rationalist

Buffett's Import Certificates Plan Could Pilot the Economy to a Safe Landing

Thanks for pointing to that article from 2003 (!).

to summarize Buffet's idea for those that don't have time to read it:
- every exporter would get certificates from the US government for the dollar amount of good that they export
- these certificates would be tradable
- every importer of good to the US would have to have the required number of certificates (for the same dollar amount of imports)
- the market would set the certificate price, but since there is much less imports than there is exports, their price would be definitely positive

The way I see this plan is the following:
- this is a kind of dollar devaluation, but without devaluation. On the one hand this would automatically increase the price of imported goods (making americans poorer, with smaller purchasing power); on the other hand all the foreign holdings of american assets would still be worth the same
- this would introduce a huge distortion into the already distorted international trade
- there is a much easier way for US government to solve the problem - make a real devaluation by printing more dollars. On the one hand this is what Buffet calls "a hidden theft", on the other hand it is easier to do and more generally accepted.

About the economy - Buffet got it right. The most important thing about economy is to see the important dynamics and not get lost in the petty details.

The only way for the US to get out of this mess is to restore it's international competitivness. With 1 bn chinese and another 1 bn indians that came on the labor market in the last 2 decades, the american (and european) worker (even though enahanced by all the education, machinery, etc) became much less competitive. There is and will be a shifting as these differences tend to equalize. As a result americans who live only off their manual labor on average will become poorer. In the same time if the market is allowed to work (which is not the case) this decrease of purchasing power will quckly reverse, while the rest of the world will grow rich and be able to absorb more and more of american exports. If China did not keep it's currency artificially low, chinese exports would become more expensive and american imports to china would become cheaper. The chinese conumer would be richer and would consume more. China would not depend that much on american consumption to fuel its growth and would develop a more varied, more resilent economy. Chinese would not be stuc with billions of US paper assets, that are being stolen from them now by Ben Bernanke printing money. It is simple to say it now ;)

If the above was the only dynamic in international trade, we would see now only continuing improvement. In my opinion the critical point of global labor markets inequalities has been reached. China is becoming more and more consumer oriented economy and soon would drive a large part of its growth (and america's growth) by itself.

The problem is that this change has been mixed with another set of inequalities - the bubbles created specifically by "some of the most competent people in the world" working for the US. To be sure - no country has been blessed by the right leadership. Communist China, fractional India, megalomaniac and divided Europe... but the US leadership in the last 20 years has been just catastrophic... it looked more like a bunch of kids playing with fire, than a leadership of a serious country...

Now the youngest and most inexperienced of these kids is coming to play too... Have fun!