Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
How to end the shutdown
Shortly before Christmas, with negotiations between the White House and Congressional leadership at a stalemate, congressional authority for spending in a number of federal agencies ran out. As a result, these agencies lost the ability to spend money. Essential workers are being required to work without pay, and non-essential workers are being required to not work. Democrats recently passed bills to reopen the closed agencies (https://www.cnbc.com/2019/01/04/house-passes-bill-to-end-government-shutdown-without-border-wall-money.html) but the Senate declined to take up the bills because of the threatened presidential veto.
The Senate unwillingness to take up the bills highlights a key challenge for the Democrats' strategy in the shutdown which seems to be to crank up the pressure on moderate Republicans to the point where they are willing to abandon Trump and join veto-proof majorities to override a Trump veto. Because the Senate majority leader has major influence over whether bills are considered on the Senate floor, such a strategy would -- to succeed -- have to win over Senate Majority Leader Mitch McConnell. He is a long way from being won over now, as this Washington Post story discusses: https://www.washingtonpost.com/politics/2019/01/11/mitch-mcconnell-could-end-shutdown-hes-sitting-this-one-out/?noredirect=on&utm_term=.05bf1e8b773d. Democrats seem determined to relearn what Republicans found repeatedly during their period from 2011 through 2014: with control of the House but not the Senate, it is really really hard to get sharply partisan legislation onto the president's desk because you don't control the Senate agenda. Back then Democrats mocked Republicans many efforts to pass a bill repealing Obamacare. Today Democrats seem equally determined to beat their heads against a similar wall.
So what is the alternative path out of the shutdown? Some shutdowns are over major issues of significant national import. If this one was such a shutdown, then Democrats and Republicans might be justified in continuing it. Other shutdowns are over trivialities. This one must rank nearly at the very top of the list of shutdowns over trivialities. Whether or not the wall is a good policy idea, it is a minor one. At stake is five billion in funding out of a Federal budget numbered in trillions. To shut down the government, even part of it, with all of the chaos and costs that entails over an unwillingness to provide such funds so that the president can make a down payment on a signature campaign promise reflects a Washington in which partisan tribalism trumps policy sense. And so, arguably, does shutting down the government in order to get such funds.
The solution then must provide a way for one tribe or the other to back down. Here's an idea -- a secret ballot...
Letter to Prof. Martin Feldstein of Harvard U
I’ve been an admirer of Prof Martin Feldstein for many years but his op-ed in the Wall Street Journal, “Tariffs Should Target Chinese Lawlessness, Not the Trade Deficit” (12//28/2018) has got it exactly backwards. Tariffs should not be used as punishment for lawless economic behavior. Although economists believe in the benefits of trade, they know, as John Maynard Keynes did, that “beggar-thy-neighbor” trade policies that result in job-losing trade deficits for the U.K. had to be fought with counter-measures. In the absence of a common currency, the preferred policy is a single-country-variable-tariff (our invention) whose rate increases as the trade deficit widens and falls as trade is brought into balance.
Of course, trade need not be balanced with every nation but should be balanced with the world of nations. Since the General Agreement on Tariffs and Trade was signed in 1994, the USA has had huge deficits with Japan, Germany and the European Union, and China, which amounted to $562 billion in 2016 of a total of $734 billion. This resulted in booming economies in those countries and relatively stagnant growth in the USA accompanied by the loss of millions of high-paying jobs in USA manufacturing. Free trade is possible but not with predators.
Journal of Economic Literature:
Atlantic Economic Journal: