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 Richmans' Trade and Taxes Blog



Protectionism During Recessions?
Jesse Richman, 1/31/2013

The political science blog The Monkey Cage recently reprinted a selection from Political Economist.  The selection examines the question of whether and to what degree the typical pattern of protectionism during recessions emerged during the first few years of The Great Recession.

The conclusions end up depending in part on two things: whether one focusses on developed economies or extends the analysis to emerging economies, and whether one focusses on a narrow definition of protectionism or a broader one.

The developed countries were unusually resistant to increasing protectionism, a phenomenon explained in part by the political power of export and import dependent firms in such countries....

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The economy is really growing at about a 1.5% rate
Howard Richman, 1/31/2013

The negative growth of GDP of -0.1% during the fourth quarter was no more real than was the 3.1% growth in GDP during the third quarter. The real growth rate of the American economy is closer to the half way point between them -- 1.5%.

According to preliminary statistics released by the BEA yesterday, real GDP fell at a 0.1% annual rate during the fourth quarter of 2012 after rising by 3.1% annual rate during the third quarter. What caused the dramatic change?

The following table shows the contributors to GDP Growth over the last four quarters:

Contributors to Real GDP Growth
Quarter 2012-1 2012-2 2012-3 2012-4
Household Consumption 1.7% 1.1% 1.1% 1.5%
Business Fixed Investment 1.2% 0.6% 0.1% 1.3%
Government Consumption -0.6% -0.1% 0.7% -1.2%
Net Exports 0.1% 0.2% 0.4% -0.3%
Inventory Change -0.4% -0.5% 0.6% -1.2%
Total Change in Real GDP 1.9% 1.2% 3.1% -0.1%

As shown in the table, Household consumption and business investment rose from the third to the fourth quarter. The factors that fell from the third to fourth quarters were government consumption, net exports and inventories....

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Ray was right -- the Obama Recession Begins!
Howard Richman, 1/30/2013

On January 15, Ray Richman wrote on this blog (Obama Recession Begins? Unemployment Claims Escalate):

The number of actual initial claims for unemployment insurance totaled 552,043 in the week ending January 5, an increase of 61,944 from the previous week. The press did not report this figure. Instead, they reported a figure of 371,000, a figure 181,043 lower. The 371,000 figure was the advance figure for seasonally adjusted initial claims, an increase of only 4,000 from the previous week's revised figure of 367,000. To be charitable to the media, 371,000 was the figure headlined by the Bureau of Labor Statistics of the US Department of Labor when announcing the availability of its weekly report. But it is apparent that the media reported the data without reading the first page of the report....

Weekly applications are a proxy for layoffs. The seasonally adjusted figures have fluctuated for most of the past 12 months between 360,000 and 390,000. Until October, 2012, the actual figures ranged similarly in the first ten months of 2012 but beginning in October they escalated from 360,000 to the latest report figure of 543,000, which ought to have created concern.

This morning, the Bureau of Economic Analysis (BEA) confirmed Ray's reading of the unemployment claims tea leaves. They announced that GDP actually declined during the fourth quarter of 2012. Here is the beginning of the BEA press release:...

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New Unemployment Claims still far above 2007 levels
Howard Richman, 1/28/2013

WeeklyUnemployment011913.gif

 

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Half way through - Obama's first 5-year plan is a failure
Howard Richman, 1/27/2013

Obama's trade agenda announced that President Obama had set a goal “of doubling U.S. exports in the next five years” to create 2 million jobs. Half way through the goal, in September 2012, exports had risen by 25%, but imports had risen even faster. The number of manufacturing jobs had gone up by 481,000 to 11,958, but that was still 601,000 less than the number of manufacturing jobs when Obama took office.

So, why did Obama’s plan fail? The answer is simple, he didn’t do anything about Chinese mercantilism. He created a new bureaucracy called the Export Promotion Cabinet. It joined hundred of federal agencies designed to do-good but which end up doing-nothing. Just how are we going to increase our exports when the world’s fastest growing markets exclude our goods?

Alan Tonelsen of American Economic Alert pairs a revealing set of quotes in a May 10, 2010, blog posting (Obama Administration's China Trade Brain-Locke):...

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Treat Corporations as Partnerships for Personal Income Taxation
Raymond Richman, 1/21/2013

Many taxpayers believe that the Corporate Income Tax falls mainly on the wealthy. In fact, the wealthy do own a large proportion of corporate wealth. But workers pension funds own a significant share of corporate wealth. An organization noted for its opposition to wealth and income inequality produced the following estimates: 

Distribution of US Stock Market wealth, 2007

Population                     % of Stocket Market Wealth  

Top one percent                      38.2

90 -99th percentile                    43.0

80-90th percentile                       9.9

60-80th percentile                       6.4

 0-60th percentile                        2.5

What is surprising about the above distribution of stock market wealth is not that stock market wealth is highly concentrated but that the bottom eighty percent owns as much as 8.9 percent of total stock market wealth. This means that they were taxed at up to 35% on their corporate earnings, most of it probably in their IRAs, 401s, or other pension accounts. The burden of the corporate tax on the wealthiest ten percent is taxed at the top corporate rate of 35 percent which was also the top rate of personal income tax. In effect, the bottom eighty percent are taxed by the corporate income tax at the same rate as the wealthiest one percent. The bottom one percent probably pay no personal income tax but their share of corporate income is tax at the highest corporate rate.

There is an additional important reason for integrating the corporate income tax with the personal income tax. An eminent University of Chicago economist in a seminal article which has been largely ignored argues that the corporate income tax is shifted to American consumers and is therefore a regressive tax but that it cannot be shifted to foreign consumers when exported because its foreign competitors are untaxed.This puts American corporations at a competitive disadvantage in international trade as we pointed out on this site in a recent posting. ...

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Mercantilism's Success may be Moving World Toward Fascism
Howard Richman, 1/18/2013

In a January 10 commentary, Harvard political economy professor Dani Rodrik (In truth, mercantilism never went away) argues that mercantilism's success may be moving the world toward state capitalism (fascism). Indeed, if state-capitalist mercantilism competes with liberal-capitalist free trade, then fascism is the more prosperous system.

Rodrik correctly summarizes the success of modern mercantilism, writing:

[During] the last six decades: a succession of Asian countries managed to grow by leaps and bounds by applying different variants of mercantilism. Governments in rich countries for the most part looked the other way while Japan, South Korea, Taiwan, and China protected their home markets, appropriated "intellectual property", subsidised their producers, and managed their currencies.

He incorrectly argues that the West was right to ignore Asian mercantilism during these decades:...

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Proposal for a Trade Reciprocity Act
Howard Richman, 1/16/2013

[Note: This replaces our earlier "scaled tariff" proposal.]

A BILL

To achieve balance in the foreign trade of the United States through the imposition of duties on goods and services from countries that have a bilateral trade surplus with the United States, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,...

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Obama Recession Begins? Unemployment Claims Escalate
Raymond Richman, 1/15/2013

The number of actual initial claims for unemployment insurance totaled 552,043 in the week ending January 5, an increase of 61,944 from the previous week. The press did not report this figure. Instead, they reported a figure of 371,000, a figure 181,043 lower. The 371,000 figure was the advance figure for seasonally adjusted initial claims, an increase of only 4,000 from the previous week's revised figure of 367,000. To be charitable to the media, 371,000 was the figure headlined by the Bureau of Labor Statistics of the US Department of Labor when announcing the availability of its weekly report.  But it is apparent that the media reported the data without reading the first page of the report. ...

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Chrysler CEO Marchionne: Jeep Factories In China Are Just The "First Step In The Globalization Of Jeep"
Howard Richman, 1/14/2013

An article in today's Detroit News (Chrysler to build Jeeps in China) has to be translated in order to be understood. It begins:

Chrysler CEO Sergio Marchionne said the automaker plans to build some Jeeps in China for the local market — and later, in Russia.

"As part of our global expansion of the Jeep brand, there are some cars — that because of the price position in the market — can never be made in the U.S. and exported," Marchionne told reporters on the sidelines of the North American International Auto Show....

TRANSLATION: Due to China's 25% base tariff on American produced automobiles, plus the additional 15% added in December 2011, Fiat can't afford to export Jeeps to China. Since Russia is copying China's strategy, Fiat will also build Jeeps there.

"We're going to be announcing the first step in the globalization of Jeep (in China). There's another one that's going to come in Russia. These things are part of a natural process of expansion."

TRANSLATION:...

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Currency Manipulation and Trade
Jesse Richman, 1/12/2013

Last week Edward Lazear published a opinion essay in the Wall Street Journal maintaining that "Chinese 'Currency Manipulation' Is Not the Problem."  His argument is that changes in the exchange rate between the dollar, the euro, and the yuan have not led to rapid changes in the trade deficit of the United States. 

Lazear does admit that trade flows have responded to changes in currency values, but he argues that these changes have been quite small.  This is one of the reasons why we think a more muscular approach to balancing trade (e.g. import certificates or the scaled tariff) is called for. 

Lazear draws a different conclusion, and his conclusion does not follow from his premises or his evidence.  He closes as follows:

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Uncle Sucker's Trade Deficit worsened in November
Howard Richman, 1/11/2013

The Commerce Department reported this morning that, overall, the U.S. seasonally-adjusted trade deficit deteriorated from $42.1 billion in October to $48.7 billion in November. These worsening trade balances subtract from U.S. economic growth but add to the growth of our trading partners.

These worsening trade deficits are being produced by the governments' of America's trading partners, especially the governments of South Korea, China and Japan.

South Korea

In 2012, President Obama signed a "free trade" agreement with South Korea. The agreement lets South Korea continue to manipulate the won-dollar exchange rate in order to increase market share of Korean products and reduce market share of U.S. products in U.S. and Korean markets. The Federal Reserve reported that South Korea spent 4.24% of its GDP on currency manipulations between September 2009 and September 2010.

The agreement went into effect in March 2012. Ever since, the U.S. merchandise trade deficit with South Korea has deteriorated. descending to $16 billion for the 12 months ending in November as shown in the graph below:

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Euro-Area Unemployment Rate Rises to new record of 11.8%
Howard Richman, 1/8/2013

The decision of the euro-area countries to try to fix their trade-deficit-caused depression without balancing trade still isn't working. Bloomberg reports that the European jobless rate is at its highest level ever:

Unemployment in the 17-nation region rose to 11.8 percent from 11.7 percent in October, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995 and in line with the median estimate of 27 economists in a Bloomberg News survey.

The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year, forcing companies to cut costs by slashing jobs. The European Central Bank estimates contractions of 0.5 percent and 0.3 percent in 2012 and 2013.

“In the southern areas of the euro zone, demand is very weak and therefore there is no way to see fundamental improvement in labor-market conditions,” said Uwe Duerkop, an economist at Landesbank Berlin. “There might be some stabilization in the labor market in the second half of the year where one can expect this trend of growing unemployment numbers to stop, but that’s not the story for the moment.”

These Southern European countries are experiencing the high unemployment rate that comes from persistent trade deficits. Here is a graph that we put together several months ago based upon the statistics then available:

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Gore's Other Big Lie -- We're published in today's American Thinker
Howard Richman, 1/2/2013

We begin:

Former Vice President Al Gore is able to explain things in the simple language used by elementary school teachers, so he tends to be believed even when he is conveying misinformation.

For example, his prediction that sea level would rise by up to 20 feet over the twenty-first century was sufficiently believed that many attributed the damage of Hurricane Sandy to rising sea levels, even though, according to a careful analysis by Professor Nils-Axel Mörner of the University of Stockholm, sea level has not risen at all this century.

But Gore's simplistic explanations are not just limited to climate change. In his 1993 NAFTA debate with Ross Perot, Gore claimed that the U.S. Smoot-Hawley Tariff act caused the Great Depression of the 1930s worldwide. Holding up a photo of Senator Reed Smoot and Representative Willis C. Hawley, Gore said, as if talking to elementary-school children:...

To read the rest, go to: http://www.americanthinker.com/2013/01/gores_other_big_lie.html

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December 31, 2012, is a date that will live in economic infamy
Howard Richman, 1/1/2013

December 31, 2012, is a date that will live in economic infamy. Six days after Christmas, Republican and Democratic leaders decided to reverse the effects of Santa Claus. They agreed to steal from America's children so that adults could have some short term benefits.

Instead of reducing the federal budget deficit from $1,327 billion to $825, as would have occurred automatically, had the negotiations failed, the final deal will only reduce budget deficits by $63.5 billion according to Fox News' Ed Henry. Up to $100 billion more could be subtracted following the sequester debate. The national debt will continue to grow at at least a $1,163 billion per year pace while GDP will probably continue to grow at about its current $647 billion per year pace....

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  • [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....

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  • 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]