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Kimball Corson
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I am both an economist (three year M.A., Univ. of Chicago, 1968, in economics PhD program) and a lawyer (J.D., Univ. of Chicago, 1971). I had a Woodrow Wilson National Fellowship in economics and the good fortune to study at Chicago under seven Nobel Laureates in economics (received before or... More
My blog:
Wandering the Oceans
  • We Can Fix Our Trade Deficits Problem – Here’s How
    Much can be done to remedy our trade deficits, but it needs to be well considered and coordinated, things our federal government is not very good at, unfortunately. However, if federal and state governments and the private sector work together, I think that much of what I suggest here is doable.
    The federal government should allow and aid a judicious decline of our dollar relative to the Euro and Renminbi. It can do that and it would be a big help. Turn about is fair play. The Renminbi is certainly manipulated and at times I suspect the Euro is too. A cheaper dollar would make imports more costly to Americans and our export goods less costly to world buyers. The dollar has been held up by the fact that so much of the new reserves created by the Fed in the banking system have been hoarded by our banks and not been the basis of aggressively expanded loans and a commensurate increase in the money supply.
    Another remedy that should be adopted is a partial and temporary roll back of the minimum wage for companies seriously beginning to export. It would be only partial and clearly temporary. Therefore, it should not be the basis of doctrinaire liberals having a gran mal snit fit and attempting to block it with zeal. This would help as well, particularly for smaller businesses.
    More efficient gasoline fueled cars and more electric and natural gas vehicles would substantially reduce our oil imports, which are a major portion of our trade deficits problem. This is a core point that cannot be over emphasized. Arab and other members of OPEC have attempted and sometimes succeed in charging us monopolistic prices for oil and in lining their pockets at our expense. We have too passively allowed this. We need an all out assault on oil imports and there is already the framework of a government program in place on which to build. Let OPEC members realize by falling revenues that they have overplayed their hand. Too, Americans need to get over their Hummer/SUV infatuation and, like even wealthy Brazilians, drive smaller, fuel-efficient and sensible vehicles.
    We can also adopt the excellent suggestion of Howard Richman that "[t]here is a simple way to get China to change, recommended by my father, son and I in our 2008 book Trading Away Our Future. We wouldlet the Chinese government know that the United States will balance trade through auctioned import certificates if they don't gradually balance trade on their own. The Chinese government could easily end export subsidies, let the yuan rise, and take down their tariff and non-tariff barriers to imports if it wanted to.
    "Such action by the United States would be sanctioned by WTO rules which state,
    “‘(NYSE:A)ny contracting party, in order to safeguard its external financial position and its balance of payments, may restrict the quantity or value of merchandise permitted to be imported.’
    "The resulting policy would jumpstart our economic growth through increased exports and increased investment in American manufacturing.”
    Some start-up or reorganizational subsidies and loans for smaller and medium sized American businesses that seriously want to engage in export would also be worthwhile. It is expensive to start up or reorganize for the export trade and smaller businesses need to feel the government is behind and helping them. The program could be handled at least in part through the Small Business Administration.
    We need an effective export bank, supported by the federal government, to help out here too because our big money centered national banks are too busy gambling in derivatives, lending their reserve funds back to the Fed, figuring out how NOT to make business loans, finding new and higher fees they can charge their customers and gearing up to fight financial regulation, particularly the proposed salary and bonus caps. This is our return for the financial bailout monies we have given and loaned to these banks. And banks wonder why their customers dislike them so.
    The business columnist for the Milwaukee Journal Sentinel, John Torinus, has some additional recommendations that should be adopted or carefully considered:
              "Keep the pressure on the Chinese government to harden their currency. Henry Paulson got it done in the Bush administration when the yuan rose about 20% against the dollar. That was a big help to U.S. exporters, the most important job and wealth creators for the country.
              "Understanding that the U.S. cannot sustain itself with a lopsided service economy - we have to make things, too - drop or eliminate the corporate tax on manufacturing. Other countries have dropped corporate taxes without triggering trade pact violations. . . .
              "Promote Toyota-like lean disciplines across the whole manufacturing sector, much as Wisconsin government is attempting to do. Persuade union leaders to support lean disciplines and junk work rules that get in the way.
              "Encourage pools of early-stage funding for manufacturing start-ups. There are, for example, a good number of such ventures in need of funds in the Milwaukee 7 region.
              "As Nosbusch maintains, double the federal dollars going into advanced manufacturing research. Some of the dollars could go to the University of Wisconsin-Milwaukee's intensified commitment to such innovations.
              "Also, create tax credits for manufacturing investments in automation. Accelerated investments there would offset cheap labor in low-cost countries.
              "Start a nationwide youth apprenticeship program for manufacturing jobs for non-college bound juniors and seniors. It worked superbly for Wisconsin youths in the mid-1990s. Most openings require a high school degree and job skills, and apprenticeships deliver both. Many laid-off manufacturing workers are pursuing other careers."
    Still, there remain other things we can also do to correct our trade deficits, some easier than others.
    Use of the tax system to correct the acutely skewed distribution of income in the United States may also be necessary to afford needed worker incentives. To redistribute income, we have to face the problem of effective lobbying by the wealthy, directly and through large corporations, that has largely created the existing maldistribution.
    Specifically, we need effective campaign financing reform with teeth, much tighter control over lobbying and lobbyists and perhaps even some adjustments to the concept of Freedom of Speech and the Right of Petition in the context of efforts to hustle state and federal governments for laws, regulations and benefits that are contrary to the public interest but help the wealthy gain more income at the expense of the working middle classes.
    The problem, of course, is that these changes would have to be passed by legislators who do not want to pass them because they comprise on their relationships with the wealthy, their own prospects for wealth and their political power bases which they want to enlarge -- the real reason our federal government continues to expand and grow beyond its optimal size. Both parties are guilty here. It is a bit of a catch 22.
    We could also amend the Sherman Act to have it clearly protect not only competition, but also competitors as well from unfair trade practices of the type that have injured or put out of business many small businesses. As the law has now developed (thanks to the idea of a law professor of mine), if there are two or three big companies in an industry that compete aggressively, competition in the industry is deemed well protected under the Sherman Act, even if those big competitors conspire to put out of business all smaller competitors in the industry. The law basically says oligopolies and oligopolistic pricing are O.K. We need to fix that and have both more competitive markets and more competitors to aid what is proposed -- a culture of competition, if you will. We seem to have lost it in the face of so many giant corporations, although most of our GDP is still generated by smaller businesses.
    These are all decent suggestions that should be addressed. We need to get serious and coordinate an attack on the US trade deficit. We need some good leadership on this score not only in state and federal government, but also in the private sector and from our Chambers of Commerce.
    As Americans pay down their debt associated with our trade deficits, as they get back to work and as those deficits shrink because our imports drop and our exports grow, we can expect a permanent, sustainable increase in aggregate demand in the United States and a sustainable rise in our GDP and also in middle class incomes. It is going to be almost impossible to get these improvements until we do what is necessary regarding our trade deficits.

