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 Richmans' Trade and Taxes Blog

The Case for Free and Balanced Trade  
Raymond Richman, 9/26/2016

In the 2016 presidential campaign, trade has become a major economic and voting issue.  For decades both political parties have supported expansion of free trade through trade agreements.  So have most academic economists. But a few have urged a policy of balanced trade with the rest of the world.  Free trade and balanced trade are not necessary mutually exclusive.

When trade is balanced, all trading partners benefit. Countries can increase that benefit by reducing their barriers to imports, as long as trade remains balanced. Then they will exchange goods that are cheaper to produce in one country for goods that the other country can produce more cheaply. This is called the law of comparative advantage. Both countries benefit. David Ricardo pointed this out in the early 1800s. 

But what happens when trade is not balanced? Is free trade still a good thing? Unfortunately, U.S. policy makers in Washington have thought so and so have most economists. They are wrong. The U.S. economy has been suffering annual trade deficits for decades that resulted in economic stagnation, slower than normal economic growth, and the loss of millions of  manufacturing jobs. The Table below shows how the trade deficits for selected years during the period covered by the foregoing graph caused a reduction in Gross National Product and led to slow growth. The slow U.S. economic growth rate of the last 17 years is unprecedented. From 1999 through 2015, the average U.S. growth rate was just 2.1% per year, as compared with over 3% for almost every ten year period during the previous 5 decades.

The following table shows how negative net exports reduced Gross National Product during selected years from 1960 to 2015 ...


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Getting the moderators out of the presidential debates
Jesse Richman, 9/21/2016

I recently wrote a piece on presidential debate format for the Washington Post Monkey Cage blog.  Here's how it begins. 

Donald Trump recently picked up a suggestion that I made last year, a suggestion that was also made by a blue-ribbon, bipartisan group of campaign hands: Presidential debates be conducted without a moderator. It’s an idea worth thinking seriously about. Removing the moderator could well make debates faster, deeper, more informative, more interesting and more revealing...

To read the rest go to


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The Case Against Free Trade
Raymond Richman, 9/15/2016

There is a very good case for international trade between two countries. Both countries can increase their welfare by exchanging goods that are cheaper to produce for goods that the other country can produce more cheaply. Both countries benefit. Historically, economists called this the law of comparative advantage. But for a country to benefit from international trade, its trade must be in balance with the rest of the world unless the imbalance is temporary; for example when the imbalance permits the import of capital goods that will enable it to produce goods that will enable it to balance its trade in the future.

Few goods are directly exchanged for other goods. Goods are usually exchanged for money. In international trade, goods are paid for in any currency the seller with accept. Historically, this meant exchange of goods for gold or other precious metal. For many decades, most currencies were on the gold standard, meaning their currencies could be exchanged for gold. From 1880 to World War I, most countries were on the gold standard and it was a period marked by economic growth in most countries. A so-called gold-exchange standard succeeded it in which the U.S. was on the gold standard and other countries could convert their currencies into U.S. dollars or gold. But it broke down when the U.S. abandoned the gold standard in 1971. Since then, most imports have been paid for in U.S. dollars, internationally  accepted as a reserve currency. The U.S. dollar continues to be the preferred currency for paying for imports. But the U.S. dollar today has competition. Many international transactions are settled in other currencies, the Euro, or the currency of one of parties, the Chinese Yuan, for example, since China is a leading exporter and importer.

Most of the problems of international trade are related to the fact that a number of big countries have trade surpluses year-after-year, becoming international creditor nations. This has been described as a beggar-one’s-neighbor policy because it grows its own economy at the expense of lack of growth or slow growth in the economies of its trading partners. The U.S. has incurred annual trade deficits which became huge after conclusion of the GATT agreements and the creation of the World Trade Organization in 1995. The stagnation of the U.S. economy during the past two decades and the loss of millions of American manufacturing jobs can be attributed to the trade deficits. Today, China, Germany, and Japan are the leading creditor nations. And South Korea is becoming one.

Of course, countries do not need to balance their trade with every country but with the rest of the world. But this is not and has not been the U.S. recent experience. For two decades the U.S. has experienced rising trade deficits with the rest of the world. In 1980 the trade deficit was $13 billion or about 0.45 percent of GDP, less than one-half of one percent. As a result of the successive GATT trade agreements, the trade deficits grew enormously reaching $376 billion in the year 2000, diminishing GDP by 3.66 percent and contributing to the 2000-01 recession. The U.S. trade deficit grew to a record level reaching $723 billion in 2008 diminishing GDP by a record 4.91 percent and helping to precipitate the Great Recession of 2008-09. As a result of the Great Recession, international trade decreased and the trade deficit fell, recovering to $530 billion in 2015, reducing GDP in that year by  2.95 percent. ...


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Answer to Prof. D. J. Boudreaux’s Questions for Trump’s Supporters
Raymond Richman, 9/7/2016

As an economist and a Trump supporter, I hasten to answer Prof. Boudreaux’s “Some questions for Trump’s supporters” (Trib-Review, 9/7/2016). Prof. Boudreaux is Professor of Economics at George Mason University.

First, he sets up a straw man that Trump is against immigration. He asks: "Do you believe that America would be a better place today had your ancestors been kept from immigrating?" Trump and this supporter of Trump are against illegal immigration and the immigration of Muslims who may become terrorists. So what is the question to be answered? Prof. Boudreaux as a respected professor who in asking a question should avoid innuendos that Trump is against legal immigration. He should at least have hie facts straight.

Second question, “If Mr. Trump is correct that NAFTA was a boom to Mexicans but a bust for Americans, why do you worry that Mexicans, in the absence of a “big beautiful wall,” will continue to flock to America in search of work and prosperity.” Because the Mexican boom does not benefit all Mexicans, just as American “prosperity” has left millions of American workers, both black and white but disproportionately black, without jobs or the hope of securing a job. So, many Mexicans and Central Americans who come to the U.S. via Mexico will continue to seek to migrate illegally to the U.S.

Third, Boudreaux asserts that Americans benefit from Chinese low prices. Some do, but many don’t. Some Chinese goods are sold in America at low prices, but the price of an Apple cell-phone imported from China is as high as it would be if it were made here. Competition from other cell-phone manufacturers limits the price Apple can charge here.  Boudreaux does not mention the devastating effects that our trade deficits have had on our levels of manufacturing and employment. He seems to be unaware that the U. S. Department of Commerce statistics on national output show  that  our trade deficits with the rest of the world are a subtraction from Gross Domestic Product. The rate of economic growth would have been double during the past two decades had our trade with the rest of the world been in balance. The trade deficits have caused our economy to stagnate and caused the loss of jobs of millions of workers in manufacturing.

Fourth, Boudreaux writes, “Can you explain why – in a world with nearly 200 countries – we should expect with fair trade, that the Mexicans will each year buy from us exactly the same dollar amount amount of goods and services that we buy from them, and that the Chinese will do likewise?” Trump has not said that trade has to be balanced with every country and of course it does not need to be. We say that trade should be balanced with the 200 countries. Our trade deficits are huge with China, Japan, Germany, Korea, and Mexico. We need to start somewhere to balance trade. Should we start with the countries with whom we have a surplus? Of course not....



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Trump Gets It Right: Trade Was a Loser For All Except the Most Wealthy Americans
Raymond Richman, 8/24/2016

Robert B. Zoellick, wrote an opinion piece entitled “Trump Gets It Wrong: Trade Is a Winner for Americans” (WSJ, 8/8/2016).  Mr.Zoellick is a lawyer with a J.D. degree from Harvard. From 2001to 2005, he was the United States Trade Representative under President GW Bush. Prior to that, from 1993 through 1997, he served under Pres. Bill Clinton as an Executive Vice President at Fannie Mae for two years.  He served as the lead State Department official in the negotiations of the North American Free Trade Agreement and the Uruguay Round which created the World Trade Organization. He helped launch the Asia Pacific Economic Cooperation group.  From 1985 to 1988, under Pres. Reagan, he served in the Department of the Treasury in various positions, including Counselor to the Secretary, Executive Secretary and Deputy Assistant Secretary for Financial Institutions Policy. He served as the Chairman of International Advisors at The Goldman Sachs Group, Inc., from June 2006 to 2007  He actively supported Romney in 2012. He was rewarded by Pres. G. W. Bush with a five year stint as the head of the World Bank at about $800,000 per year. He is clearly a guy who knows how to ingratiate himself with politicians of both parties.

He writes that “55% of registered voters think free trade is good for America because it opens up markets for U.S. goods”. Citing other polls, the writes that “Republicans would be prudent not to assume voters will join Mr. Trump’s retreat on trade.”  Unfortunately, he may be right on that; we shall see. He declares that American manufacturers have benefitted from the free trade deals through lower costs and so have American consumers through lower prices, averaging savings according to one study of about $10,000 per household. U.S. multinationals make about “57 % of U.S. capital investment, and are the source of 83% of private R&D.” “Americans are not losers. But some Americans lose out because economic forces and misfortunes can overwhelm them. Whoever becomes the next President should help people adjust to change, not pretend that change can be prevented.” ...


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Two interesting articles
Jesse Richman, 8/16/2016

Puts together many of the pieces of the current crisis without recognizing the critical role of Asian mercantilism. 

Outlines some key challenges of the present.  Including this: "The era when globalisation seemed like a process that could create only common interests between China and the west is over. It is now giving way to...


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Why Multinational Corporations Favor Hillary -- we're published in the American Thinker
Howard Richman, 8/10/2016

Here's a selection:

Prominent economists are divided on trade. The lead-author’s dissertation advisor, University of Chicago economist Milton Friedman, favored free trade, but he was mostly writing when the U.S. had a trade surplus.

In contrast, British economist John Maynard Keynes supported tariffs when Britain was experiencing trade deficits. In 1931 he proposed (in what was called the addendum to the Macmillan Report) a system of tariffs upon British imports to be used to subsidize British exports in order to balance British trade.

During World War II, Keynes tried to set up a postwar system that would keep trade in balance by letting trade-deficit countries, but not trade surplus countries, impose tariffs and/or reduce their exchange rates. But he was overruled at Bretton Woods, where the postwar international agreements were negotiated, by America’s chief negotiator Harry Dexter White, a Soviet agent.

Economic history shows that the effect of tariffs depends upon trade balances. When trade is balanced, all trading partners benefit, but benefit could increase even more in the absence of tariffs. When trade is not in balance, countries sometimes use tariffs and other barriers to imports and/or subsidies to exports to gain a trade surplus, what 18th Century Scottish economist Adam Smith called a policy of “beggaring all their neighbours.” Their economies grow at the expense of their trading partners.

Countries with trade surpluses grow in relative power, while those with trade deficits shrink. For example, Bill Clinton’s trade agreement with China led to steadily worsening trade deficits, with concomitant transfer of U.S. economic growth and political power to China.

To read it, go to:


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Time for Balanced Trade Not Free Trade
Raymond Richman, 8/7/2016

Most economists oppose protective tariffs by the U.S. but few of them criticize the mercantilist practices of others who impose artificial import duties and other barriers to trade.  Few economists oppose the imposition of protective tariffs by developing nations, designed to promote “infant” industries -- and they all proclaim that is what they are doing. Most economists favor expanding international trade in order to gain the efficiencies of specialization among nations. The basic economic criterion to determine what to specialize in is the economic theory of comparative advantage. A country should specialize in the things its resources enable it to produce relatively more efficiently.

While that still holds true for industries based on the accessibility of natural resources,  traditional theory was given a death blow recently by the publication of a seminal book by  Ralph Gomory and William Baumol, Global Trade and Conflicting National Interests (MIT Press,  2001). In their book they point out that trade today is dominated by manufactured goods, very different from the largely agricultural trade  which was the basis for traditional economic theory of comparative advantage. Any country, they showed,  could invest in the production of a manufactured good and gain economies of scale that would enable it to produce the good at a lower cost than rivals. No one visualized that leading American corporations would move their factories overseas secure in the knowledge that free trade meant that they could export those goods to the U.S. free of duty....


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TPP Resembles Past US Trade Agreements
Jesse Richman, 8/1/2016

In a recent Washington Post (Monkey Cage) essay available at ( Todd Allee and Andrew Lugg report on their text analysis of past trade agreements of TPP members and their resemblances to the TPP text.  They find that TPP most closely resembles past US trade agreements.  They tout this as a sign that the US did well at the negotiating table.  But this may not indicate success for US workers -- the US trade deficit with the signatories of past trade agreements hardly bodes well for this one.


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Snow in July in Austria and Switzerland
Howard Richman, 7/25/2016

As we suffer through a warmer than usual summer, the alps are having a colder than usual cold snap. Here's an excerpt from a European posting from, as translated by

Wiesbaden ( 14 July 2016 – have you ever thought of camping in the snow and in the middle of July? As warned already on Monday by, this forecast came true in the Alp countries of Switzerland and Austria!

The snowfall elevation really dropped over night. In some places early this morning snowflakes were falling at 1500 meters.

For mid July such a low elevation snowfall is extremely rare. Clearly snow is not real unusual in June or late August at these elevations, but in July it is truly an unusual event to witness. This summer is not only behaving like fall, but even like winter...

Jung writes that the cool weather has also gripped parts of Germany and is accompanied by heavy rains in the regions near Poland. The cause of the cold spell is a low situated over Poland.



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Why US Multinationals Oppose Trump and Favor Clinton
Raymond Richman, 7/3/2016

Apple’s CEO, Tim Cook, announced that Apple would not contribute to the costs of the Republican convention in Cleveland this year as it has done in past conventions.  Apple is a corporation incorporated in the.US but almost all of its products are produced in China. It is a Chinese company much more than it is an American company. And so are many other “U.S.” multinationals, including a number of high-tech companies like Hewlett-Packard. Hundreds of major American corporations have shipped millions of jobs overseas, according to an analysis of Trade Adjustment Assistance (TAA) filings made to the U.S. Department of Labor's Employment and Training Administration on behalf of the displaced workers. According to a report on CNN, over 900 US corporations are producing products abroad, a "who’s who" of American manufacturing firms. 

Given that the presumptive Republican candidate for President, Donald Trump has announced his intention to balance trade with China and re-negotiate all USA trade treaties to assure that trade becomes more balanced, Trump has incurred the opposition of companies that produce all or some of their products abroad and their spokesman, the US Chamber of Commerce.  The latter in its propaganda lauds the advantages of  U.S. exports and does not mention the disadvantages of U.S. imports which exceed the former by several hundred of billions per year causing the loss of millions of American manufacturing jobs. US multinationals account for a substantial share of manufactured goods  exports to the US, so it is not at all surprising that these companies should prefer a tweedledee candidate to Hillary’s tweedledum candidacy, lest a tariff be imposed on their exports to the U.S..

U.S. policies contributed to the growth of China as the number two manufacturing power. Pres. Richard Nixon normalized relations with China in 1972. On 24 January 1980 Congress passed a trade agreement conferring Most Favored Nation (MFN) status on China.  Despite this move, China’s MFN trade status (which was not granted permanently) created new legal and political impediments to Sino-American trade relations which were not removed until 2001, when China joined the WTO, whose rules prohibit members from imposing trade restrictions on other members except when they are experiencing chronic trade deficits. 

Growth in the U.S. goods trade deficit with China between 2001 and 2013 eliminated or displaced 3.2 million U.S. jobs, according to a study by EPI Director of Trade and Manufacturing Policy Research Robert E. Scott. Trade with China has caused job loss in all 50 states and the District of Columbia, including all but one congressional district. About two-thirds of jobs lost, or 2.4 million, were in manufacturing. The U.S. Bureau of the Census reported that American companies abroad and US subsidiaries of foreign corporations trade accounted for about 50.9 percent ($1,178.7 billion) of total consumption imports ($2,314.0 billion) in 2014. Republican and Democratic presidents Pres. Bill Clinton and George Bush did not concern themselves with the trade deficits’ disastrous consequences for American manufacturing workers and the US. Economy tanked as a result, no doubt contributing to the popularity of Trump’s candidacy....


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Conservative analyses of EU's failure cite regulation, ignore trade imbalances
Howard Richman, 7/1/2016

I've noticed that conservative analyses of why the EU failed invariably focus upon regulation, but miss the trade imbalances. For example take the British Conservative Party's Daniel Hannan's eloquent and humorous oration at the Oxford Union in favor of Brexit:

Daniel Hannan is correct that the European Union has been an economic disaster. He cites some good statistics to prove his point. But like many other conservatives, he only attributed that disaster to one of its causes: the regulations of the European Commission. He missed the other major cause: the trade imbalances.

Eventually, every trading system which sustains imbalanced trade eventually slows economic growth....


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Western Politics at a Point of Disjunction
Jesse Richman, 6/23/2016

Politics in the West -- in Europe and the United States -- it at a break point.  A phase shift.  If as currently appears the British have chosen Brexit, one might say that the moment of disjunction is upon us.  What does it mean, and where is it going?

For more than half a century, the dominant political battle in the US and in much of Europe has been between economic and cultural left and right -- a fight principally over the degree to which governments will regulate, and the extent to which governments will tax and redistribute, and secondarily over secular versus traditional values.  Major parties of the left and right have been relatively united in pursuit of globalism -- free movement of people, goods, and capital.  With the strong vote for Brexit, the political toxicity of TPP and TTIP, and the strong performance of Trump and Sanders in US primaries, that epoch may be ending.  The new lines of conflict are between nationalists of the left and right and globalists of the left and right.  



Europe, threatened with fragmentation, may yet find the way to a new and more effective synthesis.  What is called for is a continental nationalism akin to the nationalism that draws Californians, Alaskans, New Yorkers, and Texans together in the United States.  And one that moves effectively to address the critical challenges faced -- defending the great good at the core of the enlightenment project Europe, the UK, and the United States share against both the narrow temptations of nativist nationalism and the dangerous naiveté of globalists who think that a world of perpetual and democratic peace will follow if only they shut their eyes to the folly, short-sightedness, and counter-productivity of their own policies, and the enemies of liberal democracy and the enlightenment on the march abroad.    



