Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Republican Tax Policies Lack Economic and Political Sense
What do Republicans stand for when it comes to taxes? The Republican platform of 2012 recites:
"Taxes, by their very nature, reduce a citizen’s freedom. Their proper role in a free society should be to fund services that are essential and authorized by the Constitution, such as national security, and the care of those who cannot care for themselves. We reject the use of taxation to redistribute income, fund unnecessary or ineffective programs, or foster the crony capitalism that corrupts both politicians and corporations. Our goal is a tax system that is simple, transparent, flatter, and fair. In contrast, the current IRS code is like a patchwork quilt, stitched together over time from mismatched pieces, and is beyond the comprehension of the average citizen. A reformed code should promote simplicity and coherence, savings and innovation, increase American competitiveness, and recognize the burdens on families with children. To that end, we propose to: Extend the 2001 and 2003 tax relief packages-commonly known as the Bush tax cuts-pending reform of the tax code, to keep tax rates from rising on income, interest, dividends, and capital gains; Reform the tax code by reducing marginal tax rates by 20 percent across-the-board in a revenue-neutral manner; Eliminate the taxes on interest, dividends, and capital gains altogether for lower and middle-income taxpayers; End the Death Tax; and Repeal the Alternative Minimum Tax."
The Republican objection to all taxes is reprehensible. Taxes do not “reduce a citizen’s freedom”. They are a necessary price for having a government of laws and providing security of persons and property. Taxes are bad not because they reduce freedom but when they distribute badly the burden of authorized expenditures of governments or because they have bad economic or social effects, usually the unintended consequences of legislative incompetence and ignorance. And some taxes, e.g., the taxes on motor fuels can be justified as a charge to finance the building and maintenance of highways and streets. The same can be said for court fees and similar charges. ...
The Unemployment Claims Filed Last Week Were Even Worse than the Week Before Reported Below
We have another instance this week of the Unemployment Insurance Weekly Claims Report of the U.S. Department of Labor reporting incredible numbers....
How is the Economy Doing? The Weekly Unemployment Insurance Claims Say "Not So Good"
In the week ending July 5, the advance number of actual initial claims for unemployment insurance, totaled 322,248, an increase of 16,542 (or +5.4 percent) from the previous week. The figure the media reported was for seasonally adjusted initial claims, 304,000, a decrease of 11,000 from the previous week's unrevised level of 315,000. The seasonal factors had expected an increase of 28,394 (or + 9.3 percent) from the previous week. We do not know what seasonal factors could produce the expectation of a 9.3 percent increase in a single week with the exception of seasonal factors such as annual layoffs in the auto industry perhaps. They did not occur. The actual number of claims filed is a more reliable figure than the seasonally adjusted figure as I have long argued on this blog. The BLS should report the actual number of claims filed and then append what seasonal factors may be affecting the number of claims.
After several weeks of actual claims falling below 300,000, which indicated a strengthening economy, it is unnerving to see such a substantial increase in unemployment insurance claims. We viewed the numbers below 300,000 as very promising but we need several weeks of claims data to determine where the economy is heading. The interruption of the downward trend must give us pause especially when coupled with the dismal decline in Gross National Product of 2.9 percent in the first quarter of 2014. The trade deficit in May amounted to $44 billion, equivalent to about 360 to 440 thousand jobs. ...
Hold Mexico Responsible for the Invasion of Illegal Immigrants from Central America
We saw a few months ago how Mexico stopped an American Marine who had arrived at a Mexican entry point as a result of a driver’s mistake and kept him in jail for alleged illegal transportation of personal weapons he had in his vehicle. We have now witnessed Mexico allowing thousands of children and teenagers to enter Mexico illegally from Central America without visas or even documents of personal identification. In addition, Mexico provided them with transportation and sustenance from their point of entry in Mexico to the U.S. border, a distance of several hundred miles, by bus and by train. This required the cooperation and approval of the Mexican government and in our opinion is a hostile act, making it complicit in a conspiracy to violate U.S. immigration laws. Mexico must be held responsible for this invasion. We should demand that they indemnify the U.S. for all the expenses of repatriating those illegal immigrants and all the expenses of sustaining them while they are in U.S. custody.
For reasons we cannot fathom, none of the media have mentioned Mexico’s responsibility for the present influx of illegal immigrants and the millions of illegal immigrants of the past recent decades. It may be a deliberate effort by Mexico to effectively retake parts of Texas, New Mexico, Arizona, and Southern California taken from it as a result of the U.S.-Mexican Wars. The U.S. has reacted passively to the influx of illegal immigrante, apparently fearful of offending Mexico. But it is time we insisted that Mexico behave as a friendly neighbor. These are unfriendly acts. ...
The Minimum Wage is a Racist Law -- we were published in today's American Thinker
To read the rest, go to:
The Minimum Wage Should Not Apply to Teenagers or the Unskilled
Economists are divided on how much unemployment the minimum wage causes but there is little doubt that a legal minimum wage decreases the demand for unskilled workers. What wage potential employers are willing to pay depends on what the employer believes that hiring an additional worker would be worth to him. No employer will hire a worker unless he believes the worker will contribute as much value as the worker costs. Who is hurt the most by a minimum wage? Teenagers having no work experience and unskilled 20 or over without work experience. And as the data shows, black teenagers and the black unskilled are affected the most, an unintended consequence.
There seems to be little chance for abolishing the current federal minimum wage of $7.25. There is increasing pressure to increase it as already has been done in some states. Twenty-two states have minimum wages above the federal minimum. According to the US Bureau of Labor Statistics only 1.5 million workers are actually employed at the federal minimum. So how do we end this tax on teen-agers and the unskilled? For the former, it is easy. Eliminate or reduce the legal minimum wage insofar as it applies to teen-agers and the unskilled looking for work.
The data clearly justify this policy change. Compare the unemployment rates of teenagers and the rest of those in the civilian labor force. The unemployment rate during the first quarter of 2014 was 6.5 percent for those 20 years of age and older but 20.9 percent for those aged 16 to 19. White teenagers had an unemployment rate of 20.9 percent, black teenagers 34,5 percent, Latin teenagers 24.4 percent and Asian 15.4 percent. Black male teenagers has the scandalous astronomical level of 42 percent. ...
Minimum Wage Misconceptions -- Ray was published in yesterday's Tribune-Review
Here's how he begins:
To read the article go to: http://triblive.com/opinion/featuredcommentary/6291221-74/wage-minimum-percent#ixzz35SPgmUqV
Minimum Wage Is a Barrier to Employment of Teenagers, Blacks, and Hispanics
Before 1938, all minimum wage laws were declared unconstitutional by the U.S. Supreme Court. Pres. Franklin Roosevelt signed the Fair Labor Standards Act in that year which, inter alia, established a minimum wage of $13 per week. The Roosevelt packed Supreme Court upheld its constitutionality under the Constitution’s commerce clause. Arguably the ruling enabled the federal government to legislate without constitutional restriction on its power, except for the first ten amendments of the Constitution. The federal government established a minimum was of $7.25 in 2007 when we were just entering he Great Recession, which no doubt helped deepen the recession and slow the recovery. There is little doubt that the minimum wage causes unemployment; a poll showed that 70% of economists believe that the law affects mostly unskilled labor, those without previous work experience. The principal group are teenagers and the statistics bear that out, with particular effect on blacks and Hispanics as the following table shows:
Source: US Bureau of Labor Statistics ...
Is the U.S. stock market going up because of Central Bank Purchases?
On June 17, the Official Monetary and Financial Institutions Forum is going to launch its Global Public Investor Report in London. If you check out their website today (June 16), you will find the following headline for that forthcoming report:
Financial Times has already published an article based upon that report, and Zero Hedge has already put up a blog posting about it which includes a graph that shows that as predictions of future world economic growth go down world stock markets go up. The mechanism could be the following:
The Central Bank of Japan may be the chief culprit here. As part of Abenomics...
CPA's Balanced Trade Push
The Coalition for a Prosperous America has launched a new push to enact legislative language prescribing balanced trade as a national trade policy objective. We heartily endorse this effort. As we argued in our recent book Balanced Trade, imbalanced trade has a wide range of negative short and long term consequences for the U.S. economy. Balancing trade is an essential element of U.S. trade policy. Although only a beginning, a good place to start is with the effort to legislatively define this as the goal U.S. executive branch officials should be pursuing.
German mercantilism and the European depression
On May 30, John Weeks wrote a great commentary (Why did Europe Lurch right? Because the 'recovery' is a farce) about the current European depression. He explains why the European depression is not about to end and the reason why European voters are turning toward the right.
His graphs are worth looking at. They show just how deeply the Southern European countries are locked in a depression. It is every bit as deep as the Great Depression was in the United States.
The whole piece is worth reading. I especially found his discussion of German mercantilism to be interesting. He wrote:...
The Current Minimum Wage May Cost Teenagers and Blacks More than $29 Billion!
