Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Obama's Jobs Act Wouldn't Work. Here's What Would -- We were published in today's American Thinker
Here's the link:
The Current Depression Is Caused By Fanatical Belief in Man-Made-Global-Warming
We know what caused the recession of 2008-09. It was the bursting of the housing bubble which created a financial crisis that endangered every large bank in the U.S. and many abroad. The federal government enacted Troubled Asset Relief Program (TARP), the program which sustained the liquidity of almost all of the large financial institutions, giving them time to deal with the enormous number of mortgages in default on their payments. An economic stimulus was enacted which succeeded in stabilizing the level of unemployed at about 9.2% of the workforce not counting involuntary part-timers and the number who dropped out of the labor force. Then much to the surprise of the administration’s economic team, employment fell, causing a substantial drop in the securities’ markets and concern to be expressed about the possibility of a double-dip recession.
Meanwhile, the eurozone had to face the possibility that Greece would not be able to pay its soon to mature sovereign debt much of it created pursuing man-made-global-warming. The principal other country having difficulty managing its sovereign debt is the USA but fortunately its debt is expressed in dollars and it has the ability to print as much of it as it needs. Greece does not. The euro standard is much like the gold standard. If a country runs out of euros, there is nothing it can do except tighten its belt.
No one mentioned the fact that the reason that Greece was short of Euros with which to pay its debt was its international trade deficit which in 2010 amounted to an estimated €14 billion. Of course it was not the only European country experiencing a trade deficit. What all the PIIGS had in common in 2010 were trade deficits: Spain, €-45.5 billion; Italy, €-48.5 billion; Portugal, €-15.9 billion; Greece, €-14 billion; and Ireland, €-1.1 billion. France likewise had a trade deficit, €-38.9 billions. But Germany had a trade surplus, €134.6. ...
Will Obama Answer This Question
Part of Obama's Linked-in forum today involves the president answering questions submitted by Linked-in users. The following question deserves an answer. Wonder if it will get one. The question was posted by Jeff Tuttle, a GM account manager. Jeff wrote:
"I recently had to put together a business case for supply of $100 Million worth of worldwide high tech manufactured product. America's import taxes make it almost impossible to source here. China: Requires a plant in China and also has 7-8% import...
Net U.S. manufacturing investment was 0.08% of GDP in 2010
Net investment in U.S. manufacturing (gross investment minus depreciation) was 0.08% of GDP n 2010 up from 0.02% in 2009, according to statistics released in August by the BEA. By way of comparison, in 2008, net investment in U.S. manufacturing was 0.41% of GDP, in 1996 it was 0.95%, and in 1981 it was 1.54% of GDP.
The fall in net manufacturing investment has been parallelled by a fall in net exports (exports minus imports), as shown in the graph below:
GM caves to demand that it give China its electric car technology
On September 16, the Wall Street Journal reported (Road Gets Bumpy for GM in China) that the Chinese government was pressuring GM to give away its proprietary electric car technology as a condition for exporting its electric cars to China. Here's a selection:
But vehicles produced in the U.S. and sold in China must pay about 65% in visible and hidden tariffs (the approximately 40% hidden tariff is the result of currency-manipulations) while vehicles produced in China and sold in the U.S. pay no duties whatsoever while receiving a hidden currency-manipulation subsidy from the Chinese government. Economists call it "unilateral free trade," a synonym for "trading away one's future."
Less than one week later, the NY Times reported on September 22 (GM to develop electric cars with Chinese automaker) that GM has acceded to the Chinese government's demands:...
As we wrote a few days ago, Pres. Obama’s so-called Jobs Act is more appropriately titled a “No Jobs” Act. Is it a coincidence that three of the major causes of our stagnant economy were ignored in the president’s proposals. The three are 1) doing nothing about the foreign trade deficits, 2) preventing the development of our huge reserves of oil and natural gas, and 3) imposing enormous costs of government subsidies to green energy onto taxpayers and enormous regulatory costs on businesses.
1) The foreign trade deficits are the major cause of the de-industrialization of the U.S., the growth of China as a rival power, and have cost us five or more million jobs. The President knows this and so do all of his economic advisers. All that they advise is an increase in U.S. exports but have no idea how to achieve that. The trouble is that for three decade and increasingly since 1997, imports have been increasing faster than exports. Look at the following table showing our trade balance with the rest of the world from 1992 to the recession of 2009. ...
Clyde Prestowitz: "We live in a world that is ... half free trade and half mercantilist"
Writing in Foreign Policy magazine on September 15, Clyde Prestowitz (The Protectionist Humbug) calls for an end to the nonsense that opposing mercantilism is protectionist. He begins eloquently:
He characterizes the world as half free trade and half mercantilist:...
Lazy Analysts at CNBC, Bloomberg, and the Wall St. Journal
The report last Thursday morning that there were 428,000 initial unemployment claims during the week of September 10, an increase of 11,000 was FALSE. The media, including those which should know better, reported those numbers. Those numbers are so-called "seasonally adjusted" and are totally without merit. They are not credible. ...
Here Is a Real Jobs Plan in Contrast to Pres. Obama's No-Jobs Plan
As we pointed out yesterday on this site, President Obama’s American Jobs Act does not, for practical purposes, create any jobs at all. He proposed one-time cuts in payroll taxes for businesses and their employees when business needs long-term solutions. It makes huge transfers to the States to pay teachers’ salaries which is not a federal responsibility at all and does not create any new jobs at all. It is nothing but a list of earmarks for his voting constituencies none of which wants to create any real jobs in the private sector. Nothing in the proposed bill would be a stimulus to business to invest here rather than abroad nor discourage outsourcing which has been increasing for decades.
As the bankruptcy of Solyndra, whose $535 million of borrowed capital was guaranteed by the federal government under the 2009 stimulus plan and which received other benefits such as tax credits, demonstrates the fact that the President favors green energy plants over more efficient fossil fuel plants. And as his opposition to private oil and natural gas development on public lands and offshore in the Gulf, Alaska, and the Arctic shows, he is willing to sacrifice millions of jobs to create an uneconomic green economy that will impoverish the American workers. As Tapan Munro, a “clean energy” proponent wrote on August 8, 2011, in an article entitled “U.S. Clean Energy's Bubble is Set to Burst”, because “Clean energy today is more expensive and less reliable than coal- and natural-gas-based energy. Large subsidies artificially maintain clean energy's price competitiveness. These subsidies are likely to cease in a few years because of severe budgetary cutbacks proposed for coming years. This should not be a surprise to us. The industry has crashed before -- in the mid-1990s, in 2002 and 2004 -- mostly because Congress did not extend the tax credits that made the industry commercially viable.’ The Energy Department has closed $37.8 billion in loan guarantees for 36 nuclear, wind and solar projects. Solyndra is not the largest loan guarantee. The DOE reported a $967 million loan guarantee for the Agua Caliente Solar Project.
Not one green plant would be profitable without government subsidies. By contrast private corporations paid $304 billion in federal corporate income taxes in 2010, although all you hear or read in the media is about those companies like General Electric (an administration darling!) that paid no corporate income taxes last year. Private corporations, except when the president wants to rescue his union supporters as was the case with GM, got few subsidies and no protection from foreign competition. ...
The Jobs Act Is the Recovery ACT of 2009 Redux and If Possible Even Worse
The President’s proposed American Job Act will not stimulate the economy at all even though it proposes spending a huge amount of money, $447 billion, in the form of grants, tax credits, special funds, a government sponsored National Infrastructure Bank, and other costly new government programs.
The largest expenditure is the cut in the social security taxes paid by businesses from 6.2 percent to 3.1 percent on the “first $5 million in payroll”, grants a tax holiday (no payroll tax) for “added workers or increased wages” up to the first $50 million of wages and wage increases. This benefits businesses which are now paying the tax. Workers will have the payroll taxes reduced similarly to 3.1 percent. But these are “conditional” tax benefits. The government will deposit into the Social Security Trust Fund the revenues lost by the reduction of the payroll taxes, paying for it out of the general budget so it will have to be paid by taxpayers in general or borrowed to be paid by future taxpayers. Where is the net benefit? It looks like an attempt to buy votes by making a one-time gift to businesses and workers in an election year. Because it is a one-time gift, it will not encourage new investment or even additional consumption or the hiring of new workers at all. It does not benefit the unemployed or even encourage hiring new workers because it is a one-time deal. Businesses and households base their decisions to invest and consume on “permanent” expected income. Moreover, nothing else in the jobs act actually raises the prospect of sustainable future demand. The only jobs created will be the increased bureaucracy required to administer the Act.
Like the Recovery Act of 2009, a waste of $800 billion, it proposes to make grants to local governments to pay for 280,000 teachers, cops, and firefighters. It will pay to modernize “at least 35,000 public schools” (a state and local government responsibility), supporting new science labs, no doubt designed to teach the “science” of man-make global warming, provide internet-ready classrooms fitted with imported computers, no doubt, Presumably most will go to “blue” states which are generally unable to get their state budgets under control. ...
Obama correctly identifies one of the reasons for his economic failure!
In his jobs speech, President Obama inadvertently identified one of the reasons his recovery plan failed. Here is the relevant part of his statement:
One of the chief rules of trade is written into the IMF charter. Specifically, Article IV of the International Monetary Fund Articles of Agreement requires that countries "avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." President Obama has let many U.S. trading partners violate this rule. The worst offender has been China....
Pat Buchanan's history lesson about the trade deficits
Pat Buchanan's Labor Day commentary (How Capital Crushed Labor) gives a history of the U.S. trade deficits. At first we built our industries behind tariff walls, running continuous trade surpluses that benefited our economy:
Then we went globalist:...
Why Obama's job speech failed
In his jobs speech today, President Obama ignored the growing U.S. trade deficits, even though statistics released this morning by his own Commerce Department show that U.S. net exports to China (exports minus imports) hit yet another record low in July, falling to a negative $288 billion over the most recent 12 months, compared to a negative $287 billion in the 12 months ending in June, as shown in the graph below:
Meanwhile, U.S. net exports to the world as a whole also continued to worsen. Over the 12 months ending in July, overall U.S. net exports of goods and services fell to a negative $538 billion, compared to a negative $535 billion during the 12 months ending in June, as shown in the graph below:...
Romney on Trade
Romney's new jobs plan has an entire section devoted to trade policy. Romney begins by arguing for continuing negotiation and ratification of free trade agreements, arguing that once oil is excluded (why this should be excluded isn't explained or justified) the U.S. runs a trade surplus with the nations it has joined in such agreements.
He also addresses China. First, on the shortcomings of the Obama approach to China....
Palin calls for elimination of corporate income tax
In her speech in Iowa on September 3, which you can watch above, Governor Sarah Palin called for the complete elimination of the U.S. corporate income tax as a way to create jobs. She correctly pointed out that the corporate income tax sends American jobs abroad and that eliminating the tax would cause investment in America to surge.
At the same time that she would eliminate the corporate income tax, she would end corporate bailouts, corporate welfare and tax loopholes. She would do so partly as an anti-corruption measure. She argues that Obama is growing a corrupt system of "crony capitalism" in the United States.
She is correct about the self-destructive nature of the corporate income tax. We summarized the disadvantages of that tax with the following four points in our 2008 book Trading Away Our Future:...
A return to manufacturing?
Writing in the September 4th Washington Times, Harold Meyerson presents stark and sobering statistics about the decline of America, and the increasing interest in regaining American manufacturing power. What he does not discuss is a road to get there. But it is good that he and others are increasingly advocating efforts to strengthen manufacturing by ending the blythe policies that have produced imbalanced trade and deindustrialization.
If the President in the forthcoming joint session of Congress is serious about creating jobs he would look not at the construction industry which has an oversupply of housing but at all of the following job-creating policies, none of which requires increased government expenditures and at least one earns billion of dollars of revenue.
1. Reign in the outsourcing of manufacturing jobs and the increase in the trade deficits. Economists observed the increasing trade deficits over the last decade or two but very few have suggested a way of reversing the trend. Indeed most, including the President’s Council of Economic Advisors hailed the increase as an increase in trade. An increase in trade is fine as long as trade is in balance. After all the purpose of trade is to exchange a bundle of goods that has less value in the domestic market for a bundle of goods produced abroad that has more value in the domestic market. Exchanging Treasury debt for goods postpones the day of reckoning.
Free trade is an ideology dating from the work of Adam Smith and David Ricardo. The increasing trade deficits over the past three decades put millions of Americans out of their well paying manufacturing jobs. The trade deficits did not affect jobs at the universities or on Wall Street. Americans in 2008 imported $800 billion dollars worth of goods, including automobiles and other motor vehicles, tractors, computers, appliances, i-pads and cellular telephones, clothing for men and women and children, electronic games, and, of course, crude oil, and much more. How many jobs were involved? We lost five to six million according to our calculations. Andy Groves, former CEO of Intel, pointed out earlier this year that our high tech companies like Apple, H-P, Dell, and many others, have ten times as many employees in China as they have in the U.S. And then they import those products to the U.S. duty-free.
We have to admit that economists have brain-washed our political leaders into believing in a policy of “free trade.” Free trade is a sound policy when there is free movement of labor, capital, and goods, as our constitution requires in the U.S. But most countries employ mercantilist practices – barriers to imports and subsidies to exports, and exchange rate controls – all of which were used by Japan during the last century and are still used. China has all sorts of barriers to our imports. Prof. Krugman has complained that it is perpetuating an artificially low exchange rate. ...
Journal of Economic Literature:
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