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 Richmans' Trade and Taxes Blog



Richard Duncan: World Economy on the Brink of Disaster (in 5 to 10 years)
Howard Richman, 12/31/2010

In a commentary for Business Insider (The Present: On the Brink of Disaster), Richard Duncan, the Singapore-based economist who correctly predicted that global trade imbalances would cause the Great Recession in his 2005 book The Dollar Crisis: Causes Consequences and Cures, is now predicting that the world is on the brink of economic disaster, though the disaster is still 5 to 10 years away. Here are some selections from his commentary:

The global economy is in crisis. Government intervention on a multi-trillion dollar scale is the only thing preventing a worldwide collapse into a new great depression.

This crisis is structural, not cyclical. At its core is the fact that global production, swollen by limitless credit denominated in fiat money, greatly exceeds the consumption that can be financed by the income of the individuals who comprise the world’s population. Governments around the world are borrowing, printing and spending on an unprecedented scale to absorb the global excess capacity (and to prevent asset prices from deflating), but these measures cannot continue indefinitely. The structure of the global economy is unstable and unsustainable. A catastrophic economic breakdown may be unavoidable....

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Comments: 0


In today's WSJ, Congressman Fred Upton opposes EPA carbon regulation
Howard Richman, 12/30/2010

Upton is the incoming Republican Chair of the House Energy and Commerce Committee. His commentary was co-authored with Tim Phillips of Americans for Prosperity. Here is a selection:

On Jan. 2, the Environmental Protection Agency will officially begin regulating the emission of carbon dioxide and other greenhouse gases. This move represents an unconstitutional power grab that will kill millions of jobs—unless Congress steps in....

The best solution is for Congress to overturn the EPA's proposed greenhouse gas regulations outright. If Democrats refuse to join Republicans in doing so, then they should at least join a sensible bipartisan compromise to mandate that the EPA delay its regulations until the courts complete their examination of the agency's endangerment finding and proposed rules.....

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Comments: 2


Interview with Piers Corbyn
Howard Richman, 12/29/2010

In our American Thinker commentary on Monday, my father and I named Piers Corbyn the "Best Climate Predictor of the Year." You can watch an interview with him:

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Comments: 0


Winner of this Year's Best Climate Predictor Award (Clue: It wasn't Al Gore) - we were published in American Thinker this morning
Howard Richman, 12/27/2010

Here's a selection:

Corbyn, like many other astrophysicists, has figured out that climate change is mainly due to extraterrestrial forces, including solar activity and cosmic rays, not carbon dioxide.  If you still believe in the theory that carbon dioxide causes climate change, click here to watch an excellent lecture by Jasper Kirkby at the Cern, one of Europe's most highly respected centers for scientific research.  Astrophysicists have discovered that changes in the rate of cosmic ray inflow cause climate change and that solar activity shields the earth from cosmic rays.  They haven't completely worked out the mechanism yet, but they think it has to do with cosmic rays causing cloud formation and clouds reflecting sunlight back into space.

Who says that climate change will not be catastrophic?  Starting January 2, President Obama's EPA will start enforcing its new regulation that American industries use the "best available control technologies" to reduce carbon dioxide emissions. This could increase American energy costs sufficiently to choke off our economic recovery.

And don't forget that at the conclusion of last year's climate conference in Copenhagen, President Obama negotiated the Copenhagen Accord with China, Brazil, South Africa, and India as a framework for future negotiations.  That accord lets China opt out from any verifiable requirements but commits the developed nations to paying out $100 billion per year to the U.N. and to the participating developing countries.  It states:

 You can read the entire commentary at:

http://www.americanthinker.com/2010/12/the_winner_of_this_years_best.html

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Comments: 5


A New Solar Plant Shows the Economic Dangers of US Commitment to Environmentalist Foolishness
Raymond Richman, 12/26/2010

Two news items that appeared just before Christmas demonstrate the inability of our leaders to learn the dangers to America’s economic future of our espousal of so-called green energy sources. The federal government is taking a huge risk in  subsidizing the construction of alternative energy sources like solar and wind power. The federal government wasted hundreds of billions of dollars in Pres. Obama’s  $800 billion economic stimulus plan by such subsidies and, as seems clearly evident, created very few jobs.

