proportional increase in output. Increasing costs means that, given the fact that total resources are in limited supply, to produce more of one product requires giving up more and more of another or other products.
The reasons we don’t see these effects is that the economy is too complex and too dynamic. There are so many sectors and industries, some of which are affected without calling our attention to them. And over time, there will be invention of new products, improved methods of production, technological change, innovations, and other changes. But we are better able to discern their effects as government grows and its subsidies increase. The need for subsidies is evidence of diminishing returns and of increasing costs. If we were able to calculate benefits and costs of new government expenditure programs, we would observe that most of them are due to the diminishing returns and increasing cost of existing programs.
These require increasing diversion of funds from the private sector. For example, increased defense spending is at the expense of increased costs of goods in the private sector. When government spends more money on global warming projects, it is at the expense of increased costs of other goods people buy. Since electricity produced by wind and solar power is more costly than electricity produced from fossil fuels, the increased cost effect reduces private purchasing power twice, as private sector costs increase and second by the law of diminishing returns as government expenditures on climate change increase.
Failure to pay attention to diminishing returns means that government expenditures on many if not most programs exceeds the amount that cost-benefit would justify and many expenditure programs should not have been initiated at all. Government would get increasing returns by reducing expenditures and the private sector would enjoy increasing returns and reduced costs as government expenditures are reduced.
Admittedly, this makes a case for reducing the size of government. There can be little doubt that federal government spending is excessive on a wide range of programs in nearly every department and agency. ...
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