Economists are divided on how much unemployment the minimum wage causes. About 70% or more of economists believe that a minimum wage decreases the demand for workers, especially unskilled workers. The demand for any worker depends on what the employer believes that hiring him would be worth to him. No employer will hire a worker unless he believes the worker will contribute as much value as the worker costs. Who is hurt the most? Teenagers and the unskilled who are unable to find jobs and those who patronize fast food restaurants, the less expensive hotels, and businesses catering to customers of the low and moderate income classes who are forced to pay higher prices for their necessities.
The unemployment statistics speak for themselves. Compare the unemployment rates of teenagers and the rest of those in the civilian labor force. The unemployment rate during the first quarter of 2014 was 6.5 percent for those 20 years of age and older but 20.9 percent for those aged 16 to 19. White teenagers had an unemployment rate of 20.9 percent, black teenagers 34.5 percent, Latin teenagers 24.4 percent and Asian 15.4 percent. The minimum wage laws affect blacks more than any group. Even in the population over 20 years of age, the black rate of unemployment was 11.5 percent compared to whites 5.7 percent. It could be argued that the minimum wage laws affect blacks more than any other group. ...
The push for fraudulent 'manufacturing' statistics continues -- "Factoryless Goods Producers"
The reclassification in the trade statistics is merely the first step in the effort to massively (and fraudulently I would argue) reclassify companies that manufacturing NOTHING in the United States as US manufacturers, with their manufacturing 'production' attributed to their locations in the United States. For an excellent blog post about the currently open comment window on the next stages of this regulatory fraud see the EPI blog.
The key step now is to take action to block this by generating negative comments. The Ideal Taxes Association will be drafting a letter as part of this comment period. Here are some key points to note about this revision....
Dismal Trade Report for April
The June 4 trade report was dismal in every way. U.S. exports fell. U.S. imports rose. And net exports (exports minus imports) reached their lowest level in two years, down from a negative $44.2 billion in March to a negative $47.2 billion in April.
Worsening net exports are a huge drag on the U.S. economy. During the first quarter (January through March 2014), they contributed a negative 0.9% to real GDP, accounting for almost the entire 1.0% fall in real GDP. The April trade statistics are even worse. Apparently, the drag of worsening trade deficits upon U.S. economic growth is continuing.
There are at least four trends contributing to falling U.S. net exports:...
BEA Trade Statistics Revisions Coming
On June 4th the Bureau of Economic Analysis will release its revisions in the way trade statistics are collated. This may mark the end (or beginning of the end) of meaningful trade statistics in goods that actually reflect the value of goods imported and exported by the United States' territory....
Saving Mr. Smith -- How to Fix the Filibuster
In Frank Capra's 1939 classic Mr. Smith Goes to Washington the filibuster is described as "democracy's finest show, the filibuster, the right to talk your head off, the American privilege of free speech in its most dramatic form."
Claims that the filibuster is "Democracy in action." may seem odd on their face. A central tenet of democracy is majority rule. The filibuster can thwart majority rule. It protects minorities against majorities. In the modern U.S. Senate, ending a filibuster requires that 60 Senators vote for cloture. If only 59 Senators support a measure, there is nothing they can do. The 41 against the measure win every time.
In Mr. Smith goes to Washington, Jefferson Smith's willingness to engage in an individual filibuster even in the face of broad opposition signaled the credibility of his case, and blocked Senatorial action Smith opposed. By bringing back legislative rules that support filibuster wars of attrition, we can save the valid core of Capra's case for the filibuster from the abuses of tyrany by the minority.
Obamacare Slowdown: Economy Shrank at 1% rate in first quarter
On May 29, the Bureau of Economic Analysis reported that the U.S. economy shrank at a 1.0% rate during the first quarter of 2014. The size of the slowdown caught analysts by surprise. As recently as April 29, the Associated Press was predicting a 1.1% growth rate during the first quarter, not a 1.0% shrinkage rate.
The following table shows the contributors to real GDP growth. You can add up the contributions from the components in each column to get the rate of Real GDP growth shown in the bottom row:
The largest component of the slowdown was the decrease in inventories. If not for that, economic growth would have been a positive 0.6%. Inventories tend to go up and down. The decrease in inventories by 1.6% during the first quarter of 2014, which made GDP artificially low, corresponded with the increase by 1.5% in the third quarter of 2013, which made GDP artificially high.
On April 30, the Obama administration's Council of Economic Advisers attributed the slowdown to the cold weather during the first quarter. This is nonsense. Increased consumption, including higher payments to utility companies, would have contributed more than 2% to economic growth, had other factors not intervened.
Other causes of the slowdown were: (1) the fall in business fixed investment which contributed a negative 0.4% to GDP growth, and (2) the fall in net exports which contributed a negative 0.9% to GDP growth....