The first news item appeared in the Wall Street Journal, headlined “Spain’s Cuts to Solar Aid Draw Fire”. It reported that a group of international investors has called on the Spanish government to reconsider its plans to cut costly subsidies for solar power, “including existing power plants”. . In Spain, the government pays the extra cost “roughly 10 times the price utilities pay for power produced from conventional sources such as gas and coal”.  Last year, the government paid out €2.6 billion. Now it wants to reduce the existing subsidies. But investors who have acquired a vested interest in continuation of the inefficient subsidies want them continued. Apparently, our leaders are committed to the same foolishness. ...

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Comments: 1


Winner of this year's 'Best Climate Predictor' Award
Howard Richman, 12/22/2010

It's time to choose the winner of this year's "Best Climate Predictor" award. There are five nominees: (1) Al Gore, (2) Arnold Schwarzenegger, (3) the IPCC of the United Nations, (4) Piers Corbyn and (5) President Hu.

Gore, Schwarzenegger and the IPCC made their mark through their dramatic predictions of catastrophic sea level rise due to increased carbon dioxide in the atmosphere. Al Gore once predicted that sea level would rise by 20 feet over the century. Last year, Governor Schwarzenegger unveiled a map showing world sea level rising by 1.5 meters over the next century. In 2001 the IPCC predicted that sea level would rise by 3 feet over the next century. The actual rise over the last 18 years is 1.85 inches, which works out to 10.4 inches per century. This is similar to the 20th century's rise of 8 inches, but much less than the average rise of 4 foot per century for the last 10,000 years as the glaciers left by the last ice age continue to melt.

The chart below shows how these predictions stack up against 18 years of accurate satellite measurements:

SeaLevelGSI.jpg

Al Gore's prediction is clearly the best of these three. He was awarded a million dollar Nobel Peace Prize for bringing this issue to the attention of the world. The IPCC's prediction is second. At the Cancun Conference this month they won a huge expansion of the UN bureaucracy. Schwarzenegger's prediction comes in third since it is not yet clear whether he will get the global warming spokesman job in the Obama administration that he is angling for.

British astrophysicist Piers Corbyn is the clear loser. He still works out of a drab office that the Sydney Morning Herald calls "undistinguished":...

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Comments: 8


The Irresponsible Tax Compromise
Howard Richman, 12/21/2010

The current leaders of both political parties have been totally irresponsible. They are following the same foolish strategy that some of my beginning economic students try in one of the simulation games that we play. They continually run large government deficits to keep their economy stimulated. At first the government deficit spending helps. But eventually debt payments become such a huge part of government spending that the government loses its ability to ever balance its budgets. From then on, the growing government spending causes hyper inflation which makes the economy totally unmanageable.

Peter Morici had a great Seeking Alpha commentary on December 20 (Downgrade U.S. Treasuries to Junk). He pointed out that the irresponsible tax compromise between the Obama administration and the Republican congressional leadership will result in huge budget deficits into the distant future:

In 2012, when the Congress must revisit the personal and corporate tax codes, permanent reductions in Social Security taxes will be politically necessary to win extensions for the Bush tax cuts benefiting even middle income families and the truly essential benefits businesses need to create jobs, not to mention all the additional goodies the Congress has just bestowed.

This renders the Social Security system absolutely insolvent, and makes permanent budget deficits upwards of $1.5 trillion and about ten percent of GDP permanent.

Then he pointed out that this will cause term-term U.S interest rates to climb and climb, as has already begun:...

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Comments: 0


Election Mandates, Party Principles, and the Tax Cuts
Jesse Richman, 12/18/2010

The recent decision by Congress to pass a tax-cut focussed stimulous package consisting of roughly 875 billion in deficit spending over the next two years reflects a compromise between the Democratic and Republican Parties, but it is a compromise in which both parties suggest a lack of concern about debt and deficit spending, this in spite of a midterm election in which Republicans won on the basis of that issue. 

Although the 2010 election was a stark repudiation of the Democrats, it was not an endorsement of Republicans... 

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Comments: 0


Schwarzenegger's Sea Level Prediction, One Year Later
Howard Richman, 12/16/2010

On December 2, 2009, Governor Schwarzenegger unveiled a map showing the effect upon the California coast of sea level rising by 1.5 meters over the next century due to increased carbon dioxide in the atmosphere. The press reported the unveiling, showing no skepticism whatsoever.

How is his prediction doing? The red line is accurate satellite data through September reported by the University of Colorado; the black line is Schwarzenegger's dramatic prediction:

 SeaLevelthroughFall2010.gif...

 

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Comments: 1


Hubbard and Navarro advocate VAT and end to currency manipulation in new book
Howard Richman, 12/15/2010

Jeff Madrick reviews Glenn Hubbard and Peter Navarro's new book Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity. He points out that Hubbard and Madrick are advocating a VAT, something that we advocate also. The VAT is a consumption tax, which means that it encourages savings and wealth accumulation. It's also inexpensive to administer, requiring just 3-5% in complaince costs, compared to 12-14% for our current tax code. Most important of all, it is also border adjustible, which means that it taxes imports into our country but not exports from our country.

Madrick pretends that one of their goals is to hurt the poor, even though VAT proposals almost always provide tax credits which make them progressive at low income levels:...

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Comments: 9


UN bureaucracy being expanded by Cancun Climate Conference
Howard Richman, 12/14/2010

Viscount Monckton of Benchley reports the happenings of the Cancun conference in a December 9 commentary (The Abdication of the West) published on the Science and Public Policy website. Here is his paragraph in which he lists all of the new bureaucratic agencies being created to be paid from a $100 billion per year fund (by 2020) from the advanced economies:...

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Comments: 1


EPA regulation of carbon dioxide to begin January 2
Howard Richman, 12/13/2010

On January 2, President Obama's Environmental Protection Agency will start requiring that American industries use the "best available control technologies" to reduce carbon dioxide emissions. This action will:

  • Hurt America's economic recovery because our exporting industries will face higher energy costs, 
  • Hurt American households because their electricity bills will rise, and
  • Hurt American workers who will lose jobs due to higher business costs. 

Congress needs to immediately revise the Clean Air Act in order to exclude carbon dioxide from possible consideration as a pollutant. Carbon dioxide is one of the three chemical compounds (along with oxygen and water) needed to sustain life on earth. It is not a pollutant.

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Comments: 2


Will improved trade deficit of October be temporary?
Howard Richman, 12/12/2010

According to statistics released on Friday, U.S. trade numbers improved in October. The U.S. monthly trade deficit in goods and services (seasonally adjusted) improved from $45.6 billion in September to $38.7 billion in October as shown in the graph below:

tradedeficitworldOct2010.gif

About half of the trade deficit is our goods trade deficit with China. That bilateral trade deficit also improved, as shown in the graph below:...

 

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Comments: 1


Bernanke to China: Stop Hurting Us or You'll Hurt Us -- We're published in today's American Thinker
Howard Richman, 12/10/2010

To read it, go to:

http://www.americanthinker.com/2010/12/bernanke_to_china_stop_hurting.html

Here's how we begin:

Even though the Chinese economy is growing at a 10% pace while the United States economy is growing at a 2% pace, Federal Reserve Chairman Ben Bernanke could not resist telling the Chinese government how to run its economy. His remarks appeared in his November 17 2010 speech in Frankfurt Germany. He lectured China:

(C)ountries that maintain undervalued currencies may themselves face important costs at the national level, including a reduced ability to use independent monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows.... Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home; thus, eventually, the benefits of shifting productive resources to satisfying domestic needs must outweigh the development benefits of continued reliance on export-led growth.

The trouble is that it is the United States which is having difficulty in stabilizing its economy, not China, and the "ultimate purpose of economic growth" may not be higher living standards at home." Nations have other goals like dominating their neighbors, as Japan, the USSR and the Nazis had before WWII. Even the U.S. had dominating the Americas as an obective during the late nineteenth and twentieth centuries.

China is running huge trade surpluses (about 5% of GDP) because it is concentrating on growing its national power. And it has the help of hundreds if not thousands of multinational corporations. Her trade surplus is largely made up of the products produced by multinationals in China, including high tech products like computers, televisions, cell phones, and automobile parts. The list of companies looks likes the Who's Who of the industrial world! And make no mistake, their factories -- really co-factories -- are Chinese. The Chinese have learned from Stalin's mistakes and understand, as Lenin did, that the capitalists in their greed will provide the rope to hang them with! Recently, Andrew Grove, a founder of Intel, warned his fellow high-tech companies, like Apple, HP, Dell, and many others, that their outsourcing in China foretold a coming disaster for the U.S., noting that most had ten times as many employees producing their products in China as they did in the United States.

Although Bernanke thinks that China is sacrificing higher living standards through its present policies, he is incorrect. While hundreds of millions in the provinces have not participated in its economic growth, millions of Chinese workers have reaped substantial benefits. China has a significant middle class. It is the United States that is seeing its living standards decline and its distribution of income worsen as a result of the loss of factory jobs, all because Bernanke and America's other economic leaders don't understand the negative effects of our chronic and escalating trade deficits....

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Comments: 0


China's competitor to Boeing and Airbus
Howard Richman, 12/9/2010

http://www.bloomberg.com/video/64536570/...

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Comments: 0


Heartland Poll: Continued Public Support for Action on Trade
Jesse Richman, 12/9/2010

The newly released National Review / Allstate Heartland Poll contained an extensive battery of questions on trade and US manufacturing.  The poll reveals strong public majorities in favor of a variety of measures that would move trade towards balance. 

For example, 68 percent of respondents supported a policy requiring...

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Bernanke starting to catch up to Evans-Pritchard
Howard Richman, 12/8/2010

Back on December 20 2008 (Protectionist dominoes are beginning to crumble around the world), British-columnist Ambrose Evans-Pritchard explained the U.S. mercantilism going into the Great Depression, and what Great Britain did about it. Pritchard wrote:

There has been much talk lately of America's Smoot-Hawley Tariff Act, which set off the protectionist dominoes in 1930. It is usually invoked by free traders to make the wrong point. The relevant message of Smoot-Hawley is that America was then the big exporter, playing the China role. By resorting to tariffs, it set off retaliation, and was the biggest victim of its own folly.

Britain and the Dominions retreated into Imperial Preference. Other countries joined. This became the "growth bloc" of the 1930s, free from the deflation constraints of the Gold Standard. High tariffs stopped the stimulus leaking out.

It was a successful strategy - given the awful alternatives - and was the key reason why Britain's economy contracted by just 5pc during the Depression, against 15pc for France, and 30pc for the US.

In his November 19 speech, Federal Reserve Chairman Ben Bernanke went back to that same period. Citing a new working paper (Did France Cause the Great Depression?) by Douglas A. Irwin, Bernanke said: ...

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Debt and American Power
Jesse Richman, 12/6/2010

In the recent issue of Foreign Affairs, Roger Altman and Richard Haass argue that growing government debt poses a serious threat to American power by increasing American vulnerability to sudden currency devaluation.  The United States must move to put its fiscal house in order, or face a sudden sharp loss of power and prestige in the future as financial markets lose faith in the capacity of the American government to pay its debts.  Paul Krugman's column in Monday's NYT also addresses debt, arguing that the President should allow the Bush tax cuts to expire. 

In Washington, however, the current move towards compromise appears to be one in which both parties agree to the policies they prefer that increase the deficit.... 

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Comments: 1


American Economic Leaders keep giving Advice to China
Howard Richman, 12/5/2010

With China growing about 10% per year and the United States growing at about 2% per year, I'm really getting tired of U.S. economic policy makers telling the Chinese government how to run its economy. They think that if China's leaders would just hear their cogent arguments, China would change course.

Take, for example, Treasury Secretary Timothy Geithner. In his written testimony at his January 2009 Senate confirmation hearing, he wrote:

More generally, the best approach to ensure that countries do not engage in manipulating their currencies is to demonstrate that the disadvantages of doing so outweigh the benefits. If confirmed, I look forward to a constructive dialogue with our trading partners around the world in which Treasury makes the fact-based case that market exchange rates are a central ingredient to healthy and sustained growth.

Or take Federal Reserve Chairman Ben Bernanke’s advice to China in his November 17 2010 speech. He said:

Third, countries that maintain undervalued currencies may themselves face important costs at the national level, including a reduced ability to use independent monetary policies to stabilize their economies and the risks associated with excessive or volatile capital inflows.... Perhaps most important, the ultimate purpose of economic growth is to deliver higher living standards at home; thus, eventually, the benefits of shifting productive resources to satisfying domestic needs must outweigh the development benefits of continued reliance on export-led growth.

This statement is incorrect in two ways. First China is not practicing "export-led" growth. It is practicing "mercantilism." If it were practicing export-led growth, its trade would be balanced, but currently it is running trade surpluses of about 5% of its GDP each year. Second, China is not hurting its long-term standard-of-living by practicing mercantilism, it is hurting ours.

Modern Mercantilism

At some point, Geithner and Bernanke and the rest of our arrogant policy makers are going to have to take the time to learn about mercantilism. And they have no excuse now that the key mathematical analysis of modern mercantilism is online, Heng-Fu Zou's 1997 Dynamic Analysis of the Viner Model of Mercantilism, originally published in the Journal of International Money and Finance. Zou is Senior Economist at The World Bank with appointments at both China’s Shenzhen and Wuhan Universities. China’s current policies may be based upon that paper....

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Comments: 8


Bernanke has learned what Richard Duncan explained in 2005
Howard Richman, 12/3/2010

When Singapore-based economist Richard Duncan read Federal Reserve Chairman Ben Bernanke's November 19 speech, he wrote:

Fed Chairman Bernanke’s speech on Friday was his most important since his “helicopter money” speech of November 2002. In it he conceded the Dollar Standard is flawed. He said, “As currently constituted, the international monetary system has a structural flaw: It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances.”

With that statement, the Fed revealed it has been won over by the logic expressed in my book, The Dollar Crisis (John Wiley & Sons, updated 2005). The first two lines of that book state: “The principal flaw in the post-Bretton Woods international monetary system is its inability to prevent large-scale trade imbalances. The theme of The Dollar Crisis is that those imbalances have destabilized the global economy by creating a worldwide credit bubble.”

In his 2005 book, Duncan had predicted the Great Recession that began in 2008. Duncan understood that the trade-deficit countries, especially the United States, would not be able to continue purchasing more and more imports without the income that would come from exports. Countries can only borrow so much from abroad to buy imports until they experience financial crises.

But when the Great Recession hit in October 2008, American economic leaders thought that the U.S. economy could be fixed by shoveling debt from the private sector to the public sector and through fiscal and monetary stimuli. It has been two years now and, as Bernanke noted in his speech pointing to the data graphed below, “As you can see, generally speaking, output in the advanced economies has not returned to the levels prevailing before the crisis, and real GDP in these economies remains far below the levels implied by pre-crisis trends.”

Bernanke1110Fig2.gif

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Comments: 0


Tax Cut Unreality
Jesse Richman, 12/2/2010

 "The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman." Thomas Paine

It is time for all true fiscal conservatives to come to the aid of their country. 

Some Republicans are trying to sell the myth that the Republican victory in the November 2010 midterm elections was a mandate for the re-enactment of all of the tax Bush cuts.  If the exit poll was right, it was no such thing.  According to the national exit poll, 18 percent of the electorate said they thought the priority of the next Congress should be tax cuts...

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Comments: 0


Mort Zuckerman: Western decline caused by trade & budget deficits
Howard Richman, 12/1/2010

In a December 1, 2010, commentary (The Danger of a Global Double Dip Recession is Real), Mort Zuckerman, editor in chief of U.S. News and World Report, comments on the decline of the west in general and the United States in particular. He largely attributes the decline to the combination of trade deficits (i.e., "current account deficits") and budget deficits. Specifically:

The prognosis for America is especially discouraging. We have relied too heavily on surplus savings from abroad on top of running massive current account deficits. Until recent times, we ran deficits of this order only when we were engaged in a titanic war; otherwise we sought to achieve budget balances over a complete business cycle. But now we are running annual deficits of $1.4 trillion, about 10 percent of the total economy....

And, as he notes, U.S. policy makers have no solutions:...

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Comments: 2





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    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]