Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog

Dramatic Changes Needed to Recover From This Depression, Not Earmarks
Raymond Richman, 5/29/2010

Pres. Obama’s economic stimulus plan which the president signed on Feb. 17, 2009, known as the American Recovery and Reinvestment Act of 2009 paid out as of 5/21/2010, $398.7 billion or 50.7 percent of the amount appropriated. This, to be sure, is not a great administrative accomplishment.   As the following table shows, $162.7 billion or 20.7% consisted officially of tax benefits, 13.6% contract, grants, and loans, and 16.4 % entitlements. These expenditures produced no permanent jobs. Most of the administration’s activities during its first year gave unjustified priority to the Obama health care program and mortgage relief. The current economic crisis requires dramatic changes to create the conditions for economic growth. The stimulus program does not even appear to be designed to create any permanent jobs at all.

The Economic Stimulus Program To Date


Total Recovery Act Funds

Funds Paid Out

Tax Benefits



Contracts, Grants, Loans






Updated: 05/21/2010. Source: Recovery Act website.

Some of the grants went for highways and bridges already planned by the states. They made a small contribution because some of the projects would have been postponed for lack of state funds. What employment was created was temporary and evidently had very little effect on unemployment. The spending for entitlements included unemployment compensation funding, food stamps, and other aid to individuals and state. The government budget office calculated that the program as of May 14, 2010 helped “create or save” up to 2.4 million jobs and increased GDP from negative recession levels to the latest reported rate of growth of 3 percent in April, 2010. If so, we must have been in a depression. The economy shows few signs of recovery. Indeed, to us, there is no recovery in sight because the administration’s economists appear to be engaged in trivial pursuit.  

The government and the Federal Reserve system gave priority to rescuing homeowners and the banks from defaulting on their unwise mortgages. The plan included a refinancing program to help individuals refinance their mortgages at lower cost, a Home Affordable Modification Program (HAMP) to help 3-4 million "responsible homeowners" avoid foreclosure by reducing payments on their loans, a temporary mortgage payment assistance program to help unemployed homeowners, and a principal write-off and refinancing plan for homeowners currently underwater with their mortgages, but otherwise current in their payment. In addition, the Federal Reserve System using money it created bought about a trillion dollars worth of mortgages. It stopped purchases of mortgage securities on March 31, 2010. The government adopted a clunkers program which temporarily stimulated the purchase of new autos but the stimulus ended when the program ended. The government gave first-time buyers of houses tax credits up to $8,500. None of these created any permanent jobs. These, except the Fed’s purchase of mortgage securities, are included in the table above.

Today's Keynesians appear to believe that it does not matter what the government spends borrowed money on. Perhaps that was Keynes's view in his magnum opus, The General Theory. But that was discredited in the economic relapse of 1937-8. Throwing money at problems will cause temporary growth. Lasting growth requires a substantially different program, stimulating real private investment. Expenditures to stimulate new housing expenditures after the collapse of the housing bubble and the continuing mortgage crisis has to be ruled out. The only effective and permanent way out is to stimulate private investment in factories and equipment. By contrast, the economic stimulus plan has no stimulus at all for private businesses.

Here is what we believe should have been done as soon as the housing bubble gave evidence of coming to an end.

  1. End the enormous trade deficits which amounted to over $800 billions in 2008 roughly equal to the Obama stimulus program. It represents the equivalent of about 8 million industrial jobs. How do we accomplish this? Under WTO rules as we pointed out in our book, Trading Away Our Future (Ideal Taxes Assn., 2008), any country experiencing a chronic trade deficit with any of its partners may impose a tariff and other barriers to imports so long as the trade deficit persists. A ten percent tariff would raise about $80 billions in tariff revenues the first year. A uniform tariff on all goods imported from only those countries that have large trade surpluses with us would act like a currency revaluation, making imports more expensive to American importers. But our trading partners would be put on notice that growing at the American worker’s expense would no longer be tolerated. We prefer our proposal to the one made by Prof. Paul Krugman in the NYT a month ago of a temporary 25% tariff on Chinese goods intended to pressure the Chinese to allow the yuan to appreciate. China has so many informal trade barriers – it rations foreign exchange -- it can limit imports regardless of the value of the yuan. Our proposal will have an immediate effect and will end when and only when they start buying American goods.
  2. Abolish the Corporate Income Tax. As we pointed out in our book and on this site, the corporate income tax so far as domestic sales are concerned is equivalent to a sales tax and so far as exports are concerned it makes American firms less competitive abroad. Almost all of our trading partners impose a value-added tax which under WTO rules they can rebate to their exporters and charge on entering imports. By contrast, income taxes cannot be rebated. If we substituted a value-added tax for the income tax and integrated the corporate income tax with the personal income tax -- as we suggested in our book– which means treating corporations as partnerships, we would restore our economy to real rapid growth

There are many other actions that we can take to get the U.S. economy back on track but none as dramatic and effective as these proposals.  Steve Wynn, the CEO of Wynn Resorts in Las Vegas and Macau, in an appearance on CNBC stated, “Washington is unpredictable these days. No one has any idea what’s next…the uncertainty of the business climate in America is frightening, frightening to everybody, and it’s delaying the recovery.” In Macau business knows what to expect from government; no one knows what to expect from government in the U.S. Let’s end the politicking on trivial issues in Washington and get real. Real problems need real solutions

Your Name:

Post a Comment:

Comment by Scott, 5/31/2010:

Just came accross your most informative blog. Thank you for your service to inform and educate over what many consider to be a complicated problem but is really simple and straightforward in orgin, but, what I feel, is impossible to solve politically.

 First the problem in the financial economy... -Xn => artifically lowering of price inflation => artifically increase in asset inflation (bubbles) with the Fed's only concern being the dual mandate => financial bubbles => bubble in financial paper issued with Wall St. being enriched.

The second problem is in the real economy...-Xn => slow down in GDP => reduction in value added manufacturing jobs and wages => even higher -Xn => GDP dependance on 'wealth effect', increase in debt level and ultimately +G when the bubbles pop => overall further slowing of the economy and to deflation as disinflation from -Xn crosses the Rubicon into outright deflation => increase in G becoming an ever larger piece of the pie 'saving us' from liquidation depression, but creating a much worst decades long morphine drip bailout depression=> Becoming Japanese..

This has been brewing since the 1971 ending of BW with Wall St. the main beneficary and Washington DC the secondary, all the while Main St. has suffered greviously. Solution, really simple, turn -Xn into at least 0Xn or,  correcting for past sins, +Xn...the quickest and best would be a liquidation depression. The policitical realilty is this will simple not happen, for if reveresed Wall St and DC lose along with the irresponsible moral hazard Main Street'ers (no more loan modifications). Given this group own the country, latest example defeat of Volcker Rule, do you really think this will happen?  THE problem is -Xn. As one of your posts points out you can't pump up a tire until you plug the leak. Simple and true.  Thanks again for all your collective efforts. Sayonara.

  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Dec 2021
    Nov 2021
    Oct 2021
    Sep 2021
    May 2021
    Apr 2021
    Feb 2021
    Jan 2021
    Dec 2020
    Nov 2020
    Oct 2020
    Jul 2020
    Jun 2020
    May 2020
    Apr 2020
    Mar 2020
    Dec 2019
    Nov 2019
    Oct 2019
    Sep 2019
    Aug 2019
    Jun 2019
    May 2019
    Apr 2019
    Mar 2019
    Feb 2019
    Jan 2019
    Dec 2018
    Nov 2018
    Aug 2018
    Jul 2018
    Jun 2018
    May 2018
    Apr 2018
    Mar 2018
    Feb 2018
    Dec 2017
    Nov 2017
    Oct 2017
    Sep 2017
    Aug 2017
    Jul 2017
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015
    Jan 2015
    Dec 2014
    Nov 2014
    Oct 2014
    Sep 2014
    Aug 2014
    Jul 2014
    Jun 2014
    May 2014
    Apr 2014
    Mar 2014
    Feb 2014
    Jan 2014
    Dec 2013
    Nov 2013
    Oct 2013
    Sep 2013
    Aug 2013
    Jul 2013
    Jun 2013
    May 2013
    Apr 2013
    Mar 2013
    Feb 2013
    Jan 2013
    Dec 2012
    Nov 2012
    Oct 2012
    Sep 2012
    Aug 2012
    Jul 2012
    Jun 2012
    May 2012
    Apr 2012
    Mar 2012
    Feb 2012
    Jan 2012
    Dec 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010
    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010

    April 2010
    March 2010
    February 2010
    January 2010

    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term

    Environmental Regulation
    Last 100 Years
    Real Estate Taxation

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • Votersway Blog
  • Watt's Up With That


  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]