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Inequalities of Wealth and Income Are Poorly Measured and Grossly Overstated
Raymond Richman, 6/16/2016

One hears a lot about the inequalities of wealth and income and how immoral and obscene they are. But wealth and income are rewards for what individuals contribute to the economy. The contributions of individuals to the society are grossly unequal. So the rewards should be expected to be unequal. But although they are unequal, they are not nearly as unequal as people believe. In the first place, the inequality of wealth is measured improperly by excluding many forms of wealth such as the value of accumulated social security, annuities, insurance, and pensions. These are largely owned by the middle and working classes. So those who measure wealth inequality are overstating the proportion of wealth owned by the most wealthy. Second, inequality of wealth varies substantially with business fluctuations and interest rates. Inequality of wealth is as great currently as it has ever been but that’s the fault of the Federal Reserve Policy of low interest rates as we shall show below.  Third, government taxes wealth at death in the form of estate, gift, and inheritance taxes and this induces the wealthy, in the U.S. at least, to give much of their wealth away, to universities, hospitals, non-profits, and charities during their lifetimes. As for income inequality, it is usually measured before income tax. After tax income is much more equal and a lot income is not counted at all, things like free school, librairies, food stamps, Medicaid, and much else. And those who talk about inequality of wealth and income seldom talk about the relative equality of consumption, or the fact that Americans enjoy the highest standard of living in the world.  

Consumption is what individuals take out of the economy. While the rich consume more that the poor and lower middle class, measures of inequality of consumption fail to include not only welfare benefits such as welfare payments, Medicaid, public housing, and food stamps but social security payments, public parks, free schools, public libraries, and much else. Wealth and income are measures of the value that households contributed to the economy whereas consumption measures what households take out of the economy. Inequality of consumption is therefore the only inequality that should be of concern and in the U.S. inequality of consumption is not a problem. The problem that poor are rightly concerned about is their inability to find and hold a job. ...


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How Trump could avoid a Trade War -- We're published in the Washington Examiner this morning
Howard Richman, 5/31/2016

We begin:

Donald Trump argues that recent trade deals and trade deficits have been bad for American workers, and that he could do better. Some have argued that his proposals would start a trade war. But if he comes up with the right BATNA (Best Alternative To a NegotiatedAgreement), he could move trade toward balance without a trade war.

In August 1971 President Nixon used a 10 percent across-the-board tariff as his BATNA in order to force the successful negotiations which brought U.S. trade into balance by 1973. But U.S. trade deficits were small in Nixon's day and huge today. Trump will need a much more powerful BATNA than the across-the-board tariff used by Nixon.

Trump has proposed single-country tariffs against Mexico and China of 35 percent to 45 percent. Such tariffs would indeed provide a very powerful BATNA. They would balance trade, even if the negotiations fail, because the United States would shift its import purchases to balanced-trading countries that buy more from us when we buy more from them. The revival in American manufacturing that Trump desires would occur.

But such tariffs could lead to a trade war. The countries involved would likely place counter-tariffs upon politically-sensitive U.S. products, such as American agricultural goods. Fortunately, there is a BATNA that Trump could choose which would avoid a trade war altogether.

To read it, go to:



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Global Trade down 9% since 2014
Howard Richman, 5/25/2016

Robert Romano, writing on Net Right Daily, Americans for Limited Government's website, reports that global trade is down about 9% since 2014. He begins:

Global trade is collapsing. In March, the U.S. trade deficit took a big hit, dropping 13.8 percent amid an $8 billion contraction in imports and a $2 billion shrinking of exports, according to data compiled by the U.S. Census Bureau.

Most economists think that global trade collapses during global economic recessions due to the fact that countries often raise their tariff rates during those recessions. But the causation is different. First trade becomes imbalanced. Then the trade deficit countries get into financial problems and can no longer buy as many imports from the trade surplus countries. Then trade collapses and world growth stagnates. Finally, trade deficit countries impose balancing-trade tariffs upon the products of the trade surplus countries which allows them to get out of the recession. So the economic recession itself causes both the decline in world trade and the rising tariffs.

We are not the first economists to understand that imbalanced trade leads to global economic slowdowns. We attributed that understanding to John Maynard Keynes in our journal article about our Scaled Tariff when we wrote:...


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Jesse was interviewed by Fox News on Saturday
Howard Richman, 5/3/2016

Here's the link:




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Noted Liberal Economists, Krugman and Blinder, Espouse Free Trade, a Policy That Is Not Supported By Economics At ALL
Raymond Richman, 4/25/2016

Paul Krugman, a Nobel Prize winner and a former Princeton University Professor of Economics in an opinion piece entitled “Trade, Labor and Politics” in the New York Times (3/28/2016) and Alan Blinder, currently a Professor of Economics and Public Affairs at Princeton in an opinion piece entitled “Five Big Truths about Trade” in the Wall Street Journal (4/22/2016), urge doing nothing to eliminate the trade deficits the U.S. has been experiencing for over two decades. Princeton was the home of Woodrow Wilson, who created the League of Nations, the beginning of globalization, which is relevant because both are globalists which may explain why they wrote the nonsense we criticize. It is to be hoped that they are not representative of the economics faculty at Princeton.

Krugman begins by writing that the “Republicans, who claim to stand for free markets, are likely to nominate a crude protectionist…”  Donald Trump is hardly a crude protectionist. He has said he wants to end the huge chronic trade surplus China has had with us for nearly two decades and will take action to prevent American firms moving their factories abroad. That makes him a wise protectionist because these are actions we need to take. Was Keynes a crude protectionist when he said decades ago that Britain should take retaliatory action against mercantilist “beggar-thy-neighbor” policies pursued by its trading partners? And am I, a University of Chicago Ph. D. in Economics, a crude protectionist for pointing out that economics as a science does not justify “free” trade at all. All that economics has to say is that balanced trade is always beneficial to trading partners. Trade does not need to be balanced with every country but a country’s trade should be balanced overall with its many trading partners. Free trade as a policy could only be recommended by economists when the trading partners 1) have a common currency, 2) there is free movement of labor and capital between them, and 3) neither partner can impose barriers to trade, restrictions imposed on the States by our Constitution. The European Union has similar conditions.

Krugman admits that  “for the past few decades globalization has probably been, on net, a depressing force for the majority of U.S. workers.” What an understatement! Millions of American workers have lost good jobs in manufacturing which is the cause of the economic malaise afflicting this country. But Krugman talks about “globalization” as the cause. It was not globalization but the ideology of free trade and the trade treaties that accompanied globalization that produced the unintended consequence of U.S. trade deficits. The United Nations, the World Bank, the International Monetary Fund, the International Labor Organization, the World Health Organization, and hundreds of other agencies were created in the process of globalization but none of them have had a depressing effect on American workers. Only the trade deficits have done that. Krugman ought to stick to economics. Globalization is not economics, trade deficits are. ...


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Journalists and Their Economic Illiteracy I.
Raymond Richman, 4/19/2016

The editorial page of the Trib-Review in its Saturday edition 4/16/1016 illustrates what is wrong with the media today. First, the editorial on the page criticizes the Republican Party for not opposing the Export-Import Bank created by the Truman administration in 1945. The editorial calls the X-Im Bank crony capitalism because the bulk of its loans go to large companies like Boeing and GE, but in 2015 the bank made more than 2,300 transactions that helped U.S. small businesses export their products.  The Ex-Im bank guarantees to keep U.S. banks harmless on loans they make to foreigners to purchase U.S. goods but requires them to use sound economic criteria when they make such loans. The Ex-Im Bank has been entirely self-funded since 2007 and cost the government very little over its life as a bank. It adds nothing to the budget deficit at all. Surely there are better things to cut. There are, according to the EX-Im Bank 85 foreign countries that have export credit agencies. It is not an example of “Crony capitalism”. The latter is evidenced by government grants, subsidies, and tax breaks to favored companies. Examples are the huge subsidies and guarantees given companies producing electricity from wind and solar sources and the tax credits given to buyers of hybrid and electric vehicles which line the pockets of the companies that produce such vehicles. Given the fact that the U.S. imported $500 billion worth of goods and services in 2015 than it exported, there is good reason for its continued existence.  The editorial would have been more appropriate when the U.S. was the leading creditor nation in the 1950s and 1960s but today it is the leading debtor nation.

Second, in a column on the editorial page John Stossell,


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The Law of Diminishing Returns; How we Escaped Its Consequences  
Raymond Richman, 4/14/2016

Most of us do not understand the economic Law of Diminishing Returns. Parson Malthus, who gave economics its reputation as the dismal science, postulated that given the fact that the earth’s surface is limited, as population grows the product that each additional worker adds to land’s output of productive land would eventually begin to diminish and that if growth of population were left unchecked, earnings in agriculture per person would diminish to below the level needed to sustain the population. What Malthus and all the classical economists, including Karl Marx, failed to realize was that land was not the only resource employing labor. Most of our labor is employed in producing non-agricultural products and services, combining labor not with land alone but will growing amounts of physical capital. Since the time when Malthus wrote, the end of the 18th century, the U.S. and Europe have experienced rising wage rates as capital per worker increased. But there is some evidence that we have begun to experience diminishing returns again, the result of forgetting that for wages to rise wage-increasing capital investment must grow relative to labor input.

