Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Does Fast-Track lead to Better Deals, or just More Bad Deals?
One oft repeated argument for granting the President fast-track authority to propose a take-it-or-leave-it offer to Congress on 'trade' deals is that if the president has such authority he or she will be able to negotiate a better deal for the US.
This is a curious argument, since a little bit of elementary logic suggests that in fact the opposite is sometimes true. A common negotiating strategy is to play "good cop - bad cop" -- one of the negotiators is constrained by an ally in a way that prevents major concessions, but can leverage the fact that he or she is constrained to bond with the opponent in the negotiations -- "I wish I could give you a better deal, but the "bad cop" won't let me." More generally, a fundamental principle of bargaining models is that having less room to make concessions can lead you to be better off in a negotiation because if a deal is to be struck the other side will have to make most of the concessions.
Indeed, although Fast-Track may lead to more deals taking place, the gain in the number of deals is likely to be at least partially offset by the tendency of those deals to be worse deals for the United States relative to the deals that would have been struck in the absence of Fast-Track authority.
Here I develop an example of a simple bargaining situation in which not granting fast track authority makes both Congress and the President better off. I use the political science equivalent of the supply and demand graph -- the one-dimensional spatial model.
Basic assumptions of the model...
Do Authoritarians Use Trade Openness to Preserve their Power?
Wen-Chin Wu of National Taiwan University recently published a paper entitled "When Do Dictators Decide to Open Trade Regimes?—Inequality and Trade Openness in Authoritarian Countries" in the journal International Studies Quarterly (2014, pp 1-12) It's results suggest it may be a mistake for democracies to support or encourage open trade with autocratic regimes in the belief that trade openness will promote democratic change in those regimes. Indeed, trade may well strengthen autocratic regimes.
How the Federal Reserve and Government Policies Make the Rich Richer and the Poor Poorer
The Federal Reserve Board and the Obama Administration are chiefly responsible for the creation of two economies in the US, one for the rich and upper middle class and one for the poor and lower middle class. The Fed by its quantitative easing widened the unequal distribution of wealth by causing the prices of corporate stock and commercial real estate to rise to unprecedented levels. Obama’s countercyclical policies gave us the $18 trillion federal government debt which only hyper-inflation will pay-off. Obama’s support of the minimum wage have denied lower-class blacks jobs keeping them poor and dependent on government handouts. And Obama’s and the Republicans’ free trade policies and his permitting US corporations to our-source factories abroad and import their goods free of tariffs have cost American workers millions of jobs and the manufacturing sector of the economy to stagnate.
The Fed is largely responsible for the real estate bubble and its bursting and the ensuing financial crises that engulfed the world in 2008. It was put in charge of administering the Community Investment Act which told the Fed to keep mortgage standards high but it did nothing to prevent unqualified persons from obtaining mortgages. ...
News stories you may have missed in today’s news and blogs
I.In our blogs in the past, we dealt with the fact that the wage causes unemployment among unskilled workers, particularly blacks, and more particularly black teenagers. In today’s Wall Street Journal (2/23/2015), Prof. Thomas MaCurdy, professor of economics at Stanford university has an op-ed entitled “The Minimum-Wage Stealth Tax on the Poor” describes how, the minimum wage, in addition to causing unemployment, amounts to a sale tax, raising prices of goods consumed by low-income families and falls with greater weight on low-income families. Here is a quote: “But will low-income families earn more from an increase in the minimum wage that they will pay as consumers of the now higher-priced goods? My research strongly suggests that they won‘t.” And “My analysis, using the Bureau of Labor Statistics Consumer Expenditure showed that the 1996 minimum-wage hike raised prices on a broad variety of goods and services. …My analysis concludes that more poor families were losers than winners from the 1996 hike in the minimum wage.”
II. The David Horwitz Freedom Center today listed the “Ten Most anti-semitic campuses in the U.S.
Reference was made to the following site: www.jewhatredoncamppus.org, which listed incidents at Vanderbilt University, Northwestern University, Stanford University, and UC Davis. ...
Online Video Synopsis of our Balanced Trade book
It's little more than a slide show of our introduction,but this does do a good job of covering our key arguments. https://www.youtube.com/watch?v=t7O0fLApeAA
Is James Webb the Best Candidate in the Democratic Field?
The Democratic and Republican primary electoral campaigns are as yet in their early stages as candidates maneuver for early voter support and initial financial backing. The field remains fluid in both parties.
On the Democratic side, Clinton is clearly the dominant candidate, with a majority of Democrats polled backing her candidacy in recent polling. But Clinton's lead is eroding as voters begin to consider the broader field.
