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 Richmans' Trade and Taxes Blog

The Economic Views of John Stossel as revealed in his book No They Can’t – Why Government Fails But Individuals Succeed (New York, Threshold Editions, Simon & Schuster, 2012)
Raymond Richman, 5/29/2012

John Stossel is well-known as the host of a one-hour weekly Fox Business Network show and his one-hour special on Fox News but is best known as the journalist who cries “the king is naked” when people succumb to the image of a demagogue masquerading as a man possessing a solution to a problem. A self-described libertarian, he attacks popular fallacies of the right, the left, and center. His book is must reading for everyone regardless of political persuasion because he forces the reader to think for himself to sustain his beliefs. It should be read by every political independent and by all our representatives in federal, state, and local legislatures. As a retired professor of Public and International Affairs, I agree with my mentor, the late Milton Friedman, that Stossel was “that rare creature, a TV commentator who understands economics, in all its subtlety.” Stossel modestly acknowledges that there is much that he does not understand. As an economist, I can testify that there are many academic economists who do not understand economics in all its subtleties either.

He begins with the widespread belief that increased government spending stimulates private spending and is capable of getting the economy moving again after a recession. The media are baffled by the fact that the president’s economic stimulus spending of nearly a trillion dollars since 2009 “has not paid off” especially since, as the Washington Post noted, “Companies were sitting on billions of dollars of cash.” The fact is that as soon as the “new deal” cut back its spending, the economy slid back into recession in 1937. The economic stimulus of increased government spending may give temporary employment bu only as long as the spending lasts. ...

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Saving Greece, Europe and the United States -- we're published in today's American Thinker
Howard Richman, 5/24/2012

Here is a selection:

It is not an accident that the Northern European peoples have trade surpluses and the Southern have deficits. Cultures where winters are longer and colder emphasize saving in order to survive. And so with interest rates the same across the eurozone, the Northern Europeans saved and the Southern Europeans spent, and, inevitably, the Northern Europeans loaned money to the Southern Europeans so that the Southern Europeans could buy the Northern products. The result was trade surpluses in the North and trade deficits in the South.

But loans from the North to the South can go on only so long. Eventually, the South gets too deeply in debt to qualify for more loans and can no longer afford to buy more products than it produces.

Follow the following link to read it:

http://www.americanthinker.com/2012/05/saving_greece_europe_and_the_united_states.html

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Eurozone experiment proves that imbalanced trade leads to disaster
Howard Richman, 5/23/2012

The 13-year-old Eurozone experiment gave the world a laboratory in which to test the theory that free trade leads to prosperity. The results of the experiment prove, instead, that free trade, when imbalanced, leads to disaster.

The common perception is that the Eurozone crisis is due to the huge national debts of the Southern European countries. Although government debt is clearly part of the problem, it is not the only part or even the main part. The following graph shows the weak relationship between national debt (government debt divided by GDP) and unemployment rates.

Although Greece, the worst off of the Eurozone countries, has a huge government debt at 165% of its GDP, Spain and Portugal are close to bankruptcy even though Spain’s government debt is a modest 69% of GDP and Portugal’s government debt is just 108%. Both Germany (81% of GDP) and Belgium (98% of GDP) have similar government debt levels, but no crisis whatsoever, since they have trade surpluses....

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Commerce Department imposes tariffs on Chinese solar panels
Howard Richman, 5/20/2012

The solar industry is suffering from huge over-production glut worldwide due to the subsidies of the American solar panel industry by the U.S. government and the subsidies of the Chinese solar panel industry by the Chinese government. The Obama administration is desperately trying to protect its investment, before even more U.S. solar panel producers go bankrupt. Congressional Quarterly reported on May 17:

The Commerce Department on Thursday made a preliminary determination to impose tariffs of more than 31 percent on Chinese manufactured solar cells. The ruling came in response to U.S. solar manufacturers who claimed that China was "dumping" solar panels in the U.S....

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Obama doubles down on green energy
Howard Richman, 5/14/2012

Until recentily, Spain was the leader in renewable green energy investment. When President Obama got elected, he sought to emulate the Spanish model, as he noted in his remarks to the press after meeting with Spanish President Zapatero on October 13, 2009:

(W)e pledged to work diligently to strengthen [our ties], particularly around key issues like renewable energy and transportation, where Spain has been a worldwide leader and the United States I think has enormous potential to move forward.

So how is Spain doing economically as a result of its huge investment in green energy. Not very well. It currently leads the eurozone with 24.1% unemployment accompanied by $58.1 billion trade deficits (according to statistics published in the May 5, 2012, issue of The Economist).

Why? A study by Gabriel Calzada Alvarez and his colleagues at Madrid's King Juan Carlos University calculated that Spain lost 2.2 jobs in other industries for every government-subsidized green job that was created. The problem is that renewable energy, being more expensive, wastes government resources while raising the overall cost of energy for local manufacturers. In the concluding section of their study, Alvarez and his colleagues explained:

This case is similar to the one that French economist Frédéric Bastiat denounced...

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Saving Greece, Spain, Portugal, Italy, France, and the U.S. From Bankruptcy
Raymond Richman, 5/13/2012

Greece, Spain, Portugal, Italy, France and the U.S. are close to bankruptcy and they all have the same causes: profligate government, large trade deficits, and bewildered economists. They are dysfunctional and incapable of doing what is necessary to survive as prosperous nations. By contrast, Germany, China, and Japan are doing very well. As the following table reveals, the countries on the list that face economic collapse are those with large trade deficits and the countries doing well are those with large trade surpluses. No revolution is required for the former to resolve their problems.

That the troubles of Greece and the other eurozone countries and the recession in the U.S. are related to their trade deficits is evidenced in the following table relating the level of employment in various countries to their current-accounts balance:

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U.S. net exports fell in March
Howard Richman, 5/10/2012

The Commerce Department released the latest trade statistics this morning and the data were quite negative. U.S. net exports of goods and services fell from a seasonally adjusted negative $45.1 billion in February to a negative $51.8 billion in March. If multiplied by 12, the March data would be the equivalent to a negative $622 billion net exports per year.

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Here Comes the Made-in-China Cadillac - we're published in today's American Thinker
Howard Richman, 5/9/2012

We begin:

It's déjà vu all over again! GM again caves to Chinese pressure. In September it was the electric car. In April it was the Cadillac.

The Chinese government made its latest move in December. That's when The Guardian reported that the Chinese government raised its already high 25% tariff upon American-made vehicles, concerned that increasing numbers of big-engine cars were being purchased by Chinese consumers:

Follow the following link to read it:

http://www.americanthinker.com/2012/05/here_comes_the_made-in-china_cadillac.html

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Why Lawrence Summers failed
Howard Richman, 5/7/2012

In 2009 and early 2010, Lawrence Summers, then Director of President Obama’s National Economic Council, tried to engineer a Keynesian economic recovery that was to take place during the recovery summer of 2010. The Obama administration tried to boost the three primary components of aggregate demand at the same time: (1) Household Consumption, (2) Business Investment and (3) Government Purchases. They succeeded!

Unfortunately, Summers was a Keynesian who didn’t understand Keynes. In the chapter about mercantilism in his magnum opus (The General Theory of Employment Interest and Money), Keynes explained what happens to trade deficit countries:

(A) favorable balance, provided it is not too large, will prove extremely stimulating; whilst an unfavorable balance may soon produce a state of persistent depression. (p. 338)

Indeed the very trade deficits that Keynes warned about killed Summers’ recovery. The stimulus that President Obama was pumping into the economic tire leaked out. Summers was the tire repairman who pumps up a tire without fixing the leak.

If not for growing trade deficits, Summers’ Keynesian stimulus would have boosted the economy by 4.8% in the first quarter and 5.6% in the second quarter of 2010, as shown by the red line in the graph below. Such fast growth could have ignited business investment which could have sustained future growth. But due to growing trade deficits subtracting from demand for American products, the economy only grew at a 3.9% growth rate in the first quarter and 3.7% in the third quarter as shown by the blue line in the graph below:

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U.S. Trade Deficit With China Grows While China’s Trade Surplus With World Diminishes – Is This Part of China’s World Strategy?
Raymond Richman, 5/5/2012

The International Monetary Fund, whose SDRs (special drawing rights) are a candidate to succeed the dollar as the world’s monetary standard, reported in early April that China’s enormous trade surplus with the world was narrowing. It failed to note that China's trade surplus with the U.S. continues to increase. Is this coincidence or deliberate policy? The Wall Street Journal hailed the notion that world imbalances were being corrected by market forces. That is in line with its ideology of "free trade" but it ignores the reality that China's trade surplus with the U.S. continues to increase.

In a recent analysis in the New York Times (5/1/2012), Eduardo Porter, a member of the Times editorial board, citing IMF sources, notes that the Chinese trade surplus had fallen from 10 percent of its GDP in 2007 to 2.8 percent in 2011. The U.S. trade deficit declined from 5.1 percent of GDP to 3.1 percent during the same period. The fact is that the worldwide recession in 2008-09, reduced the exports and imports of every large trading nation creating the impression that trade was being balanced. The IMF did succeed in blunting the increasing demand that China allow its yuan to appreciate to make imports cheaper and exports more expensive. The IMF made it appear that market forces were doing the job of bringing trade into balance. In fact, the effect of the recession was only temporary....

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GM caves again -- will build Cadillacs in China
Howard Richman, 5/3/2012

In December, the British newspaper The Guardian reported that the Chinese government raised its already high 25% tariff upon American-made vehicles, concerned that a few American cars were still being purchased by Chinese consumers:

General Motors faces the greatest impact, almost 22% extra on some sports utility vehicles (SUVs) and other cars with engine capacities above 2.5 litres. Chrysler faces a 15% penalty, while a 2% levy will be imposed on BMW, whose US plants make many of the cars it exports to China.

Existing taxes and duties already push up the cost of US imports by 25%, and the new levies make it even more expensive for Chinese consumers to buy American....

This month, that measure had the desired effect. In a May 2 Huffington Post commentary (Commies in Cadillacs: GM Turns Chinese), economists Peter Navarro and Greg Autrey reported that GM will build luxury cars in China in order to sell to the Chinese market. They began:...

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