Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
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.
The World Trade Organization rules permit countries to impose barriers to trade when they experience large chronic deficits. The Ideal Taxes Association has invented the single-country-scaled (variable)-tariff that could be imposed on all imports from countries with which a country is experiencing large chronic trade deficit. The tariff rises as the trade deficit gets worse and falls as the trade deficit improves. Well, we have a number of countries with which we have large and escalating trade deficits including China, Japan, Germany, some oil-producing countries, etc. Among the advantages of the single-country-scaled-tariff is that it does not penalize countries with which trade is in balance as a general devaluation does and so long as countries fail to increase their imports from us, we earn a lot of revenues.
2. Pres. Obama, through his Environmental Protection Agency, has been discriminating against producers of fossil fuels – oil, coal, and natural gas. The latest employment report of the US Department of Labor showed that that industry continues to be dynamic and has the lowest unemployment rate. Yet the President’s policy is to ban the exploration and development of such fuels on public lands although noisy and bird-killing wind and land-extensive solar plants are permitted to be located on public lands. The president prevented development and pumping of oil and gas in the Gulf of Mexico for nearly two years since the BP oil spill. Much of the drilling equipment which had idled by the presidential order moved abroad. It will take some time to restore development and drilling in the Gulf. The President has finally taken some action to permit drilling in the gulf. It is wonderful how facing an election focuses attention on avoiding regulations that are unpopular.
The recent development of the extraction of natural gas from shale deposits deep underground has brought an employment boom to Texas, North Dakota, Pennsylvania, West Virginia and other states. The “ban-carbon-emissions” crowd are trying to get the federal and state governments to block so-called fracking, the process used to extract natural gas from shale. Not only the EPA but the SEC (the Securities Exchange Commission ) have been making threatening noises. The environmental extremists succeeded in getting New York state to ban the process. Pittsburgh, which has lost half its population since the steel mills closed, has forbidden the extraction of natural gas from shale within its borders.
Shale deposits have been estimated to contain enough natural gas to free us from dependence on the importation of crude oil which now accounts for 60 percent of our consumption of crude oil. Natural gas which is a relatively clean fossil fuel can provide employment to millions of the unemployed. Many fleet owners are converting their trucks to natural gas as a fuel and all new trucks they buy are fueled by natural gas. Municipal bus systems are under pressure from environmentalists to continue using expensive bio-diesel. This keeps fares to the public very high but the environmentalists could care less. Banning carbon emissions is their religion. Let’s see if the President welcomes the employment opportunities and efficiencies of converting trucks and buses to natural gas.
3. Repeal the prohibition against the manufacture, sale and consumption of narcotics. It has been a total failure so far as reducing the consumption of narcotics is concerned. The prisons are full of people, mostly black, who have been found guilty of possession or trading. Legalizing narcotics would enable many of them to find good legal employment as many did when the Volstead amendment was repealed.
The tax revenue would be huge and we would save up to 50 billions per year, the cost of trying to enforce an unenforceable law. The extent of our hypocrisy is the fact that in the entertainment community, the biggest buyers and users of narcotics, not one celebrity, even those caught in possession, was ever tried or incarcerated for more than a day or two.
Thousands of Americans and foreigners have been killed trying to eradicate the production and traffic of narcotics. We lost the Afghan war because we imposed our unenforceable narcotics law on the Afghans. Poppies were the chief agricultural product of Afghanistan. The invasion of Afghanistan and the destruction of the Taliban was so easy because in 2001 the Taliban, for religious reasons, banned the production of poppies. The rural Afghans viewed us as liberators and for a couple of years they continued to view us as liberators. Our useful idiots in Washington caved in to a U.N. request that production of poppies be outlawed in Afghanistan, which we did, going so far as having our soldiers destroy poppies in the field. The Taliban immediately reversed policy and eliminated their ban against growing poppies. Drug traffickers financed their rearming. From liberators we became foreign oppressors and the Taliban became their liberators from foreign yolk.
4. End most of the foolish environmental regulations and stop subsidizing alternative energy sources. Not one of the windmill farms or solar farms would have been built without subsidies federal and state. Costing hundreds of millions of dollar, using a great deal of imported materials, sustainable jobs are minimal amounting to an average of 40 or 50 per wind and solar farm, or about $4-6 million per job. Worse most of them will fail and American taxpayers will be left holding the bag because the US Department of Commerce has guaranteed the loans made to them by banks and other financial institutions. It is a good example of national socialism at work.
Moreover, as we reported a few days ago, there is now an alternative theory to the man-made global warming theory currently embraced by world leaders including Pres. Obama who stated publicly that the man-made global warming theory is approved by scientists. Prof. Mann and others did not behave like that in the recent scandal. Our adherence to a theory that has now been challenged is costing hundreds of billion dollars on expenditures to limit carbon emissions. The alternative theory is Danish Prof. Svensmark’s theory that the sun’s magnetic activity affects the bombardment of cosmic rays which in turn affect the production of clouds in the earth’s atmosphere which is the direct cause of global warming and cooling. That it is likely the superior theory is that it explains global warming and cooling. And explains the many historical periods of global warming and cooling including the one that made the U.S. the most productive nation on earth.
5. Treat corporate income as we treat partnerships, its income taxable under the personal income tax to its shareholders. Corporations which sell their product domestically, as Prof. Harberger, formerly of the University of Chicago, has shown, are able to past the tax on to consumers giving it the same effect as a sales tax but is a real burden on corporations that export goods. But corporations which export have to meet the competition of foreign producers and cannot pass the tax. There are many other advantages of getting rid of the corporate income tax which we cannot got into here but we did in our book, Trading Away Our Future (Ideal Taxes Assn., 2008).
We expect Pres. Obama in his speech to recommend additional expenditure of roads, bridges, and infrastructure. He said the same when he proposed and passed the 2009 $800 billion Recovery Act.
Business reluctance to invest in housing is understandable with so many millions of houses awaiting foreclosure and so many mortgages in default. There is not much we can do to get the home building industry to restore employment until the housing stock is reduced in such states as California, Florida, Arizona, and Texas. The best thing to do in our opinion is foreclose as fast as possible to provide houses at reasonable cost for those workers who are in the market for houses. This is the free market solution. When most of the existing supplyof houses are owner or tenant occupied, it won’t be long before demand increases for new housing. But that appears years away.
Another Recovery Act will have the same fate as the last. It will, as long as the spending continues, provide some employment, none of it sustainable. As soon as it stops, it is back to no impact at all. The Recovery Act transferred a lot of money to the states which may have saved teachers’ jobs but created no new jobs. It subsidized home insulation and the purchase of hybrid vehicles which created temporary jobs, the Junkers subsidy which helped sell autos. But there was no Keynesian multiplier. When the subsidies ended, sales of autos and home insulation, etc., returned to as it was at the beginning.
We have made a number of useful proposals above. Will Pres. Obama listen? We believe not. Perhaps his chief economic advisor, attorney Gene Sperling can have some positive influence. We’ll send him a copy of this posting.
Comment by Don Dignam, 9/6/2011:
Too bad thses suggestions won't fly because they make too much sense!
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