What Produces Inequality of Income and Wealth? What Should Be Done About It?
From an economist’s viewpoint, the present distribution of income after tax is greater than it needs to be in a market economy. Some inequality is necessary as an inducement to work hard, to excel, to save, to invest, and to innovate, the essentials of a productive and growing economy. But the present inequality in the U.S. is excessive and greater than it needs to be even at the present rates of the personal income tax. But that is not because the personal income tax is not progressive enough. The rates are progressive but a lot of income escapes taxation or is taxed at special low rates. More important, much of the taxes paid by corporations is really paid by customers of the corporation. Shareholders bear little of the burden of the corporate income tax and since ownership of corporations is highly concentrated in the hands of the rich, the rich get richer faster. Moreover, the personal income tax allows property to be depreciated over and over again and taxes dividends and capital gains, highly concentrated in the hands of the rich, at lower rates than ordinary income. There are some reforms of the personal income tax that would increase the progressive incidence of the tax without raising rates. Of course, there is another tax that reduces inequality of wealth between generations, the federal estate tax.
What produces inequality? A French economist, Thomas Piketty, a sort of new Marxist, has just written a book that is little more than a tract. Some have even questioned his data. The book argues that capital accumulation, because the return on capital grows at a higher rate than the economy grows, inevita bly leads to greater and greater inequality of wealth. Marx actually argued that capital accumulation would tend to diminish the rate of return on capital as capital accumulated relative to other inputs. That follows from the universal acknowledgment of the law of diminishing returns. Were it not for innovation, new products and methods of production, the marginal return on capital would diminish as capital accumulated, to zero. (Has that been happening and is that the reason for so little new private investment and our slow recovery? That’s a good question.) Regardless, our French economist seems to believe that progressive taxation is ineffective. He ignnores the everchanging membership among millionaires and billionaires and seems never to have heard of estate taxation.
Our view is that the excessive accumulation of wealth is due to the fact that shareholders of corporations bear little of the burden of the corporate income tax and, therefore that corporations should be treated like partnerships. Corporate earnings would be taxed as personal income and subject to the progressive rates of the personal income tax. The estate tax should be made more progressive and would reduce the inequality as wealth passes from one generation to another. ...
Fiscal and Monetary Policies Are Ineffective in an Economy Characterized by Monopolistic Competition
More than five years into Pres. Obama’s administration, the U.S. economic recovery has been slow and lethargic. Keynesian economists are at a loss to explain why the billions of dollars the federal government borrowed and spent and the billions of dollars created by the Federal Reserve System failed to stimulate the economy. The principle accomplishment was to increase the value of capital assets, especially corporate securities and real estate. The stock market experienced a boom as corporate earnings grew and the capitalized value of those increased earnings sky-rocketed. Why were economists like Profs. Summers, Bernanke, Romer, who were advising the president so wrong, not to speak of those like Prof. Krugman who believed the federal government should have spent more? They could not be more wrong.
As we have pointed out many times on this blog and in our newly published book, Balanced Trade, the failure to balance our foreign trade was a huge drag of the economy. But those foreign trade deficits were as great as or greater during the recovery after the 2001 recession than they have been since the recession of 2007-08.
The answer to the question, “Why were the Keynesians so wrong?” is, we believe, the fact that economists have ignored for eight decades the revolutionary insight of Harvard Prof. Edward Chamberlin’s that nearly all firms have some monopoly power, ranging from hardly any economic power in industries producing homogeneous products, natural resources and agriculture, for example, to pure monopolies protected by government policies, patents, for example. Counter-recession policies affect firms with different amounts of monopoly power differently. ...
Why Stock Markets Boomed While Economic Growth and Employment Stagnated
Economists have been unable to explain why the stock market has been booming while the economy has been stagnating. Perhaps one reason is that they have ignored the economic theory that could explain it.
The most important contribution to economics in the twentieth century got little recognition from economists. Prof. Edward Chamberlain of Harvard invented monopolistic competition which unlike perfect competition describes most of the economy. It is not “imperfect competition”, economist Joan Robinson’s phrase. All enterprises have some monopoly power except for producers of agricultural products, raw materials, and minerals whose prices are determined by nearly perfect markets. The degree of monopoly varies from nearly zero to 100 percent. Producers of homogeneous natural resources and farm products operate in nearly perfectly competitive markets. Automakers and nearly all manufactures not protected by patents all have some degree of monopoly power largely created by advertising (illusory product differentiation) and with varying degrees of real product differentiation. Some businesses enjoy location advantages such as greater accessibility, better access to transportation, parking, etc. And many enterprises gain greater confidence by its consumers and their competitors enjoy simply as the result of the experience of their customers.
As a result, enterprises enjoy varying power in their ability to charge higher prices than their competitors.
Our New Book -- Balanced Trade
Lexington Books has just brought to market our new book Balanced Trade: Ending the Unbearable Costs of America's Trade Deficits, by Jesse Richman, Howard Richman, and Raymond Richman.
“Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits addresses the problems caused by this country’s unbalanced trade in a straightforward and hard-hitting way. The book describes the significant negative impact of unbalanced trade on the U.S. economy and the many possible steps that can be taken to move the country back to a productive trade regime.”— Ralph Gomory, New York University
In Part 1, we discuss the causes and problems of trade deficits:
In Part 2, we discuss the reasons why little action has been taken in the United States to address the problem of trade imbalances:
In Part 3, we discuss the solution:
The book is currently out in hard cover and can be ordered from www.LexingtonBooks.com. Orders placed by December 31, 2015 can use the following discount code...
Morici wrote a good summary for Fox Business of the long-term problems caused by trade deficits
His commentary is called Trade Deficit Dragging Down Growth. He begins:
At the end of the commentary he calculates the gain to economic growth that could be obtained by balancing trade:...
The Failure of Obama's, Prof.. Summers', and Prof. Bernanke's Keynesian Policies
The report that the GDP rose at an annual rate of only one-tenth of one percent (0.1%!) during the first quarter of 2014 was a shock to all economists notwithstanding that it was triggered in part by the horrible winter of 2013-14. Although the low growth rate may have been the result of an unusual combination of factors and is unlikely to be repeated, the slow rate of recovery during the first five years of the Obama administration is surprising given the enormous debt-financed expenditures of the federal government and the billions of dollars injected into the economy by the Fed’s quantitative easing policy. Keynesian economists were in charge, including Profs. Summers, Bernanke, Romer and many others. It is not too early to declare Keynesianism dead. Keynes himself would long ago have agreed with that conclusion given the swift recovery from the post World War II recession which was led by a booming private sector.
Given that a recovery from the great recession ought to have been given the highest priority, the federal government wasted enormous resources in the 2009 $830 billion American Recovery and Reconstruction Act. Almost all of the expenditures were transfer payments, and had as little effect as the Bush and Obama direct rebates to taxpayers did in 2008 and early 2009. As the administration reported, “the stimulus was fairly well divided among different types of relief. The biggest portion was public investment -- those included the "shovel-ready" infrastructure projects and longer-term investments in green energy, broadband and the like. More than a quarter of the stimulus went to tax cuts, one-fifth went to helping states plug their own huge fiscal holes, and 15 percent went to bolster the safety net.” As the President himself later reported, there were very few “shovel-ready” projects. And transfer payments create no new jobs. ...
Virus killing U.S. piglets probably came from China
Investigators of a new pig virus that is spreading rapidly and killing many piglets are investigating whether that virus came to the U.S. from China. Here's a selection from a Reuter's story (Killer virus spreads unchecked through U.S. hog belt, pushing pork to record):
Investigators may never discover the origin of the virus which first turned up in Ohio and is spreading rapidly. If it turns out that the virus did come to the U.S. from China, it probably arrived accidentally in products shipped to the U.S. from China which were used in animal feed.
The U.S. Department of Agriculture was slow to respond. They let this virus reach epidemic proportions without reacting effectively. Here is a case where meat farmers would have been served through effective federal government regulation....
China stealing US Chicken Industry -- we're published in today's American Thinker
Here is how it begins:
Last August, the U.S. won a WTO dispute about high Chinese chicken tariffs. With U.S. corn prices low and Chinese consumers leery of eating Chinese-produced chicken due to outbreaks of Avian Flu in China, everything seemed set for a huge rise in U.S. poultry exports to China. But that is not the case.
When the Chinese government is forced to take down tariffs, it simply puts up non-tariff barriers. A 2010 Report to Congress on China's WTO Compliance published by the United States Trade Office explained why Chinese purchases of U.S. meat had been failing to grow despite growing consumption of meat by Chinese consumers:
To read it, go to:
Franklin's The Way to Wealth
The U.S. personal savings rate spiked in the wake of the Great Recession, temporarily arresting a long downward trend. The trend is gradually reverting toward the declining norm of recent decades -- a spend-thrift pattern. In the recently released February estimates, the rate was 4.3 percent, down more than four percent from the post-recession high of 8.7 percent. Full data is available from the St. Louis FED.
As a solution, I offer you Benjamin Franklin...
Journal of Economic Literature:
Atlantic Economic Journal: