Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Congress should reject the Free Trade Agreements unless a Balanced Trade Clause is added
With growing trade deficits preventing the U.S. economic recovery, how could Congress and the President leave balancing trade clauses out from new trade agreements? Have they learned nothing?
Coalition for a Prosperous America has published a press release giving six reasons why Congress should reject the Korean, Colombian and Panamanian trade agreements that are currently being considered. Here are their six reasons:
1. Trade deficits: The trade agreements will cause worsening trade deficits. Trade deficits depress GDP growth and increase unemployment because U.S. facilities are offshored, or because components and subassemblies are procured offshore. Any foreign market share gained is overwhelmed by domestic market share lost....
How to Encourage Manufacturing Innovation
On December 5, 1791, President Washington’s Treasury Secretary Alexander Hamilton presented a Report on Manufactures to Congress which established America's tariff-based industrial policy for the next 150 years. He began by noting the general recognition of the importance of manufacturing to an economy:
And later in the report he noted the general recognition that the American people have a special aptitude for innovation:
In June 2011, President Obama’s President’s Council of Advisors on Science and Technology (PCAST) put together a Report to the President on Ensuring American Leadership in Advanced Manufacturing with a similar emphasis upon the importance of manufacturing and manufacturing innovation....
Keynesian Economists Offer No Solution to the Deepening Recession
In the Wall St. Journal of June 21, 2011, Prof. Alan S. Blinder of Princeton U. opined that “Right now, I’m worried about the damage that might be done by one particularly wrong-headed idea: the notion that, in stark contrast to Keynes’s teaching, government spending destroys jobs.” He asks, “How exactly, could more government spending ‘kill jobs’? and “ [H]ow is it that public purchases of computers destroy jobs but private purchases of computers create them?”
In the first place Keynes’s teaching was shown many decades ago by Prof. Milton Friedman, Nobel laureate, of the University of Chicago Prof. Franco Modigliani, Nobel laureate, of Harvard and other economists, to be wrong about the consumption function that Keynes assumed. As a result, as we pointed out in this space, a week ago, there is no such thing as the Keynesian multiplier. It took workers to make the computers and when they have been produced and sold, the stimulus ends. As soon as government purchases end, any employment created by the government order comes to an end. Pres. Obama’s stimulus plans created jobs only while the spending continued. As soon as the spending wound down, GDP went down.
Prof. Blinder’s choice of computers in his example was unfortunate. All the computers sold in the U.S., are produced abroad, mainly in China. While companies like Apple, Dell, Hewlett Packard, and many others make some things in the U.S. and make profits on the computers, et. al., they import from their subsidiaries abroad, they have ten times as many employees abroad than they employ in the U.S. If the government purchase of computers stimulated employment, it was in China, not in the U.S.. Using employment as a criterion, the companies mentioned are Chinese, not American. ...
Inflation climbs to 3.6% in May. Palin was Right -- We're published in today's American Thinker
Federal Reserve Chairman Ben Bernanke held a press conference yesterday. He basically said that QE2 worked so well that he was lowering his growth estimates for the U.S. economy! In today's American Thinker, we quote Governor Palin extensively to point out that she was right about QE2. We conclude:
The Unanticipated Costs of the Wars In Iraq, Afghanistan, and Libya
Under Pres. Obama’s leadership, the US, France, and the U.K., went to war with Libya under the pretext that Libya’s ruler Col. Gadhafi was “killing civilians” in Libya. Shortly afterward, the three nations managed to get NATO to sign on. What Gadhafi appeared to be doing was putting down a rebellion successfully. In the New York Times, June 10, 2011, it was reported that Defense Secretary Robert M. Gates sharply criticized NATO nations for what he said were shortages of military spending and political will.
Even with the United States leading from behind and playing an alleged currently secondary role, by mid-May its operations in Libya had already cost $664 million according to press reports citing Pentagon sources. On the same day, it was reported in USA Today that Secretary of State, Hillary Clinton stated at a meeting in Abu Dhabi of top officials from the more than 30-member Contact Group on Libya, that “We are working with our international partners through the U.N. to plan for the inevitable: a post-Gadhafi Libya.” Guess who will pay at least 75 percent of the costs of repairing the hundreds of millions of dollars of war damaged infrastructure and buildings in Libya and who will finance the new government, its police, and armed forcers through the five years that it will take to establish a functioning government. A reason estimate of the costs that will be borne by the U.S. is a trillion dollars, based on the costs of the war and rebuilding of Iraq and Afghanistan.
What is surprising is that the administration was already under pressure to balance the federal budget and Libya posed no threat to the U.S. To the contrary, Libya renounced its ambitions to build nuclear and other weapons of mass destruction. It was an operation that the Secretary of Defense opposed. It was a State Department initiative. Given the fact that the administration pretended to want to reduce the federal budget deficit, the President’s decision to embrace another costly war is inexplicable. ...
Economist Peter Navarro Accuses China of Unfair Trade Practices
In an op-ed in the LA Times 6-21-11, UC Irvine business economist Peter Navarro, co-author with Greg Autry of the new book Death by China: Confronting the Dragon — A Global Call to Action, had an op-ed in the LA Times yesterday about China's unfair trade practices (How China unfairly bests the U.S.). Here is a selection:
Navarro points out, as we have been doing, that if America doesn't address the trade deficits, no amount of tax cuts or government spending increases will solve our economic problem. He concludes by calling for a candidate who will adress America's trade deficit with China:...
Governor Romney may have been brainwashed by the global warmers
Governor Mitt Romney, the leading Republican candidate for President, claimed earlier this month that man-made global warming is real. He said:
I don’t speak for the scientific community, of course, but I believe the world’s getting warmer. I can’t prove that, but I believe based on what I read that the world is getting warmer. And number two, I believe that humans contribute to that . . . so I think it’s important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change and the global warming that you’re seeing.
His endorsement of the 20th century theory comes, unfortunately for him, at the same time that scientists are switching to the 21st century theory that climate change is mainly due to extra-terrestrial activities, mainly cosmic rays and solar activity.
For example, in the April 7 Financial Post Australian mathematician and engineer David Evans (Carbon warming too minor to be worth worrying about), a former proponent of the 20th century theory, revealed that the global warming models were disproved even before global temperatures peaked in 1998:...
Inflation climbs to 3.57% in May
In November, when Federal Reserve Chairman Ben Bernanke explained his second massive increase in the U.S. money supply (known as QE2) to his fellow central bankers, he told them that the Federal Reserve's Open Market Committee (FOMC) was aiming for an inflation rate no higher than 2%. Specifically, he said:
This policy tool will be used in a manner that is measured and responsive to economic conditions. In particular, the Committee stated that it would review its asset-purchase program regularly in light of incoming information and would adjust the program as needed to meet its objectives. Importantly, the Committee remains unwaveringly committed to price stability and does not seek inflation above the level of 2 percent or a bit less that most FOMC participants see as consistent with the Federal Reserve's mandate.
In May, the U.S. inflation rate hit 3.57% while rising rapidly as shown in the graph below:
There Is a Trade Multiplier. There Is No Keynesian Multiplier
Economists are Gung-ho on the so-called Keynesian multiplier. They must believe in fairies, too. The Keynesian multiplier theory was proved to be non-existent in 1937 when GDP fell after FDR’s New Deal government expenditures slowed. The economy did not recover until war broke out in Europe and our exports took off. And as we observed recently, the modest recovery produced by Pres. Obama’s Recovery Act of 2009, his economic stimulus plan, roughly $800 billions spent in 2009-2011, GDP fell after expenditures slowed in 2011. These two instances are evidence that the Keynesian expansion ends as soon as the increased government spending ends. What this means is that increasing government spending is not a sensible policy to promote recovery from the recession.
What is the Keynesian multiplier? It is the theory that an increase in government spending will not only increase GDP by the amount of the expenditure tbut that recipients of the increased income will increase their consumption spending, and the recipients of income from that increased consumption expenditure will increase their consumption and so on. If, on the average, income recipients consume 80 percent of their income, the total increase in GDP will be five times the increased government expenditure (1 +.8 +.82 + …+ .8n = 5). The trouble is that households increase their annual consumption only when they have confidence that their increased income is expected to be permanent.
While there is no Keynesian multiplier, there is a trade multiplier associated with chronic trade surpluses and deficits. China and the U.S. are good examples. One observes how the Chinese GDP took off beginning in the 1980s as a result of its growing trade surpluses. And there is a negative multiplier associated with trade deficits as we can observe in the slowing down of growth and the loss of manufacturing jobs during the past four decades in the US as we went from being the world’s leading creditor to becoming the world’s leading debtor in a few short decades as a result of our growing trade deficits. ...
Mark Steyn's explanation of our politically correct military policy also explains our trade policy
Mark Steyn explains the common threads of modern U.S. foreign policy in a brilliant and humorous commentary (Too Big to Win) in the June 15 National Review. He sums up our post-cold-war military policy in this perceptive paragraph:
Transnational do-gooding is political correctness on tour. It takes the relativist assumptions of the multiculti varsity and applies them geopolitically: The white man’s burden meets liberal guilt. No wealthy developed nation should have a national interest, because a national interest is a selfish interest. Afghanistan started out selfishly — a daringly original military campaign, brilliantly executed, to remove your enemies from power and kill as many of the bad guys as possible. Then America sobered up and gradually brought a freakish exception into compliance with the rule. In Libya as in Kosovo, war is legitimate only if you have no conceivable national interest in whatever conflict you’re fighting. The fact that you have no stake in it justifies your getting into it. The principal rationale is that there’s no rationale, and who could object to that? Applied globally, political correctness obliges us to forswear sovereignty. And, once you do that, then, as Country Joe and the Fish famously enquired, it’s one-two-three, what are we fighting for?
Without realizing it, he is also summing up U.S. trade policy. Our politically-correct leaders can't advocate a trade policy that would be in our national interest, because, as Steyn points out, that would be "selfish."
So when the Chinese government places tariffs (and other barriers) upon U.S. products and manipulates exchange rates in order to grow its power and destroy ours, we can't object on the basis of our national interest. Instead, Geithner and Bernanke have to argue that China should consider changing its policy because doing so would be in China's best interest. For example, in his January 22 written testimony at his Senate confirmation hearing, Treasury Secretary designate Timothy Geithner said:...
Why Cancer Preventing Sunscreen can Increase the Prevalence of Skin Cancer
The FDA is poised to approve new regulations on sunscreen. One of the questions being asked in the public debate is why skin cancer prevalence has been increasing even as the use of sunscreen as also simultaneously been increasing. In this brief note I show why a sunscreen that substantially REDUCES the degree to which a given hour of sun exposure will lead to skin cancer can none the less INCREASE the prevalence of skin cancer if the sunscreen reduces the discomfort caused by sitting in the sun even more.
Suppose each person has a certain degree of tolerance for sunburn and the discomfort associated with sitting in the hot sun while the skin bakes. For simplicity, let's say this tolerance is for one unit of solar discomfort.
Further, suppose that a sunscreen is effective at reducing solar discomfort, allowing the individual to sit in the sun ten times as long as he or she otherwise would before the solar discomfort level is reached. Thus, instead of ten minutes, an individual wearing this sunscreen can now sit in the sun for 100 minutes.
Suppose further that this sunscreen allows the individual to substantially reduce the incidence of cancer, reducing by five times the degree to which sitting in the sun for a given number of minutes increases the risk of cancer. Before sunscreen, the cancer risk from ten minutes in the sun was one cancer risk unit. After sunscreen the risk from ten minutes in the sun is .20 cancer units.
A quick and naive look at this problem would lead one to think that making the sunscreen available will reduce the incidence of cancer. The sunscreen is in fact known to be effective at preventing skin cancer! This is, however, totally wrong.
Now do the math.
A Program for a Strong America? Not from these parties
In his most recent column (Published June 15 in the Virginia Pilot) David Brooks describes himself as a "Pundit under protest" because he thinks neither national party is seriously proposing policies that will tackle the major structural problems of the U.S. economy.
"I'm registering a protest because for someone of my Hamiltonian/National Greatness perspective, the two parties contesting this election are unusually pathetic... The Republican growth agenda -- tax cuts and nothing else -- is stupefyingly boring, fiscally irresponsible and politically impossible. ... As for the Democrats, they offer practically nothing. They acknowledge huge problems like wage stagnation and then offer ... light rail! Solar panels!"
Brooks is right that neither party offers an effective program to address the policy challenges that he has identified. The challenge: to solve the problems.
Jed Babbin correctly identifies power as one of the goals of Chinese mercantilism
In the June 13 American Spectator (China Plays Reagan to our Gorbachev) Jed Babbin, former Deputy Undersecretary of Defense under George H.W. Bush, correctly pointed out that China is using mercantilism in order to build up its power. He wrote:
Indeed power is one of the goals of mercantilism. I also pointed that out in a commentary that I wrote in December. Here is a selection:...
Morici: Create jobs by ending Bush & Obama's "appeasement" trade policy
President Obama's stimulus has failed, just as we predicted. Federal Reserve Chairman Bernanke's QE2 has failed, just as we predicted. The administration and the Federal Reserve have run out of ideas. There is still a solution that Washington is ignoring. University of Maryland economist Peter Morici sums it up in a June 9 commentary (Cut Trade Gap to Create Jobs). Here is a selection:
CBO supports our estimate that Fannie & Freddie will cost hundreds of billions more
In a May 1 American Thinker commentary (House Republican Budget would Benefit the Poor) we lauded Paul Ryan's budget plan for proposing to end the hemorrhaging of government money to Fanny Mae and Freddie Mac. We wrote:
Our estimate of hundreds of billions of dollars more is probably in the right ball park according to a CBO study. CBS News reports (True Cost of Fannie, Freddie Bailouts: $317 Billion, CBO Says):...
Palin calls for balanced trade
The Los Angeles Times reports that Governor Palin met with Donald Trump during a May 31 visit to New York. In her remarks, she told reporters that she advocates balanced trade arrangements:
"What do we have in common? Our love for this country, a desire to see our economy put back on the right track," Palin told reporters. "To have a balanced trade arrangement with other countries across this world so Americans can have our jobs, our industries, our manufacturing again. And exploiting responsibly our natural resources. We can do that again if we make good decisions."
Palin is now the only candidate with a program for putting America back to work. The media like to pretend that she is dumb. But the truth is that she has common sense. The American people respond to that sense when she talks to them directly, as she did when she won the the October 2, 2008, Vice Presidential debate. (If you're not convinced of the debate outcome, watch this focus group.)
Some commentators put Palin in the same category as Minnesota Congressman Michele Bachmann, since both advocate balanced budgets and enjoy Tea Party support. But Bachmann lacks common sense. In fact, she is an ideological free trader. In a blog entry, Bachmann wrote:...
Here's a selection:
You can read the entire commentary at: http://www.enterstageright.com/archive/articles/0611/0611specialelec.htm
Our War On Drugs Has Cost Us the War in Afghanistan
Our invasion of Afghanistan was to punish the Taliban for giving haven to Osama Bin Laden and his supporters. The Taliban, who outlawed the growing of poppies in 2000-2001 and whose brutality reduced the production of poppies to nearly zero, became hated in the countryside and our troops were welcomed as liberators. In a whirlwind operation, we quickly eliminated the Taliban as a fighting force. They were exiled and bankrupt and no longer had an army. We thought the Taliban would never come back. But we could not let well-enough alone.
We decided to recreate Afghanistan in our image. Unfortunately, our image included one of our blemishes, our failed war on drugs. At the urging of the United Nation’s Office of Drugs and Crime (UNODC), in a reversal of the Opium wars in which the European powers forced China to allow the importation of opium, we established a policy to get rid of the growing of poppies, Afghanistan’s leading agricultural crop.
In return for the Taliban’s reversal of its ban on the growing of poppies, the drug traffickers financed the Taliban and helped it create a new military force. The Taliban’s new policy was successful beyond their expectations and ours. The costs of the war in Afghanistan, which had been falling, escalated since 2006 and has cost us an estimated trillion US dollars. Our army was enlisted in the war on poppies and was used to destroy poppies growing in the fields. Billions were spent trying to get the poppy growers to plant wheat and other grains which yielded less than poppies. The Taliban were welcomed back as liberators by the growers of poppies and the hundreds of thousands who are dependent on the poppy industry for their livelihood. We became their oppressors. ...
9.1% unemployment shows that Obama's recovery & QE2 have failed
This morning, the Bureau of Labor Statistics announced that unemployment rose to 9.1% in May, after a rise to 9.0% in April. With unemployment staying high, it is clear that the Obama recovery and Ben Bernanke's QE2 have both failed. And let's not forget the projected Unemployment Rate, shown in blue, that was made by President Obama's economic advisers based upon their expectations of how well his recovery plan would work.
Those who have been reading my postings should not be surprised. I predicted all of this. For example, I predicted the failure of Obama's recovery plan after I read President Obama's inaugural address. I wrote on January 23, 2009:...
House Prices Falling - Except in DC
The latest S&P Case-Shiller numbers (for March) show that house prices are still falling:
But there is good news, President Obama has stabilized house prices in Washington DC. In fact, the trend for house prices in Washington DC has been upward ever since January 2009, when Obama was inaugurated, as shown by the red line in the graph below.
In his inaugural speech in January 2009, President Obama made many promises. His most important was his promise to grow the federal government in Washington DC in order to help families, specifically: ...
Where is Housing Going? That Depends on Where You are Looking
The latest release of the Case Shiller Index confirms the continued decline of the housing market that we have predicted on this blog for some years. And the pain is likely to continue a bit longer. If one assumes that house prices tend to keep pace with inflation (as was the pattern from 1950 through 1998) then an additional decline in real estate values seems likely in most cities. Based on inflation adjustments to the January 1998 and January 2000 Case Shiller index, here are projections of the percentage decline or increase that may await particular cities if housing prices revert to the inflation-adjusted trend.
What the table shows is a bifurcated housing market.
Journal of Economic Literature:
Atlantic Economic Journal: