Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog

Obama and the House can produce Economic Growth
Howard Richman, 11/22/2010

Ironically, divided government gives the United States an excellent chance to solve its economic problems. Although the Democrats may be unable to balance budgets and the Republicans may be unable to balance trade, together they may be able to do both. All that is needed is for each party to do what it has the power to do.

Republicans Can Balance the Budget

In the last election, the American people spoke. The Republicans were given the House with a mandate to move the federal budget into balance. The American people will no longer put up with reckless borrowing from our children.

The Republican House has the power to balance the budget, without any cooperation needed from the Democratic Senate or President. They can do so simply by refusing to raise the debt ceiling. That would force serious negotiations about where to cut federal spending.

But doing so could cause even higher unemployment than we have now. In his commentary that appeared in TheStreet (Chinese Mercantilism is Making a Mess), U. of Maryland economist Peter Morici predicts that moving the budget toward balance would cause 15% unemployment, unless direct action is taken at the same time to move trade into balance. Morici calculates:

If the United States cut its budget deficit in half and raised domestic interest rates two percentage points, U.S. consumption and imports would crash, unemployment would rocket to 15%, and a global depression would result whose horrors we all thought were long ago buried in history books.

If China and Germany won't be reasonable, the United States is really left with no option but to take direct action to balance its trade.

Democrats Can Balance Trade

Just as the Republican House has the power to refuse to raise the debt ceiling without Presidential approval, the Democratic President has the power to impose tariffs without congressional approval. The G-20 summit just made it clear that America's budget deficits cannot be solved through diplomacy. Action is required.

Obama could balance trade through the WTO-legal scaled tariff, a tariff which forces mercantilist countries to take down their barriers to American exports. Its rate goes up when our trade deficit with a mercantilist country goes up, down when the trade deficit goes down, and disappears when trade is balanced.

In the short-run. Balanced budgets and trade cancel each other out. The economics is simple. Aggregate Demand for American products is the sum of Consumption, Fixed Investment, and Government Purchases, after subtracting the Trade Deficit. If government spending is reduced, Consumption (due to transfer payments) and Government Purchases decline, hurting demand. But if trade is brought toward balance Fixed Investment (mostly new factories) and the Trade Deficit both improve, helping demand.

Balanced trade and balanced budgets also work together in the long-run. Balancing trade reduces the loans coming into the United States from the trade surplus countries, which raises real long-term interest rates unless the government moves its budget toward balance. Moreover, the combination is especially good for economic growth since both high government spending and high trade deficits retard long-term growth.

Events have given the United States an excellent opportunity to solve its economic problems. If both the President and Congress take advantage of their power, America will be the big winner. Otherwise, the future looks bleak indeed. We just don't yet know whether the crash will be precipitated by a loss of government credit (caused to the budget deficits) or a dollar collapse (caused by the trade deficits).

Your Name:

Post a Comment:

  • 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

    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]