Policies to Get the Economy Going
Raymond Richman, 1/15/2010

The news during the week Friday, January 8 to Thursday, January 14, 2010, was dominated by two events indicating a worsening economic outlook. The first was the disappointing employment news released by the U.S. Bureau of Labor Statistics that showed that total nonfarm payroll employment declined by 85,000 workers between November and December, 2009 while economists were expecting a much smaller decline as though any decline is good. The decline was led by a loss of 57,000 construction jobs and 27,000 manufacturing jobs. The former is understandable; the latter is scandalous.

The second was the trade data released by the Department of Commerce that showed that U.S. exports rose in November to $138 billion, up 0.9 of one percent but imports rose faster, up 2.6 percent to $175 billion, the difference equivalent to a loss of about 370 thousand jobs. Manufacturing jobs have been declining precipitously since the explosion of the trade deficits since the late 90s. This is the sector whose growth is the key to ending the recession. Below we offer some suggestions that will create millions of jobs in a few years and won’t require “trillion economic stimuli” based on a disproved theory of a Keynesian multiplier.

There are a number of reasons why we are not getting much investment in American manufacturing. The major reason is that it is much cheaper to produce goods abroad and export them to the U.S. than produce them here. The Obama administration and preceding Republican and Democrat administrations let Japan and Germany since WWII and China and other Asian countries more recently to employ mercantilist policies such as import barriers and export subsidies and keep their currencies undervalued in order to keep their products less expensive and American products more expensive. American manufacturers have learned that it is foolish to invest in manufacturing facilities in the U.S. They joined the club, producing abroad and exporting to the U.S.

 There is a simple solution, balanced trade. Under the rules of international trade, countries experiencing chronic trade deficits have a right to impose tariffs and restrict imports. My recommendation is that a uniform tariff of one-third or more be levied on imports from those countries and only those countries with which we have sizable chronic deficits. Some fear China will retaliate. As Prof. Paul Krugman wrote in a recent article, we have little to fear. Besides, retaliation would hurt China more than it would hurt us. They and we will talk the talk and walk the walk.

 Should the tariff be applied to oil companies who sell to the U.S.? Yes, to those which have large chronic trade deficits with us and belong to the illegal oligopoly called OPEC.

 There are many other actions we could take. Millions of jobs could be created quickly at no cost to the US taxpayer or even increase government revenues as the tariff revenues would.

Drill, drill, drill! Permit drilling for oil on public lands and off shore in the Atlantic and Pacific and in the Arctic (as Russia is doing). This would diminish the demand for foreign fuel and lower world prices even if we continue to import crude oil. Likewise, we should be encouraging the use of natural gas, which is abundant, as an automotive fuel. Huge amounts are available and a pipeline from Alaska is being built from Prudhoe to Alberta and Saskatchewan by Alaska, Canada, and Exxon-Mobile. Under pressure from leftist environmentalists, the U.S. administration and Congress has ignored the job-creating potential of prospecting, producing, and distributing additional supplies of oil and gas. Hundreds of good-paying jobs are being forfeited on the altar of environmentalism. (I am tempted to use the word “treasonous” to describe some of the policies of environmental activists. Recent evidence suggests that the hypothesis that global warming is man-made may have been a hoax perpetrated by leftist academics. A large number of distinguished physicists believe that changes in the sun’s geomagnetic emissions are the principal cause of climate warming and cooling, not carbon emissions. Carbon emissions are unable to explain the earth’s recent cooling that lasted more than a decade and continues to this day.)

Abolish the Corporate income tax to stimulate manufacturing investment in the U.S. A distinguished American economist has shown that corporations that sell in the U.S. are able to shift the burden of the tax to consumers whereas they cannot do so in international markets. This puts the American corporation at a great disadvantage. Whereas foreign nations are permitted to rebate value-added taxes under WTO rules, income taxes may not be rebated.  We should replace the corporate income tax with a value-added tax that can be rebated to our exporters and imposed on all our imports.

There is a lot we can do, but unfortunately we have elected one government after another  that talks the talk but doesn’t act.

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