Not many decades ago, after World War II, Japan began to experience rapid economic growth so rapid in fact that a colleague of mine at the University of Pittsburgh predicted it would catch up to the U.S., just as many have been predicting that China’s rapid growth would make it the number one economic power exceeding the U.S. But even economic growth is subject to the law of diminishing returns.ot surprising to economists familiar with the law of diminishing marginal productivity, China’s rate of growth slowed down just as Japan’s had before it. The returns to capital are high when there are lots of new investment opportunities. But new investment opportunities often grow slower that savings, the source of investment capital. Marx thought that savings would always rise faster than investment opportunities. Marx was the real economic pessimist. Marxism is the real dismal science.

Knowledgeable readers may have already guessed that the law of diminishing marginal productivity is merely an application of the economic Law of Supply and Demand. The supply of land being relatively fixed combining it with an ever-increasing supply of labor reduces the amount of product eventually that each additional unit of labor produces, hence the law of diminishing returns.  But Malthus did not anticipate the extensive growth of non-agricultural industries over the next two centuries. The production of new products increases the demand for labor causing wages to rise. He never expected the incredible rise in productivity in the industrial and commercial sectors. ...


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Recent polling data on trade
Jesse Richman, 4/13/2016

Public opinion on trade policy continues to be at substantial odds with most U.S. public policy.  

A mid-March Bloomberg poll asked the following question:  "Turning now to trade, generally speaking, do you think U.S. trade policy should have more restrictions on imported foreign goods to protect American jobs, or have fewer restrictions to enable American consumers to have the most choices and the lowest prices?"  65 percent supported more restrictions.  22 percent supported fewer restrictions. 

Another question asked "Overall, do you think NAFTA, the North American Free Trade Agreement, has been good or bad for the U.S. economy?"  44 percent said it had been bad for the U.S. economy, and 29 percent said it had been good. 

Bloomberg's analysis of the poll can be found here.  They titled it "Free-Trade Opposition Unites Political Parties...


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Who's got the trade policy delusions?
Jesse Richman, 4/12/2016

The counter-attack by the "free-traders" is under way.  It's unfortunate for them that they have little more to sell than lies, distortions, and delusions. 

Case in point is a recent piece on trade in The Daily Beast by Will Marshal and Ed Gerwin (

"Take Trump’s chest-thumping threats to slap tariffs of 45 percent and 35 percent on imports from China and Mexico, respectively. These crushing duties would immediately jack up production costs for U.S. manufacturers, such as Ford, that source engines and parts from these countries, seriously undercutting their ability to compete globally."

The U.S. exports half as many cars as it imports.  Imposing tariffs on countries like China and Japan that have worked hard to exclude U.S. made cars from their markets might well move trade toward balance.  Tariffs on imports from Mexico would perhaps change Ford's calculus about its newest shipment of U.S. auto-production to that country. 

"The Trump Tariff also would be in essence a giant tax hike on U.S. consumers, amounting to $250 billion by one estimate. At current import levels, a 45 percent duty on imports from China would, for example, translate into a tax of $18 billion on cellphones, $16 billion on laptops, and $15 billion on clothing. Similarly, Sanders’s commitment to “reversing” tariff-cutting U.S. trade agreements and normal trade relations with China would lead to higher duties on a wide range of imports from 21 countries—including America’s top three trading partners—and higher costs for working Americans."

Such a tariff would also provide valuable incentives for some re-shoring of production to the US if maintained.... 

"China and Mexico would surely retaliate by raising barriers to U.S. exports. China—America’s number three export destination—could, for example, impose stiff duties on such leading U.S. exports as aircraft, autos, electronics, soybeans, and corn, as well as new limits on high-value U.S. services. The tit for tat would lead to shutdowns and layoffs in all three countries, and could tip an already shaky global economy into recession."

If the tariffs were imposed by means of the balanced trade "scaled tariff" then retaliation would only further hurt these country's exports.  Their better policy would be to begin taking down trade barriers, stop manipulating their currencies, and start finding ways to buy more U.S. products....


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The People are Right: It's Time to Balance Trade -- we're published in the American Thinker this morning
Howard Richman, 4/5/2016

Here's how we begin:

Although Donald Trump (Republican) and Bernie Sanders (Democrat) have both made opposition to U.S. trade policy a major plank of their surprisingly successful presidential campaigns, most elite “opinion leaders” in the media and politics continue to at-best condescend to these messages as a working-class phenomenon -- a movement by the “losers” in trade that fails to recognize the counterbalancing winners.

Few in the elite have yet begun to question their faith in free trade. And, as a result, it is unlikely that Congress, the executive branch, and other power centers will engage in the important rethink of U.S. trade policy that the public is calling for. Like Hillary Clinton and Ted Cruz in the current campaign, Mitt Romney in 2012, and Barack Obama in 2008, they give lip service to trade concerns, while planning to continue “free trade” policy once elected. But the voters are right, the elites are wrong. The trade jobs ‘winners’ are vastly outnumbered by those who lost millions of jobs. Why the mismatch? Our massive trade deficits.

If there is a single statistic that shows the major cause of the current malaise -- and surely it has many causes -- the trade deficit is foremost. It has worsened since 1975, as shown in the following graph:

To read it, go to:



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Trade Agreements Have Been an Economic Disaster for the USA
Raymond Richman, 3/29/2016

When the U.S. began negotiating the General Agreement on Tariffs and Trade (GATT) in 1947, it was the world’s leading creditor. By the time the ninth round of negotiations was concluded in 1994, it had become the world’s leading debtor nation, millions of well-paid manufacturing workers lost their jobs, and the U.S. suffered two recessions in less than ten years, in 2000-01 and 2008-09. No wonder the malaise that led to what is clearly a popular revolt in the 2016 primaries. If there is a single statistic that shows the cause of the malaise—and surely it has many causes all associated with government intervention in the economy!—it is the growth of our international trade deficit in the following table.

The  table shows that U.S. Gross National Product, GDP, the total output of goods and services, which equals C+I+G+(X-M), ie., total private consumption expenditures, C,  plus gross private domestic investment expenditures, I, plus government consumption and investment expenditures, G, plus exports minus imports (X-M). It shows the GDP for selected years 1960 to 2015. It shows that the U.S. had a trade surplus of $4 billion in 1960, which made a contribution to GDP of 0.74 percent, less than one percent but at least positive.  As a result of GATT trade agreements from 1947 to 1994 and subsequent agreements with China, Korea, and Mexico, the U.S. experienced growing trade deficits which exploded after 1994.

In 1980 the trade deficit was $13 billion or about 0.45 percent of GDP, less than one-half of one percent. As a result of the successive GATT trade agreements, it grew enormously reaching $376 billion in the year 2000, diminishing GDP by 3.7 percent and contributing to the 2000-01 recession. The U.S. trade deficit grew to a record level reaching $723 billion in 2008 diminishing GDP by a record 4.9 percent and helping to precipitate the Great Recession of 2008-09. As a result of the Great Recession, the trade deficit fell, recovering to $530 billion in 2015, reducing  GDP by about 3 percent. In other words, had our trade been in balance in 2015, our GDP would have been $18.5 trillion instead of $17.9 trillion. ...


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Cruz' tax plan -- analysis by Tax Policy Center
Howard Richman, 3/17/2016

Tax Policy Center has put together an analysis of Senator Cruz' tax plan. Here are some quotes from an article about it that appeared in Dow Jones Business News:...



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An Analysis of the Proposals of the Republican Candidates for President
Raymond Richman, 3/15/2016

Following are the proposals and views of the Donald Trump. Sen Cruz, Sen. Rubio, and Gov. Kasich and my comments on their proposals:

Donald Trump, a businessman and graduate of the Wharton School at the University of Pennsylvania, makes the following proposals. Trump

  1. would deport illegal immigrants. No other candidate approves this suggestion.
  2. build a fence between the U.S. and Mexico. No other candidate makes this suggestion.
  3. believes that marriage is a state not a federal concern. All the candidates except Kasich agree.
  4. proposes to cut income taxes, corporate and personal. Cruz and Rubio suggest changes in corporate and personal income taxes. (See below.) We have our own proposals which differ from those of all the candidates.
  5. suggests there is little man-made global warning and measures to reduce global warming are ineffective, costly, and damaging to the economy. Cruz is the only one who agrees.
  6. urges balancing trade with China, Japan, Mexico, and other large trading partners. No other candidate appears to agree.
  7. wants to prevent American firms from moving their factories abroad. None of the others mention this.
  8. would impose a ban on travel of Muslims to the U.S. No other candidates agree.
  9. opposes government financing abortions but otherwise approves Planned Parenthood. Cruz and Rubio have similar but not identical views.
  10. Promises to reduce the national debt. All the candidates promise the same.

 Ted Cruz, a lawyer, graduate of Princeton University, received a law degree from Harvard University makes the following proposals: ...



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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]