In that broader field one of the more quixotic candidates, James Webb, deserves a close look by Democratic primary voters....
The failures of the Clinton policy toward China were significant and continue to cost millions of American jobs, along with significant foreign policy costs around the world. Hopefully a strong Webb candidacy could help push Clinton to take forceful positions on trade. If Webb comes out strongly for balanced trade with China he will deserve support in the Democratic primaries.
The Short-run and the Long-run in Economics and Politics
“In the long-run we are all dead” said the late great economist John Maynard Keynes who revolutionized economic thinking. He recommended fiscal stimulation to increase aggregate demand which would increase production and employment. He was responding to the dominant view of free market economists that the free market would create full employment if wages were flexible. Because wage levels are very slow to respond to changes in the demand for labor, government intervention is required to increase aggregate demand in the short-run. Keynes’s ideas have dominated economic thinking since the 1930s. Accordingly, Pres. Obama’s administration pursued Keynesian fiscal and monetary policies which included an $800 billion stimulus program beginning in 2009 and authorized a $200 billion rescue of two private mortgage insurance companies, Fannie Mae and Freddie Mac. The preceding administration of Pres. George W. Bush began fiscal policy stimulus with a lump sum rebate of $300 per person plus dependents to all income taxpaying households. This was an application of Keynesian economics. He also enacted TARP which authorized the Treasury to buy the troubled assets of banks, investment companies, and insurance companies. This accorded with all schools of economics.
The federal debt in 2009 was $11.9 trillion and 83% of GDP while five years later it reached $18 trillion, exceeding the total production of goods and services in 2014. As for monetary policy, the Federal Reserve adopted a policy of monetary expansion and low-interest rates, buying government bonds and other assets with newly printed money. The most often used aggregate of the money stock, M2, increased from $1.6 trillion in 2009 to $10.9 trillion in 2014. The combination of a huge federal debt and money supply threatens serious budgetary and another financial crisis inflation in the not too distant future. We may have solved a short-term problem but in the process inaugurated serious long-term problems. ...
Government Interference in the Economy Has Been an Unmitigated Disaster
Few Americans know the economic harm that government mismanagement of the economy has caused. And government intervention in the economy continues to cause untold economic harm. The mere growth of government slows down the rate of economic growth. But the trend is exacerbated by numerous government interventions in the economy such as bad taxes, subsidies to favored businesses, fixing prices, levying tariffs that favor those businesses, fixing prices as in the case of the minimum wage law, building low rental but high cost housing for the poor, and encouraging loans to unqualified home buyers, ineffective projects to delay global warming, tuition loans to students whose studies do not prepare them for high-paying jobs. The list goes on and on. Here are some of the major government prograns that adversely affect the economy:. ...
Tax Corporate Income as Personal Income -- we're published in today's American Thinker
Here's how we begin:
To read the rest, go to:
Let's End Means-Tested Benefits -- we were published in American Thinker yesterday
Here's a selection
To read the whole thing, go to:
BOOK REVIEW: Ha-Joon Chang, Economics: the User's Guide (New York: Bloomsbury Press 2014)
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.” ...
Let's end means-tested benefits
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:
Then more of the same when he said:
And yet more of the same when he said:
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:
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. ...
Chinese stock market tumbling...
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:
This from Bloomberg News today:
So how does this play out?...
Chinese Firms Particularly Vulnerable?
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...
China's imports up just 0.6% in 2014
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.
Here is the rate of Chinese import growth:
China pulls December trade statistics
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:
Meanwhile, in a supposedly unrelated development, Reuters reports that the Chinese government briefly published its trade statistics for December 2014, and then pulled them:...
November trade report suggests that a worldwide recession is starting
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....
The Corporate Income Tax Is the Worst Tax; Repeal It and Tax Corporate Earnings under the Personal Income Tax
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.
US Economic Growth 2.7% over last year. China about same.
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:...
The Russian economy will come roaring back
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:...
Mike Lee gets it -- Watch his "Animal Farm" speech about the Cromnibus bill
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....
Why are oil prices falling?
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:...
How the Minimum Wage Contributed to the Ferguson Riots
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....
Keystone XL Pipeline
Steve Yetiv and I published an op-ed recently in Canada's national newspaper the Globe and Mail on the Keystone XL pipeline.
"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/
Cloture Rule May be Key Senate Vote -- We were published in today's American Thinker
To read the rest, go to:
Journal of Economic Literature:
Atlantic Economic Journal: