Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Do Low Capital Gains Taxes Spur Economic Growth?
Ezra Klein of the Washington Post recently posted an interesting piece oncapital gains taxation. He reviews the empirical evidence that capital gains tax rates have influenced economic growth rates -- there isn't any -- and discusses the economic reasons why this is the case. Basically his case is that the economic benefits of low capital gains tax rates are potentially counter-balanced by the economic distortions created by the incentive to reengineer other income into capital gains tax rates. The article can be read at:
Klein does not discuss the economic case we have made that low capital gains tax rates also encourage the consumption of capital...
Book Review: A Leftist Approach to America's Economic Problems
Donald L. Barlett and James B. Steele, The Betrayal of the American Dream (NY:Public Affairs, Perseus Books, 2012)...
Investors Should Keep an Eye on Initial Unemployment Insurance Claims Data
On Thursday of each week, the U.S. Bureau of Labor Statistics reports the number of initial claims for unemployment insurance filed during the preceding week. On September 20, it made its report for the week ending September 15. It reports seasonally adjusted and non-seasonally adjusted numbers. The media reported only the seasonally adjusted initial claims for the week ending September 15. They reported that the number of weekly claims was 382,000, a decrease of 3,000 from the previous week’s revised figure. The report states that the actual, not seasonally number of claims to be 327,797 an increase of 28,068 over the previous week. It is not unusual for the seasonally adjusted figures to differ in direction, an increase or decrease, and the unadjusted figure to show the opposite. The media do a disservice by reporting the seasonally adjusted figures only. Since they are reported weekly while most economic data is reported monthly or quarterly, the unemployment compensation claims data is useful in predicting where the economy is heading. ...
Listen to a Sept 19, 2012, interview with Jesse Richman by Ken McClenton on a wide variety of issues regarding the U.S. economy, our manufacturing sector, and world trade. The conversation includes an indepth discussion of the our Scaled Tariff proposal. At the end of the interview, Ken McClenton says, "The scaled tariff is a wonderful, wonderful idea!"
Morici: "Governor Romney is right. The United States must get tough with China"
University of Maryland business school economist Peter Morici had another great blog posting on CNBC yesterday (Romney Is Right—US Must Get Tough With China: Morici). He begins:
He dismisses Obama's token efforts, such as his latest WTO complaint that China is dumping autoparts and cars on the U.S. market. According to Morici:
One need look no further than the following graph that we put together in order to see President Obama's total failure:
Morici argues that it will be impossible to bring back American prosperity and jobs without switching presidents. He concludes:...
The Wall Street Journal Criticizes Romney Calls Him a Protectionist
In an editorial entitled “Romney’s Trade Pessimism”, the Wall Street Journal (9/15/2012) criticizes Gov. Romney for publishing an ad attacking Pres. Obama for the latter’s failure to deal with our trade deficit with China. In the last twenty years, the U.S. trade deficit in goods and services increased from $39 billion in 1992 to $506 billion in 2011. Our deficit with China accounted for $280 billion, more than half, costing about 2.8 million jobs. Allowing such a huge deficit to continue is a disservice to the American worker. ...
"Technocrats" may be blocking accession of China's reform-minded president-in-waiting
There appears to be a succession fight going on in China, as indicated by the disappearance from public view of its designated next president Xi Jinping shortly after his reform-minded intentions came to light. According to Malcolm Moore, writing on September 14 in The Telegraph (Xi Jinping 'under huge pressure' from inside the Communist party), the succession struggle is between the "red princelings" represented by Xi and the "technocrats" who currently run China under President Hu:
Xi Jinping and his fellow "red princelings" may have angered the "technocrats" by their advocacy of economic and political reform. On September 7, a Reuters article by Chris Buckley (Exclusive: China president-in-waiting signals quicker reform - sources) began:...
Getting the Fiscal Cliff Backwards
There was extensive media coverage of a recent Moody's warning concerning U.S. government debt ratings (issued September 11th) but most of it reflects a fundamental misunderstanding of the shape of the fiscal cliff, and of the nature of Moody's warning.
For example, NPR stated
Today, Moody's sounded one more alarm saying if Congress remains in a stalemate, it would downgrade the U.S. credit rating from a AAA to a AA1.
In fact Moody's actually said that going off the fiscal cliff is a second-best way to save the triple A bond rating.
