Ideal Taxes Association

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 Richmans' Trade and Taxes Blog



Let's End Means-Tested Benefits -- we were published in American Thinker yesterday
Howard Richman, 1/28/2015

Here's a selection

The Republicans in Congress should push to end these means-tested disincentives against work and savings. Every means-tested benefit could be expanded to include everyone, but at a lower level of benefits.

For example, President Obama’s proposal to make community college free could be easily paid for by eliminating a disastrous means-tested program – one that has discouraged middle class savings and contributed to inflation in college tuition. Currently, Pell Grants pay only partial tuition, and only at expensive colleges. Why not take out the means-testing, and use the funds to pay up to a certain tuition amount, no matter what college is attended?

To read the whole thing, go to:

http://www.americanthinker.com/articles/2015/01/lets_end_meanstested_benefits.html

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BOOK REVIEW: Ha-Joon Chang, Economics: the User's Guide (New York: Bloomsbury Press 2014)
Raymond Richman, 1/25/2015

The title of the book is Economics but aside from learning some terminology the reader will learn little economics from it. He writes that his book “differs from other economics books in that it contains a lot of information on the real world.” Much of the world he describes is the fantasy world of Marxists and leftists. He describes a multitude of old and new economic problems but there is no economic analysis in it but a lot of assertions. It has a lot of definitions of economic concepts and a bit of economic history, selected from a Marxist point of view. Not a single statement of how much the standard of living has gone up under capitalism

He defines economics as the “study of rational human choice” and defines capitalism as an economy organized in pursuit of profit, a dirty word to Marxists. Income would be a better word than profit but workers are also interested in income. A better definition of capitalism appears in Merriam-Webster’s Collegiate Dictionary 10th Ed., namely, “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” ...

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Let's end means-tested benefits
Howard Richman, 1/22/2015

In his 2015 State of the Union speech, President Obama proposed programs to assist people who work. In fact, he denigrated those who sit at home, enjoying benefits without contributing. For example, he asked: 

[W]ill we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?

Then more of the same when he said:

Tonight, together, let's do more to restore the link between hard work and growing opportunity for every American. 

And yet more of the same when he said:

We don't just want everyone to share in America's success – we want everyone to contribute to our success.

Was Obama intentionally leaving out the many poor people who make no effort? Does this emphasis imply that he would favor bills that would end the means-tested work-discouraging system built by Washington over the last several decades?

Perhaps the clearest presentation of these disincentives appeared in a slide from a July 2012 presentation by then Pennsylvania Secretary of Public Welfare Gary D. Anderson. Here is one of the graphs that he presented:

WelfareCliffAlexander.JPG

 

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Billionaires Aren’t Dangerous; Those Who Would Prevent the Innovation that Creates Most Billionaires Are Dangerous
Raymond Richman, 1/19/2015

The Democrats and their loving media are bent on making the distribution of wealth and income the principal issue in the 2016 campaign. President Obama in his so-called state-of-the-union message (1/20/15) proposed to raise taxes on the very wealthy, saying “let’s close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth.” One trouble with that statement is that it suggests the rich don’t pay their fair share of taxes. In 2008, the top one percent of personal income taxpayers according to the IRS paid 38.02 % of the federal personal income tax paid, the top 10% which includes all the really rich paid 69.94%, the top 25% paid 86.34%, the top 50% paid 97.3%, and the bottom 50% paid only 2.7%.

We are all for closing loopholes but it is hard to identify a loophole? Are charitable deductions loopholes? Some believe they are. Besides the president was telling an untruth when he implied that loopholes created wealth inequality. The inequality of wealth is largely due to inventions and innovations. Steve Jobs and Bill Gates, to name only two of the thousands who became millionaires and billionaires, did so by creating the products produced by Apple and Microsoft.

The anti-poverty charity Oxfam reported  ahead of the World Economic Forum in Davos that the share of the world’s wealth owned by the best-off 1% has increased from 44% in 2009 to 48% in 2014 (while Obama was President incidentally) while the least well-off 80% own just 5.5%. At the most recent meeting of the American Economic Association, economists took issue with some foolish writings about inequality written by French economist Thomas Piketty .

An Oxfam spokesman said it would use its high-profile role at the Davos gathering to demand urgent action to narrow the gap between rich and poor. How? They do not say. One would think that it would be more important to reduce the number of poor than narrow inequality. That is what American inventors and innovators have done historically. ...

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Chinese stock market tumbling...
Howard Richman, 1/18/2015

It's midnight here in Pennsylvania, but it's Monday morning in China and the stock market is already down 6.3% today. Go to the following website to see where it stands right now:

http://www.bloomberg.com/quote/SHCOMP:IND/chart

This from Bloomberg News today:

[S]tocks in China headed for their biggest drop since 2009, spurring demand for haven assets.

Chinese brokerages tumbled after regulators took measures to rein in margin trading at three of the nation’s biggest securities firms....

So how does this play out?...

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Chinese Firms Particularly Vulnerable?
Jesse Richman, 1/15/2015

ODU Professor of International Business Shaomin Li published a piece in Fortune Magazine on the 12th which made an interesting argument about the vulnerability of Chinese firms to declining economic growth.  The title is: "Corporate Ponzi Game in China?"

They report a series of interesting findings.  

1. Many Chinese firms have relatively low profit margins. 

2. In order to grow rapidly such firms have relied upon debt financing.

3. The debt-financed growth of capacity in the absence of substantial profits makes China's economy particularly vulnerable to a slow-down in economic growth...

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China's imports up just 0.6% in 2014
Howard Richman, 1/14/2015

China just released its December 2014 trade statistics. After rapid growth from 2005 to 2013, the dollar value of Chinese imports was stagnant in 2014. 

ChinaImports1214.gif

Here is the rate of Chinese import growth:

  • From 2005-2013, Chinese imports grew at a 15% clip.
  • In 2014, Chinese imports grew at a 0.6% clip....

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China pulls December trade statistics
Howard Richman, 1/11/2015

China in 2015 is like the United States in 1929. It has grown rapidly by practicing mercantilism. Instead of buying imports from its customers, it destroyed the market for its exports. The Chinese stock market may be about to lead the world down into an economic recession.

The Chinese stock market began tomorrow morning's (Monday's) trading in free fall after the default of a Chinese property developer. Zerohedge.com reports:

The last session in China on Friday provided an epic roller-coaster as exuberant retail BTFD'ers met their match with fading inflation and surging default risk concerns. The Monday session has opened to more of the same - with the Shanghai Composite opening down another 1.3% and erasing all the year's gainsAs Shanghaio Daily reports, the Chinese property developer Kaisa Group Holdings (that we have discussed in detail here and who's next herefailed to repay a US$26 million bond coupon, making it the first Chinese property firm to default on dollar bonds.

Meanwhile, in a supposedly unrelated development, Reuters reports that the Chinese government briefly published its trade statistics for December 2014, and then pulled them:...

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November trade report suggests that a worldwide recession is starting
Howard Richman, 1/9/2015

On Wednesday, the Bureau of Economic Analysis released the trade report for November 2014. The good news is that the U.S. trade deficit went down, despite the high flying dollar. The bad news is that the report shows a decline in investment spending in the world as a whole and in the United States in particular. It could be that the world and the United States are going into a recession at the moment....

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The Corporate Income Tax Is the Worst Tax; Repeal It and Tax Corporate Earnings under the Personal Income Tax
Raymond Richman, 12/26/2014

There are taxes which treat taxpayers fairly, are progressive in their effects, and have few bad economic effects. The corporate income tax is not one of them. The corporate income tax treats taxpayers unfairly, favors the very rich, and has bad economic effects. It is probably the worst major tax, vastly inferior to the personal income tax, sales taxes, death taxes, or any other major source of revenue.

So who bears the burden of the corporate income tax? As an artificial entity, corporations cannot bear any corporate tax burden. Only living individuals bear the burden of taxation whether it be the corporate income tax, the personal income tax, sales taxes, or excise taxes. Economists are not sure who bears the burden of the corporate income tax. The most common view is that most of the tax is borne by shareholders but some of the tax is shifted forward to consumers in the form of higher prices. The amount shifted depends on the structure of the particular industry. A monopolist has more control over the prices it charges than those in a highly competitive industry or one where much of the productive activity is conducted by proprietorships and partnerships which are not subject to the corporate income tax. (And many economists believe that the corporate income tax is borne by investors in general in the form of higher interest rates and by some special classes of employees, but we’ll ignore that in our analysis.) So shareholders in some corporations bear all or most of the burden and shareholders in others may bear a lesser share of the burden. Consumers of some products may bear much of the burden and consumers of others little of the burden. These considerations make the distribution of the burden of the corporate income tax very uncertain which is one reason that makes it desirable to eliminate it and tax corporate earnings as personal income.

As to economic effects, the corporate income tax penalizes exporters and its high rates encourage inversions (moving corporate headquarters abroad) and outsourcing of factories and jobs. Facing international competition, American exporters have little or no ability to shift the tax burden and the high rate of corporate income tax places them at a disadvantage.

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US Economic Growth 2.7% over last year. China about same.
Howard Richman, 12/24/2014

On December 23, the Bureau of Economic Analysis (BEA) of the Commerce Department issued its latest revision of U.S. economic growth during the third quarter period (July through September) of 2014. According to the BEA, the U.S. economy grew at a 5.0% annual rate during that quarter.

A more accurate estimate of the U.S. growth rate can be found by comparing each quarter with the quarter one year earlier. If the third quarter of 2014 is compared with the third quarter of 2013, the growth rate was 2.7%, not 5.0%, as shown in the graph below.

Unfortunately, the once honorable Bureau of Economic Analysis of the Census Bureau tweaked the quarterly GDP numbers in order to achieve the supposedly high growth rate. This tweaking was predicted by Tyler Durden of zerohedge.com.

When Durden analyzed the final revision for the first quarter back on June 25 (Here's the reason for the total collapse in Q1 GDP), he discovered that Obamacare payments had been removed by the BEA from the already dismal results for the first quarter. He predicted that they would be added to later quarters in order to achieve 5% growth during a quarter. Specifically, he wrote:...

 

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The Russian economy will come roaring back
Howard Richman, 12/19/2014

Business Week published an assessment of where Russia has been and where it is going. Its analysis of the present was pretty good, but its pessimism about Russia's future was nonsense. Russia will probably come roaring back, as countries almost always do after a currency collapse.

The ruble started falling as a result of European and American sanctions and Russian counter-sanctions. These sanctions got the Russian currency falling in exchange rate. Here´s a first hand account from a commentary on the subject by Daniel Gurevich, one of my students, who was then living in Russia:...

 

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Mike Lee gets it -- Watch his "Animal Farm" speech about the Cromnibus bill
Howard Richman, 12/15/2014

After castigating Congress for passing the Cromnibus, he shows he understands just what is happening in our economy today. His theme is the loss of opportunity when Washington is siding with the special interests against the American people.

He says that the loss of opportunity is not globalization only -- perhaps he understands what we have been arguing, that growing trade doesn't help when it involves huge trade deficits....

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Why are oil prices falling?
Howard Richman, 12/10/2014

When prices fall, there are two possibilities: (1) increased supply or (2) reduced demand. If oil prices are falling because of increased oil supply, that can be very good for the U.S. economy. On the other hand, if oil prices are falling due to weakening world aggregate demand, then the price collapse could be a signal that the world economy is about to collapse. Thus, it is important to determine why oil prices are falling.

One way to determine whether supply is rising or demand falling is to look at quantity sold. If quantity is rising, then supply is rising. If quantity is falling, then demand is falling. I found some statistics that might cast some light on whether world oil consumption was rising or falling on the U.S. Energy Information Administration's (EIA) website. According to their short term energy outlook, total world consumption of oil is rising from 90.48 million barrels per day in 2013 to 91.44 in 2014. Thus, unless the EIA has missed a fourth quarter collapse in oil consumption, it appears that world oil consumption is rising.

I see no signs of a fourth quarter collapse in world aggregate demand. In fact, according to the Bureau of Economic Analysis, U.S. exports of goods and services in October increased to $197.5 billion in October, $2.3 billion more than September exports. If world aggregate demand were collapsing, then U.S. exports would likely be falling. So, we can rule out collapsing fourth quarter world demand for oil. 

OIL-PRICE.NET has a good summary (Oil Price Drops on Oversupply) of geo-political reasons why oil price supply is increasing at the moment. Here are some of the ones that they list:...

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How the Minimum Wage Contributed to the Ferguson Riots
Raymond Richman, 11/28/2014

The legal federal minimum wage prevents employers from hiring anyone, with few exceptions, who would work for less. Michael Brown, the young black teenager killed in Ferguson, was one of the millions of black teenagers and other unskilled blacks who are unemployed as a result of the minimum wage of $7.25 per hour which costs prospective employers $16,150 per year including social security tax and Medicare insurance plus some thousands more for Obamacare. As a result, most black teenagers are unable to get the first foot on the ladder to a living wage and the ability to raise a family. And many older unskilled workers, including single mothers, who are without a job find themselves alienated and part of a vast underclass with attendant unsocial and criminal behavior.

That the minimum wage reduces the demand for unskilled workers cannot be denied. The vast majority of economists acknowledge that the legal minimum wage prevents the employment of many unskilled workers but they are afraid to publicly denounce the minimum wage which enjoys so much support from powerful political groups, like the labor unions. Unions do not want competition from non-union employers.

We even hear calls for a “living wage” as though every worker is the sole support of a family. The average household consists of 2.54 persons down from 3.33 in 1960. That statistic includes seniors and families whose children are grown-up. Twenty-eight percent of women age 35 to 44 have three kids or more. During the 1950s, women had four children on the average. That date is significant because the minimum wage began to have its effect about then. Still, the typical family with a teenager in it has one or two parents. If either parent works, a teenager earning $5 and hour adds $10,000 to the family income. His employment could be the difference between the family’s living in poverty or not....

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Keystone XL Pipeline
Jesse Richman, 11/22/2014

Steve Yetiv and I published an op-ed recently in Canada's national newspaper the Globe and Mail on the Keystone XL pipeline.  

We begin:

"The Republican victory in the midterm elections has shaken up politics in the United States. It may even lead to a decision on the controversial Keystone XL pipeline, which would move oil from Alberta’s tar sands and North Dakota’s Bakken oil fields to refineries on the U.S. Gulf Coast.

"Will it clear the way for construction of the last phase of the pipeline? The chances have risen, but passage is still not assured. It will likely depend on a deal between the Republican-dominated Congress and Democratic President Barack Obama."

 

The entire piece can be read at: http://www.theglobeandmail.com/globe-debate/the-president-and-the-pipeline/article21558766/ 

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Cloture Rule May be Key Senate Vote -- We were published in today's American Thinker
Howard Richman, 11/20/2014

We began:

The most important vote that the Republican Senate takes next year may be a procedural vote.  If the Senate continues last session’s cloture rule, Senate Democrats will be given the power to keep the Republican agenda off President Obama’s desk.

But if senators return to the earlier version of the Senate cloture rule that was in place until the early 1970s, they will be able to put legislation on President Obama’s desk that would be popular with the Republican base in particular and with the majority of the American people as well.

The filibuster was created (at Thomas Jefferson’s behest) when the motion to “call the previous question” was struck from Senate rules, leaving no way to force a final vote on legislation.  A cloture rule was added in 1917 that permitted two thirds of senators present and voting to draw debate to a close.  Although in the 1950s senators experimented with requiring two thirds of all senators to support cloture, Lyndon Johnson’s Senate ultimately returned to the more workable present and voting standard....

To read the rest, go to: 

http://www.americanthinker.com/articles/2014/11/cloture_rule_may_be_the_key_senate_vote.html

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Government Interference in the Economy Has Been an Unmitigated Disaster
Raymond Richman, 11/13/2014

Few Americans know the economic harm that government mismanagement of the economy has caused. The Community Investment Act—still in force—was the principal cause of the housing bubble that led to the Great Recession, whose effects we are still experiencing. And government intervention in the economy continues to cause untold economic misery. For example, the minimum wage law has denied employment to millions of unskilled workers with dreadful consequences to them and to our society. The Corporate Income Tax was enacted to appease anti-business sentiment. Its proponents unknowingly created a tax that violates all the criteria of a good tax. Americans widely support free trade notwithstanding the fact that some of our trading partners entertain policies that steal American jobs and whole industries. Americans are unaware that the federal government (and some state governments) have given away billions in subsidies and tax credits and conducted a war on fossil fuels in the name of preventing global warming. It has become a world-wide disaster. Scientists are in disagreement as to how much of the global warming is caused by the burning of fossil fuels. Scientists are unanimous in acknowledging that the billions spent to date have had no effect whatsoever on climate change. Moreover, the dynamic oil and natural gas industry has been the major contributor to employment growth during the past six years and is reducing our chronic trade deficits which have cost Americans millions of jobs. Americans are willing to provide low-rental housing for the poor but are unaware that while rentals are low, the cost per unit was astronomical. And Americans should know that many other government policies have slowed America’s rate of economic growth, among them excessive and costly unnecessary government regulations which have raised costs to the consumer and produced little of no benefit. Let us look at a few of these policies....

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Bank of Japan steps up its mercantilist attack upon the U.S. economic future.
Howard Richman, 10/31/2014

The biggest financial news this morning is that the Bank of Japan announced last night that it was going to boost its money creation -- using the money to buy U.S. stocks. Here's a selection from an article on Zero Hedge, my favorite economics blog: 

In retrospect, the BOJ's [Bank of Japan's] announcement [that it would be creating money and using it to buy Japanese government long term bonds] should have been anticipated. Recall that yesterday, the biggest non-story was the regurgitated headline that the Japanese Pension fund would boost its holdings of domestic and foreign stock from 12% to 25%, while slashing its Japan bond holdings from 60% to 35%, something that had been leaked previously. The full changes:

  • Domestic stocks raised to 25% from 12%
  • Japan bonds cut to 35% from 60%
  • Overseas shares 25% from 12%
  • Foreign debt 15% from 11%

And here's an article about the same announcement being the cause of rising U.S. stock prices on the Yahoo Finance blog:

http://finance.yahoo.com/news/stocks-charges-toward-new-highs-after-bank-of-japan-s--qe-115342351.html

Explanation:

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The role of non-citizens in U.S. Elections
Jesse Richman, 10/24/2014

I have a piece with David Earnest up on the Washington Post website this evening which reports on the results of research into the role of non-citizens in U.S. elections.  Although it is illegal for non-citizens to vote in U.S. elections, some do.  We report on an analysis of survey data that allows us to estimate the scale of this participation, and to identify election outcomes that were likely altered by the presence of non-citizen votes. 

The piece appears on the Monkey Cage, a Washington Post blog which reports on Political Science research.  

We begin: 

Could control of the Senate in 2014 be decided by illegal votes cast by non-citizens? Some argue that incidents of voting by non-citizens are so rare as to be inconsequential, with efforts to block fraud a screen for an agenda to prevent poor and minority voters from exercising the franchise, while others define such incidents as a threat to democracy itself. Both sides depend more heavily on anecdotes than data.

In a forthcoming article in the journal Electoral Studies, we bring real data from big social science survey datasets to bear on the question of whether, to what extent, and for whom non-citizens vote in U.S. elections. Most non-citizens do not register, let alone vote. But enough do that their participation can change the outcome of close races.

I encourage you to take a look at the entire piece. 

 

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Outsourcing is not a political winner, and may cost Republicans the Senate
Jesse Richman, 10/16/2014

Democrats are taking a page from their Anti-Romney playbook with a series of apparently quite effective attack ads against Georgia Republican Senate candidate David Purdue. Purdue must respond effectively, and articulate a clear vision on trade to counter these attacks.

Purdue seems to be in significant trouble. The polls have tightened, and national super-PACs and campaign committees are pouring millions into the Georgia Senate contest as a result. A major factor in that trouble seems to be his record of outsourcing jobs while CEO of Dollar General and before that as an executive with other firms, as highlighted in a series of attack ads such as this attack on his compensation from managing a struggling manufacturing company that folder soon after he left, this ad emphasizing his career in outsourcing ad and this "outsourcing is good" ad. The Real Clear Politics average for this race began moving substantially immediately after the second ad ran, with Nunn leading in the two most recent polls.

Purdue's campaign website says some very positive things about his aspirations to boost the growth of American manufacturing....

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Similarities and Differences Between Fascism, Communism, Socialism, Democrats and Republicans
Raymond Richman, 10/13/2014

Both political parties in the U.S. are coalitions. The Democrats include persons who believe government has a role in setting the direction of the economy and those who want government to control the economy, including socialists. Republicans include people who believe government has a more modest role in setting the direction of the economy and conservatives who fear a powerful government. The Democrats are labelled as leftists and the Republicans as rightists.

Fascism is always described as far right when it should be described as far left because from its start in Italy and Germany socializing the economy was its intent. Communism until then claimed to be international not national. Stalin was a Georgian, not a Russian. The Communist party in Germany, in its struggle for power with the Nazis, which stands for national socialist party, argued that it was rightist. The notion that it was a rightist party was simply German Communist propaganda that intellectuals around the world bought hook, line, and sinker.  Mussolini had been a communist until he decided that the road to power was to nationalize socialism. National socialism in Germany and Italy wisely tolerated a large private sector because socializing the private sector would have brought disaster to their economies, resulting in the deaths of millions of people as it did in the USSR during its first two decades.

To be far right, one must be for minimum government. Authoritarianism is not rightist; it is leftist. Both Democrats and Republicans have since the 1930s have been increasingly interventionist with the consequent growth of government and its entry into areas where government has never gone before. Only the Tea Party Republicans oppose these tendencies. Perhaps it is time for three parties, including a conservative party on the right.  ...

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Continetti's The Case for Panic
Jesse Richman, 10/4/2014

Writing in The Washington Free Beacon, Matthew Continetti argued The Case for Panic in his October 3rd Column.  His equation for panic is given in the subtitle of the column: "Incompetent government + corrupt elite = disaster."

The first paragraph encapsulates his charge:

"Deadly, irrational, and determined, the intruder snuck across a weakened perimeter. Eluding capture, the intruder was detained only after missteps and close calls. The spin began soon after the threat was isolated. Information was selectively leaked. Half-truths and untruths were uttered. Responsibility was avoided; privileges and credentials asserted; authority reasserted. Trust us. Remain calm. Don’t panic."

It is then effectively applied to a series of recent cases including the White House fence jumping, the spread of Ebola to the United States, the mismanagement of Ukraine, the contradictory US policies toward the Islamic State, Syria, and Iraq. All of it is worth a read, but he leaves out some of the most important cases.

Critical among these omissions is the failure of America's elite to craft an effective -- and balanced -- trade policy over the last four decades, and the resultant destruction of much of U.S. industry, the hollowing out of the defense industrial base, and the undermining of the living standards of the American working class.  My coauthors and I make this case in our book Balanced Trade

He then turns to a brilliant but also limited diagnosis...

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Book Review, Jason L. Riley, Please Stop Helping Us, How Liberals Make It Harder for Blacks to Succeed (NY:Encounter Books, 2014)
Raymond Richman, 9/28/2014

Jason L. Riley, Please Stop Helping Us, How Liberals Make It Harder for Blacks to Succeed (NY:Encounter Books, 2014)

This book is a must read for everyone, white or black, just as another great book by a distinguished black economist, Thomas Sowell’s Black Rednecks and White Liberals (NY: Encounter Books, 2005) is also a must read.

Riley begins by noting that 90 percent of more of black voters continue to support Pres. Obama even though blacks have suffered more from his economic policies than any other ethnic group. He writes that the President and Attorney General Holder and the NAACP oppose voter ID laws as discriminating against blacks even though “in places like Georgia and Indiana minority turnout increased after the laws were passed.”

He contrasts the positions of black historical figures W. E. Du Bois and Booker T. Washington, the latter urging blacks to focus on independent black schools and businesses, on acquiring “property, industry, skill, economy, intelligence, and character” while the Du Bois “argued that civil rights are more important because political power is necessary to protect any economic gains.”

Du Bois’s strategy was achieved political success as indicated by the fact that the number of black officials grew between 1970 and 2001 from “fewer than 1,500 to more than 9,000.” Meanwhile, the poverty rate among blacks declined from 87 to 47 percent from 1940 to 1960 before the civil rights victory but grew not at all between 1972 and 2011 after the civil rights victories and black welfare dependency.

The author contrasts the economic success of Asians who have tended to avoid politics and the Irish, who achieved success in politics but it was only after the decline of the Irish political machines that their “average Irish incomes began to rise” relatively. He points out that black political leaders often voted for policies which denied jobs and benefits to the persistent black underclass....

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Taxing Corporations As Partnerships Solves the Problems of Inversions and Outsourcing
Raymond Richman, 9/24/2014

Treasury Secretary Jacob Lew announced tightened tax rules to deter U.S. companies from moving their headquarters overseas to lower-tax countries, a practice called an inversion. Inversions sometimes take place to avoid paying taxes on the acquired company’s income which before the inversion paid taxes only to the country in which it has its headquarters. An inversion is not to be confused with outsourcing, the practice of closing factories and operations at home and manufacturing products and parts overseas. Outsourcing not only affects tax   revenue but it also causes massive unemployment here at home, and worsens our balance of trade. Inversions do not. Hardly any jobs have been lost by inversions in contrast with the loss of hundreds of thousands of jobs lost by outsourcing. Oddly, the administration has taken no action on outsourcing.

Nearly all the leading American corporations engage in outsourcing, including Apple, Nike, Honeywell, Caterpillar, Hewlett-Packard, Motorola, IBM, NCR, Lev-Strauss, and many, many others. Most, like Apple, add insult to injury by importing the products they produce overseas, worsening the U.S. trade balance. Inversions have little effect on employment and no effect on the trade balance. Why the Administration’s silence about outsourcing? One might hazard a guess. The Treasury Secretary’s silence perhaps can be explained by domestic politics.  Many of the corporations, their owners, and their trade associations contribute to the Democratic Party and the US chamber of Commerce and the National Association of Manufacturers officially espouse free trade.

As an illustrative case, take Burger King’s inversion with Jim Hortons of Canada. It does not reduce U.S. revenues at all from Burger King’s and Tim Hortons’ operations in the U.S. All the Burger Kings and Tim Hortons in the U.S. will continue to pay U.S. and state corporate income taxes. Admittedly, the movement of Burger King’s headquarters will cost the U.S. tax revenue and Canada will gain some. Canada’s top general corporate tax rate is 28 percent (but see below) compared with the U.S. 35 percent, so Burger King would stand to lose from the merger if Tim Hortons’ income were taxed at the U.S. 35 percent rate. The real culprit is a foolish U.S. income tax system.

 ...

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Congress needs to seek out testimony from those not tainted by foreign donations
Howard Richman, 9/19/2014

Jesse has already published two postings about the New York Times expose (Foreign Powers Buy Influence at Think Tanks). I especially found interesting an incident involving the Japanese government's use of a think tank called the Center for Strategic and International Studies.

The Japanese government contributed to that think tank, which organized an event promoting the Trans Pacific Partnership (a free trade agreement that would include both the United States and Japan). Then a scholar from that think tank testified before the Senate Foreign Relations Committee:

[A]t a Senate Foreign Relations Committee hearing later that month, Matthew P. Goodman, a scholar at the center, testified in favor of the agreement, his language driving home the very message Japan’s lobbyists and their congressional allies were seeking to convey.

The agreement was critical to “success not only for the administration’s regional economic policy but arguably for the entire Asia rebalancing strategy,” Mr. Goodman said.

In our opinion, Goodman was completely wrong. We have predicted (Fast Track to a Bad Deal) the opposite of a "rebalancing" effect, as far as trade is concerned. The Trans Pacific Partnership, like its model the Korea-US Free Trade agreement, would enable Asian mercantilism and thus worsen the U.S. trade deficits. 

Congress may be making its decisions based upon deluded testimony from think tanks that are bought and paid for by foreign interests. There are ways to avoid such errors:...

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    Wikipedia:

  • [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....

    Atlantic Economic Journal:

  • 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]