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 Richmans' Trade and Taxes Blog

Kenneth R. Davis: Buffett Plan is "long overdue"
Howard Richman, 2/4/2010

On January 31 in the Huffington Post, Kenneth R. Davis urged Arianna Huffington to endorse the Buffett Plan for balancing trade, saying it was long overdue. Under that plan, exporters get Import Certificates (allowing the same amount of imports) that they sell to importers. As a result, the plan subsidizes exports and limits imports, balancing trade.

Davis' claims for the plan's good effects on the US economy were not exaggerated:

The effect of the Buffett Plan would be far greater and longer lasting than the short term fixes that are being debated, like infrastructure repair or one-time hiring tax credits. And the Plan is self-financing from fees for import certificates. There'd be no need for more government deficit spending. Business will expand, jobs grow and our trade deficits and national debt will be gradually eliminated -- all good news for the middle class.

His claims for the plan's effects on world trade were also accurate:

Perhaps best of all, we'd maintain a vibrant, job-producing U.S. market to be shared with all trading nations. Some might see it as a "protectionist" move. But they should recognize it as both prudent for the U.S. and good for the global economy. We would be sharing the U.S. market equally with foreign goods and would be abiding fully with all WTO regulations.

After the United States were to establish the plan, we would succeed so well that other trade-deficit countries would follow suit. As a result, the Buffett Plan would end up establishing balanced trade, worldwide, which is the only kind of trade that is sustainable,

Under the current system, the mercantilist countries, including China, sell to the victim countries, including the United States, without buying from them. For example, in 2008 China only bought 25¢ from the United States for every dollar we bought from them. As a result, the victim countries get debt instead of income, leading to inevitable financial crises, such as the one that came to a head in October 2008. These financial crises prevent the continuing expansion of world trade.

However, under the Buffett Plan, world trade is balanced, which means that it can expand forever. The result would be sustainable worldwide prosperity.

However, Davis is wrong about one thing. The Buffett Plan does not comply with the WTO, it makes the WTO irrelevant. If trade is balanced, there is no need for a set of international rules, because when a country subsidizes its exports, it hurts its import-competing industries. And when it keeps out imports, it reduces its exports. Balanced trade is a self-regulating system, making free trade rules irrelevant.