If you believe the debt matters a lot, then going off the fiscal cliff is the most politically feasible way to solve the problem. Instead of a deal being needed, all that is required is for Congress and the President to do nothing...
The New Jobs and Trade Numbers are Related
President Obama claims to be a champion of U.S. manufacturing workers. In his advertising, he accuses Romney (falsely) of outsourcing jobs when he was CEO of Bain Capital. In his stump speech, he claims to be the champion of "made in the USA." But the latest economic reports from the U.S. Labor and Commerce Departments tell a different story:
The relationship between trade and unemployment was first observed by John Maynard Keynes. In a chapter toward the end of his 1936 book, The General Theory of Employment, Interest and Money, he discussed the danger of tolerating mercantilism, the trade strategy designed to produce trade surpluses. Keynes wrote:
Of the overall U.S. trade deficit of $42 billion in July, about 2/3 ($28 billion) could be attributed to China. The following graph shows that our merchandise trade deficit (negative net exports) reached a record $310 billion for the twelve months ending in July:
The Chinese government keeps out American products through high tariffs and through government fiat. For example:...
Net Manufacturing Investment was a miniscule 0.18% of US GDP in 2011
High U.S. manufacturing investment means that American workers are getting new tools at a faster rate than old tools are wearing out. But when net manufacturing investment (gross investment minus depreciation) is just above zero, tools are wearing out almost as fast as they are being purchased. As a result, American manufacturing workers lose out in world competition.
According to statistics released on August 15 by the Bureau of Economic Analysis (BEA), net U.S. manufacturing investment (gross investment minus depreciation) continued at minuscule levels in 2011, at just 0.18% of GDP. This continues the extremely low average of 0.20% for the decade beginning in 2002, as shown in the graph below:
If the United States were trading other products for manufactured goods, our low manufacturing investment could be justified by the doctrine of comparative advantage, but the collapse of American manufacturing investment has coincided with the collapse in the U.S. trade balance shown in the graph below:
Manufacturing Declines Continue
The newest Institute for Supply Management survey shows continued contraction in the manufacturing sector. For more see the Reuters story: http://www.reuters.com/article/2012/09/04/us-usa-economy-manufacturing-idUSBRE8830MA20120904.
Recent Economic Research on Effects of Trade
In a recent posting, Edward Alden notes that economists views of the effect of trade on U.S. employment, income inequality, etc., are shifting. It's worth taking a look at, especially the first part. Some selections:
"Responding to The Times’s recent survey about the causes of income stagnation, many top economists have cited globalization as a leading cause."
"In “The Evolving Structure of the American Economy and the Employment Challenge,” the Nobel-winning economist Michael Spence looked at job growth from 1990 to 2008 in sectors of the United States economy. He found almost no net job growth in sectors, like manufacturing, in which global trade played a large role....
Of Housing Bubbles and Trade Deficits
To test the proposition that countries with large current account deficits had large housing bubbles (i.e. bigger than the U.S.) but countries without current account deficits did not, I collected data on current account deficits from tradingeconomics.com for each of the countries for which housing price data is available on the Economist website. I then compared the current account deficit for countries with a large housing bubble with the current account deficit for countries without.
The average 2007 current account balance for countries with a large housing bubble was -2.84 percent of GDP, while the average current account balance for countries without a large housing bubble was 7.19 percent of GDP. Thus, on average for these twenty countries those with a housing bubble had a current account balance that was 10 percent of GDP worse.
The U.S. Housing Bubble Wasn't Special
Some narratives about the housing price bubble in the United States that are adopted by the political right (community reinvestment act) and the political left (corrupt bankers left unregulated) fail a basic and simple test. Both are explantions that are United States centric. They focus on policy changes enacted in the U.S. and seek to explain housing price changes in the U.S.
But they ignore the fact that many other countries experienced similar housing booms (some haven't fully gone bust yet either) at roughly the same time.
The End of the Housing Bubble
The United States real estate bubble is dead at last. In the first quarter of 2012 the quarterly inflation-adjusted Case-Shiller index dipped to 113, a level it had not held since 1998 at the very beginning of the housing bubble. What this means is that nearly the entirety of the bubble gains in housing value have now been squeezed out of housing prices. This is cause for some modest celebration. The market for housing is no longer dangerously and dramatically out of balance.
Journal of Economic Literature:
Atlantic Economic Journal: