Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



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: 

Read more...

Comments: 0


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....

 

Read more...

Comments: 0


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:

  1. Google. $7.8 billion in 2017 & 2018
  2. Microsoft: $2.1 billion in 2004, 2006 & 2008
  3. Intel. $1.5 billion in 2009
  4. Qualcomm. $1.2 billion in 2018
  5. 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:

https://www.americanthinker.com/blog/2018/07/eu_commissioner_to_white_house_today_51b_google_fine_on_agenda.html

Read more...

Comments: 0


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

Read more...

Comments: 0


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. ...

 

Read more...

Comments: 0


Navarro WSJ Opinion Piece on Trump Tariffs on China
Jesse Richman, 6/26/2018

Peter Navarro has an excellent opinion piece in the Wall Street Journal defending the Trump tariffs on China.  He concludes:

It has taken vision and courage for the president to take these steps. The far easier course would be to continue the relationship with China as his predecessors did. If China continues to escalate this trade dispute rather than treat the U.S. fairly, Americans may finally wake up to an economic and national-security threat that the president has seen coming for decades. With its huge trade surplus with the U.S., China must know it has far more to lose in this trade dispute.

The president won’t back down when America’s economic prosperity and national security are at stake. This is no time for miscalculation by China—and past time for China to end its economic aggression.

The entire piece is worth a read. 

Read more...

Comments: 0


How to Avoid Trade Wars While Balancing Trade
Raymond Richman, 6/25/2018

Trade agreements are excellent examples of crony capitalism. If one party to a trade agreement imposes a tariff on the products of an industry it favors, it is simple enough for an affected country to do likewise, initiating a trade war.  Even if the initiating country had good reasons for imposing a tariff or other barrier to  trade, other parties to the agreement may object because it violates the letter of the agreement. When the Trump administration imposed a tariff on steel and aluminum products on the grounds that the two industries are critical to its defense, China immediately imposed a tariff on USA agricultural products, a sector favored by the USA in trade negotiations. Canada and the European Union announced they would impose tariffs on USA goods in retaliation to the USA tariff.  

Trade agreements usually provide some relief for a member experiencing chronic trade deficits. One that is generally acceptable is a devaluation of its currency. A devaluation means that the prices of imported goods will rise and the prices of exported goods will fall in terms of foreign currencies. As a result, the country may import less and export more. The trouble is that a currency devaluation would affect countries with which the devaluing country has a trade surplus. If a country has a chronic trade deficit with one or a few countries, one would like the devaluation to affect only them.

 

Why a tariff on steel and aluminum would cause a trade war by countries enjoying enormous trade surpluses—in effect growing at the expense of the USA—is surprising. It is the USA that should start a trade war with China, the European Union, and Japan. That is decades overdue! ...

Read more...

Comments: 0


How to Avoid Trade Wars While Balancing Trade
Raymond Richman, 6/5/2018

It is scandalous the way our media, including the Wall Street Journal, are reporting the world’s reaction to the Trump administration’s imposition of a tariff on steel and aluminum. Since 1975, America’s trading partners, with few exceptions, have enjoyed a surplus in their trade with the USA that has cost American manufacturing workers millions of jobs, caused a relative decline in manufacturing in the USA, and converted the USA from the world’s leading creditor nation to the world’s leading debtor nation. They have all been accusing the Trump administration of starting a trade war when in fact it could be argued that the trade agreements promoted by the USA were suicidal.

Trade Wars are predictable when a country chooses to impose tariffs on or more of a select group of products. It is easy for its trading partners to do likewise. A trade war is rare when a country devalues its currency which is equivalent to a cross-the-board tariff on imports.

The six other members of the G7, Germany, Japan, France, Canada, Italy, and the United Kingdom condemned the USA action. None of the media mentioned the fact that for decades these countries have been waging a trade war on the USA. In 2016, the countries with which the USA had the largest trade deficits, were China, $347.0 billion; the European Union, $146.3, (including Germany, $64.8 billion); Japan, $68.9 billion; Mexico, $63.1 billion; Ireland, $35.9 billion; and S. Korea, $27.7 billion. Only S Korea has agreed to reduce its deficit by increasing imports from the USA. The total trade deficit of the U.S. in 2016 was $734.3 billion. These countries account for 93.8 percent of the total. The reader should note that three of the six G7 countries are included.  How could the media accuse the USA of starting a trade war given the fact that it has suffered trade deficits for decades? ...

 

Read more...

Comments: 0


Book Review: Dani Rodrik, Straight Talk on Trade, Ideas for a Sane World Economy (Princeton, Princeton U. Press, 2018
Raymond Richman, 5/6/2018

Economists usually obfuscate the facts about international trade in their zeal to promote free trade. They ignore the fact that some countries deliberately seek a trade surplus, to export more than they import, to accelerate their rates of economic growth. But their growth is at the expense of countries which import more than they export. They ignore the fact that the trade deficits the U.S. has been experiencing for decades have converted the U.S. from being the world’s leading creditor nation to the world’s leading debtor nation, has caused U.S. growth to stagnate, and have caused millions of American workers to lose good-paying manufacturing jobs.

Prof. Rodrik is not one of those who ignores the negative impact of international trade on the U.S. economy, but he does not blame the trade deficits. In his preface, he writes that economists have overstated the magnitude of aggregate gains from trade and elsewhere he writes, “Economists do not fully understand why expanded trade has interacted with the macroeconomy to produce the negative consequences for wages and employment that it has. “Adam Smith and David Ricardo”, he writes, “would turn over in their graves if they read the details of, say, the Trans-Pacific Partnership” agreement. (All the multi-lateral agreements involve substantial losses of sovereignty with topics ranging from child labor, minimum wages, global warming, compulsory arbitration, etc., etc.. Some have even created new international institutions like the World Trade Organization.)

Prof. Rodrik does not limit himself to the economists’ views on trade but addresses many other economic and political issues. Industrialization was, he writes, “traditionally a powerful growth engine” but developing countries “typically have neither numbers nor resources on their side” and “low-income countries are running out of industrialization opportunities” for export-led growth. This is an opinion we do not share. As though export-led growth was the only means to achieve growth!. In large part, the book reads like an essay because of similar non-sequiturs.

Nevertheless, the Rodrik's insights are worth considering. He talks about “premature globalization” caused by the creation of the World Trade Organization and ensuring trade deficits which led to today’s “globalization backlash”. Imposition of any tariff is called “protectionism” by economists and the media. But he is wrong to describe tariffs intended to remove a trade deficit as protective. In our view globalization is a nonsense goal. Our goal should be balanced trade, the exchange of domestically produced goods for an equal value of foreign-produced goods. When trade is balanced both trading nations gain from trade. Those sectors that are injured in each country can be compensated by those who gain leaving a net gain overall....

Read more...

Comments: 0


How Trump succeed with North Korea
Howard Richman, 5/1/2018

If you were caught by surprise by the events in Korea, I'd like to suggest that you start following Dilbert cartoonist Scott Addams' blog. He understands how Trump thinks and why he succeeds, so he predicted all of this. The following two blog posts were especially prescient:
 
1. April 27, 2017: http://blog.dilbert.com/2017/04/12/the-north-korea-reframe/
 
2. January 3, 2018: http://blog.dilbert.com/2018/01/03/president-trumps-nuclear-button-tweet-sign-insanity/
 

Read more...

Comments: 0


Sea levels for the last 1400 years -- a graph
Howard Richman, 4/26/2018

I ran into this graph in a posting by Kenneth Richard on the Climate Change Dispatch website: 70+ Papers Show There Is Nothing Unusual About Today’s Sea Level Rise And Rate:

This graph combines the actual graph from an academic study (pdf) of sea level in a Denmark salt marsh over the last 1400 years with the latest results from the IPCC, summarized by Kenneth Richards in this posting:

Read more...

Comments: 0


Trade Agreements Are International Examples of Crony Capitalism
Raymond Richman, 4/15/2018

The trade agreements have been a disaster for the U.S. because they involve the rewarding of favored industries, e.g., agriculture in the U.S., at the costi of disfavored industries, e.g., iron and steel in the U.S. They are examples of crony capitalism at its worst. China has retaliated for the U.S. tariffs on steel by imposing tariffs of U.S. agricultural products. After meeting with the President, agricultural producers suggested a return to support of the Trans Pacific trade agreements in which agricultural interests benefit at the expense of U.S. manufactured goods....

Read more...

Comments: 0


U.S. Would Profit From a Trade War
Raymond Richman, 4/10/2018

The recent decline in share prices on U.S. exchanges have been attributed by many commentators to fear of a trade war. That fear is irrational. The U.S. economy stands to gain, not lose, from a trade war with China and other trade surplus areas including the Eurozone. Only countries with huge trade surpluses with the US – i.e., China, Japan, Germany and the Eurozone, Korea, and Mexico need to fear a trade war. A trade war with any of those countries would result in the end of their chronic US trade surpluses which have been the bass of slow economic growth of the U.S. economy and the weakening of our manufacturing sectors. Workers in manufacturing in the US have suffered losses of millions of good jobs and stagnant and declining wages as a result of the U.S. trade deficits.

The trade agreements have been a disaster for the U.S. because they involve the rewarding of favored industries, e.g., agriculture in the U.S., and the sacrifice of disfavored industries, e.g., steel manufactures in the U.S. They are examples of crony capitalism at its worst. Moreover, after the negotiations, U.S. tariffs that remained are one-half of its trading partners’ average, 2.5% vs. 5.0%.

Chronic trade imbalances have many causes including formal and clandestine trade barriers, inappropriate exchange rates, and lower wage costs. Some commentators have suggested in the case of China to pursue a remedy by appealing to the World Trade Organization. Besides taking years to get any satisfaction, the U.S. cannot even be sure of a favorable outcome. There is a much easier and more certain solution which we described in our book Balanced Trade (Lexington Books, 2014), namely a single-country-variable-tariff applicable to all imports from the trade surplus country which would decrease as trade is brought into balance and increase if the trade imbalance worsens. We generally oppose tariffs on individual products, regarding it as a form of crony capitalism.  ...

Read more...

Comments: 0


The cosmic ray explanation of climate change -- an interview with Henrik Svensmark and his son
Howard Richman, 3/17/2018

Read more...

Comments: 0


The USA Needs Balanced Trade Not Free Trade to Stimulate Growth
Raymond Richman, 3/14/2018

The US has experienced sky-rocketing international trade deficits over the past six decades reaching $796 billion in 2017. These trade deficits have inflicted considerable harm on the U.S. economy, causing the loss of millions of U.S. manufacturing jobs, closing factories, reducing economic growth, and   converting the U.S. from the world’s leading creditor nation to the world’s leading debtor nation. The nations who sell more to us than they buy from us are creating jobs for their own workers at the expense of American workers. They use a small proportion of the dollars they earn to buy businesses, assets like GE’s electric appliances division, high tech companies, hotels like the Starwood group, office buildings, etc. If they had used their surpluses to buy goods made in the U.S. the economies of both countries would have benefited and it would not have had beneficial effects on the U.S. economy, U.S. jobs, and the incomes of American workers.

A policy of free trade makes sense only when there are no tariffs or artificial barriers to trade, currencies are not undervalued, and national security is not endangered by trade in particular goods. Pres. Trump signed a bill imposing tariffs of 25% on steel and 10% on aluminum because the decline of those industries endangers U.S. security, authorized by Art. 21 of the 1994 GATT agreement. The GATT agreement probably limits granting an exemption to any single member country because others could claim the exemption under the most-favored nation clause. Trump was able to exempt e waTrump       Mexico and Canada from the tariffs because America has a separate trade agreement, NAFTA¸ with them.

Critics point out that the tariffs will raise the price of products fabricated with steel or aluminum. But the existing low prices of iron and steel and aluminum are at the expense of American workers. American consumers should not be favored at the expense of American wage-earners.

The reality is that most of the world’s output of steel and aluminum is made by a few countries which import less from us than they export to us. According to Wikipedia, total world crude steel production was 1,691.2 million tons (mt) in 2017. The biggest steel producing country was China, which accounted for 49.2% of world steel production and 47.1% of our global trade deficit of $796 billion in 2017. The U.S. produced 81.6 mt or 4.8 percent of the world’s steel output. The European Union produced 168.7 mt or nearly ten percent of the steel and accounted for $151.4 billion or 19% of our global trade deficit. Besides China and the European Union, Japan produced 104.7 mt of steel and accounted for 8.6% of our deficit, S. Korea 71.1 mt and accounted for 2.9% of our trade deficit. We have had huge annual trade deficits with China, Germany and Japan for decades. Imposing tariffs on imports from countries with which we have been experiencing huge trade deficits does not constitute an abandonment of the principle of free trade but is remedial, intended to balance trade. World trade rules permit trading partners to temporarily impose tariffs on goods from countries with which they are experiencing chronic deficits. ...

Read more...

Comments: 0


On Trade, Trump is Acting in the Best Interest of the USA -- we're published in today's American Thinker
Howard Richman, 3/11/2018

Here's a selection:

The biggest steel-producing country in the world in 2016 was China, which accounted for about half of the world's steel production and more than half of the U.S. trade deficit.  Imposing tariffs on such products is a way to balance trade.

What of fears of a trade war?  Most of the above countries are already participating in a trade war with the United States, except that the United States has not been fighting back.  The governments of these countries have been manipulating the terms of trade to enhance their exports to the United States and keep out U.S. products.  As a result, we get debt, and they get the new factories and the R&D that needs to locate near factories.

To read it, go to:

https://www.americanthinker.com/articles/2018/03/on_trade_trump_is_acting_in_the_best_interest_of_the_usa.html

Read more...

Comments: 0


On Trade, Trump Is Acting in the Best Interests of the USA
Raymond Richman, 3/7/2018

Two members of Pres. Trump’s inner circle of economic advisers are Wilbur Ross, Trump’s Secretary of Commerce, and Peter Novarro, professor of economics at the University of California at Irvine. The latter has just been named assistant to the president that places him among the ranks of the President’s top-level policy advisors. Both have been urging the federal government to eliminate our international trade deficits which during the past half dozen decades have inflicted considerable harm on the U.S. economy particularly its manufacturing sector, causing the loss of millions of U.S. manufacturing jobs, reduced U.S. economic growth considerably, converted the U.S. from the world’s leading creditor nation to the world’s leading debtor nation.

The problem is that the nations who sell more to us than they buy from us are creating jobs for their own workers at the expense of American workers. They use a large proportion of dollars they earn from exporting to us to buy U.S. assets which do not create any jobs, buying existing American assets like shares of American corporations often gaining control of American corporations, hotels, office buildings, and the like. If they bought goods made in the U.S. resulting in balance trade, the economies of both countries would benefit and it would not have disastrous effects on the U.S. economy, U.S. jobs, and the incomes of American workers.

A policy of free trade makes sense only when there are no formal or informal  barriers to trade, the rate of exchange between currencies is conducive to balanced trade, and national security is not endangered by trade in particular goods. Pres. Trump announced that he plans to impose tariffs of 25% on steel and 10 % on aluminum because a great power needs those industries for its security and free trade is endangering its security. ...

Read more...

Comments: 0


Trump getting serious about trade
Howard Richman, 3/1/2018

Trump appears to be getting more serious about trade. He just promoted Peter Navarro to be Assistant to the President. He is also planning to impose tariffs on imported steel and aluminum.

On March 6, 2017, Navarro gave a great speech about trade deficits to fellow business economists. His main points were:

1. Trade deficits subtract from GDP growth.
2. Requiring balanced trade would reduce barriers to U.S. products.
3. Balancing trade would increase fixed-investment and long-term growth.
4. Trade deficits give us debt, which will have to be repaid with interest.
5. Trade deficits endanger our national security.

We discussed it in the American Thinker:

https://www.americanthinker.com/articles/2017/03/do_trade_deficits_matter__the_debate_heats_up.html

Read more...

Comments: 0


Historical Background of Purim
Howard Richman, 2/25/2018

[Note: The first version of this was posted on March 8, 2011. The second was posted on March 8, 2012 and revised March 25, 2012] 

For thousands of years people have been inspired by Esther's brave choice when she risked her safety in the king's harem to save the Jewish people from annihilation. Her cousin Mordecai had called her to greatness when he asked her, “Who knoweth whether thou art not come to royal estate for such a time as this?” (Esther 4: 14). She had bravely replied to Mordecai:

Go gather together all the Jews that are present in Shushan, and fast ye for me, and neither eat nor drink three days, night or day; I also and my maidens will fast in like manner; and so shall I go in unto the king; which is not according to the law; and if I perish, I perish. (Esther 4: 16)

Some think that the Book of Esther is fiction. But I do not. It fits too well with what we know about Persian history. Even though the Persian libraries were destroyed by Alexander the Great and the Greek reports conflict wildly, the Jewish account of Persian history is quite consistent. Esther is part of a chain of historic Jewish figures (Mordecai, Esther, Ezra and Nehemiah) who worked together to save the Jewish people at a time of extreme peril. The following timeline shows how Persian and Jewish history fit together:

 timeline.GIF

Each Jewish event is dated as having taken place during such-and-such year of the reign of such-and-such monarch, so the reigns of the Persian monarchs give us the approximate year of each major Jewish event. On the timeline, the Jewish events are shown above the horizontal axis, while the Persian monarchs are shown below.

I have not deviated from the accepted Persian timeline, except that I have only separated Ahasuerus and Artaxerxes by a dashed line, because I believe that they were a single person who reigned as two different kings. The doubled lines between the reigns of Cambyses II and Darius I and between the reigns of Artaxerxes and Darius II indicate short reigns of quickly deposed kings. This timeline is just the briefest of summaries. Here are more details....

Read more...

Comments: 0


Only Way the Trump Administration Will Be Successful in Fixing the Trade Deficit
Frank Kirkland, 12/6/2017

An Open Letter to USTR Robert E. Lighthizer

The Only Way You and the Trump Administration Will Be Successful in Fixing the Trade Deficit is to LET TRADE FIX ITSELF! And Here is How.

Your Administration is in office in no small part because of its loud denunciation of international trade deals like NAFTA and the TPP and a pledge to fix the $0.5T annual trade deficit (really closer to $0.75T in actual goods). This is one area where the metrics are well established and failure to make at least a substantial dent in the trade balance will be easily visible to voters by 2020. And while economists may argue the relative importance of the trade deficit to our economy, it is hard to make the case that a net cash outflow of such magnitude does not hurt our economy, undermine domestic manufacturing, break essential supply chains and cost Americans millions of middle class jobs.

Unfortunately, the tools the you have in hand to balance trade are very limited. We are already seeing that jawboning doesn’t work as evidenced by a year-to-date trade deficit in 2017 that is almost 10% worse than 2016. And it is readily apparent to the clear-eyed observer that negotiations can make but a marginal dent in the trade deficit irrespective of the skill of the negotiator. In rough numbers, China exports 4 times as much to the US as it imports from us. Yes, four times! The same with Vietnam. Japan’s trade ratio with the US is over 2 and Germany’s is almost 2.5. (which belies the myth that we are bound to have a big trade deficit because we are a high wage country.), These countries understand that the trade balance does matter and in each case, the surplus with the US is an essential and strategically achieved component of their economy that they will not relinquish at a negotiating table.

We hear proposals that we can fix the trade deficit by “prohibiting” or countering currency manipulation by our trade competitors, but currency manipulation is hard to identify, quantify and prove; to an objective observer, our own quantitative easing looked a lot like currency manipulation. And besides, trade experts have highlighted over 100 different  ways other countries tilt the playing field their way irrespective of the words in trade agreements or WTO rules. Others have proposed a substantial (say 25% or more) flat tariff. But such an indiscriminant strategy would incur the wrath of the WTO and penalize our fair-trading partners like Canada and Brazil more than it would the Chinas of the world.

Who knew trade was so hard, and what can we do? The only solution is one that’s not really new, but that never gained traction. That is to employ a “closed loop” mechanism in which the desired results are autonomously achieved – just like with the autopilot on an airplane (or now even on your car). Warren Buffet foresaw the dangers of an emerging trade imbalance in 2003 and published an Op-Ed in the WSJ advocating we adopt a system of “Import Certificates” (i.e., rights to import) that could only be earned by exporting a like value of goods or buying them from someone who had. Thus trade would inherently be balanced. Obviously this would need to be phased in over some period of years to not disrupt the world economy. And it has other drawbacks like requiring a new bureaucracy to manage the certificate marketplace and penalizing our best trading partners like a flat tariff. But the basic concept of using a “feedback” approach was sound....

Read more...

Comments: 1


The Corporate Income Tax Cut Is Unnecessary; Treat Corporations As Partnerships
Raymond Richman, 11/9/2017

Corporations are artificial entities and artificial entities bear none of the burden of income taxes; those who own them bear the burden of the income tax and gain from tax reductions. The burden of the corporate income tax is borne by the shareholders, and guess what? The top one percent of the richest Americans own forty percent of the stock of American corporations and the next nine percent own forty percent. The corporate income tax cut from 35% to 20% will reduce their burden 42%. That is why the U.S. stock markets have been booming since Trump’s election. But the purpose of income tax reform is not to make the rich richer; it is to lower taxes on the middle class and eliminate loopholes. So why are we giving the rich (and foreigners who own 15% of American corporate shares) such an enormous tax break?

The reasons given by its proponents is that the U.S. high rate causes American companies  to 1) invest in or move their headquarters and factories to lower tax countries, 2) cause U.S. multi-nationals to keep their foreign earnings abroad because to return them to the U.S. will subject them to the higher U.S. income tax rates, and 3) U.S. multi-nationals will use the high rates and low or non-existent American tariffs resulting from international trade agreements to produce their products abroad and to export them to the U.S. duty-free. These and many other evils of the corporate income tax can be corrected by a costless solution, namely, taxing corporate earnings under the personal income tax just as we tax partnership earnings. After all, the corporation is simply a limited liability company and most American partnerships and proprietorship have registered as limited liability companies (LLCs), and 4) stimulate economic growth. Under our proposal, the earnings of foreign subsidiaries would be subject to the personal income tax so there would be no incentive to keep earnings abroad. ...

Read more...

Comments: 1


China's Predatory Economics and How to Stop It -- we're published in American Thinker this morning.
Howard Richman, 10/25/2017

We begin:

There is a global contest underway between two economic and political models.  One model is liberty and democracy, and the other is state control and totalitarianism.  Fortunately (and hopefully not too late), U.S. policymakers have awakened to the nature of the current challenge.

During an October 18 speech about the U.S-India relationship, secretary of state Rex Tillerson sought to build ties with Asian democracies.  He argued that "[t]he emerging Delhi-Washington strategic partnership stands upon a shared commitment upholding the rule of law, freedom of navigation, universal values, and free trade" and criticized China's "predatory economics."

According to Tillerson, the Chinese government has been lending money to developing countries in a way that gives their victims debt, but not jobs, and sometimes ends up with their assets being owned by China.  Specifically, Tillerson said:

To read the rest, go to:

http://www.americanthinker.com/articles/2017/10/chinas_predatory_economics_and_how_to_stop_it.html

 

 

Read more...

Comments: 0


Job Requirement for Federal Reserve Chair: The Vision to Balance the Dollar
Jesse Richman, 9/20/2017

Janet Yellen is nearing the end of her current term as Chair of the Federal Reserve.  She may be reappointed.  She may be replaced.  But either way, whoever takes on the Federal Reserve job needs to work to develop the vision to include managing the value of the dollar as part of the Fed role.  The US trade deficit is once again growing, driven by overvaluation of the dollar.  Meanwhile, the Federal Reserve is contemplating how to 'unwind' the trillions in US bonds it acquired as a result of quantitative easing. 

The solution to one problem should be used to address the other.  As US bonds mature, the Fed should use the proceeds to purchase bonds and other assets as a sovereign wealth fund in countries that are running a large and persistent trade surplus with the US.  These purchases will strengthen the US. 

1. They will improve the US net international investment position, reducing the extent to which the US is a global debtor. 

2. They will help bring about a readjustment in currency values that will help market forces correct the trade deficit.

Read more...

Comments: 1


It is past time to levy a large excise tax on prescription opiods
Jesse Richman, 9/13/2017

While many of the costs of opiod addiction are borne by the addicts themselves -- costs that range up to and including 183,000 deaths according to CDC estimates for the period from 1999 through 2015 -- these costs also spread to the broader society in terms of treatment expenses, emergency response, crime, lost productivity, and much more. Hence, opiod addiction creates negative externalities for society, which some estimates put at 80 billion dollars. 

A basic principle of the economics of managing negative externalities is that one should seek to make those creating the externality -- those involved in the production and consumption of opiods in this case -- pay for the external costs they are creating through their market transaction.  And one of the easiest ways to do this is to impose a tax upon those transactions.  

There have been some scattered efforts to do so.  For instance Senator...

Read more...

Comments: 1


Needed Corporate Tax Reform Is to Eliminate It
Raymond Richman, 9/12/2017

The principal cause of the anemic growth of the U.S. economy in recent decades has been the chronic trade deficits with the rest of the world which have cost millions of U.S. manufacturing jobs and converted the U.S. from the world’s leading creditor to the world’s leading debtor. There are many causes of trade deficits.  Tax reform, contrary to the claims made for it, will not balance our trade at all. The US international trade deficits averaged about 3 percent of Gross Domestic Product in recent decades. If trade had been in balance, the growth of the GDP would have been 5.3 percent on the average since 2001 instead of 1.6 percent. 

The principal causes of international trade deficits are the relative costs of producing goods and services in different countries, the foreign exchange rates, and the existence of barriers to trade imposed by trading partners. Wilbur Ross, the Secretary of Commerce, in an opinion piece in the Wall Street Journal 8/1/2017 states that the U.S. imposes fewer barriers on imports than the European Union and China with which we have huge trade deficits. Other countries with which we are experiencing large chronic trade deficits are Japan, Korea, and Mexico. Together with China and the EU, these countries accounted for 88.9 percent of our trade deficit in 2016. An unintended consequence of all of our trade agreements to date is that they enabled American corporations to invest in countries that have low corporate income tax rates and to export their products to the U.S. duty-free, exacerbating the trade imbalances.  We would not be concerned about this practice if U.S. trade were in balance.

There is a simple solution to the trade deficits. We can impose single-country-variable-tariffs which are authorized by the world trade agreements which permit member countries to impose tariffs designed to balance trade. The tariff would apply to all imports from the trade surplus county including those of the multi-nationals formerly producing their products in the U.S. So long as trade remains unbalanced, the single-country-variable tariff would produce substantial revenues. Would it start a trade war? Countries with trade surpluses cannot win a trade war with countries they have trade surpluses with. The trade deficit country has the advantage in a trade war. If trade diminishes with the trade surplus partner, it will increase with the other trading partners with whom we have no trade deficit....

Read more...

Comments: 0





  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Archive
    Aug 2018

    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Politics
    Real Estate Taxation
    Trade
    Miscellaneous

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [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]