    No disclosures
    Sep 30 10:36 PM | Link | Comment!
  • Why the Stimulus Program Was a $750 Billion Dollar Mistake

    The gospel according to a misreading of Keynes is that if aggregate demand falls, it is appropriate to intervene and have the government take up the slack. More broadly conceived, the idea is to have government run surpluses during good times and deficits during slumps. But is this true all the time, regardless of what has caused the slump? I don't think so and Keynes didn't either. Here is why.

    If aggregate demand drops, for example, due to say waning "animal spirits" and we have a small economic slump, perhaps intervention is appropriate to bring us back where we were and it may be appropriate in many other circumstances, too. But, on the other hand, if we start to run continuous trade deficits so that in order to service and pay off that flow of attending debt, we systematically have to spend less domestically, cannot we expect domestic aggregate demand to fall to a new lower level and stay there because of that on-going situation? If so, are not then efforts in that circumstance to boost aggregate demand - as we have done with the $750 billion dollar stimulus program - simply a waste of money because it will only boost aggregate demand for a brief while, after which the economy reverts to where it was, as we continue to spend less domestically in order to cope with the flow of debt attending our on-going trade deficits and foreign purchases? I think so.

    Another way to look at the problem is to realize Americans have simply decided to consistently spend a portion of their disposable income, not at home as before, but abroad, on Chinese goods. Domestic aggregate demand then falls proportionately and as Keynes said the drop will remain permanent and we will have a persistent recession at the new lower levels of domestic economic activity as long as the trade deficit and foreign purchases persist.

    Have we blown it here and wasted $750 billion dollars on the stimulus program for only a brief bump up?

    Disclosures: DXD, QID, SDS, TWm

    Sep 28 7:34 PM | Link | Comment!
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