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Prof. Krugman Gives Congress Bad Advice on How to Reduce Unemployment
Raymond Richman, 5/31/2011

In his NYT column that I read in the Sacramento Bee today, Tuesday, May 31, 2011, economist Paul Krugman writes that we could “cut back joblessness”: 1) by employing FDR’s “WPA-type programs putting the unemployed to work doing useful things like repairing roads.” We have the money for repairing roads and some of the 2009 Recovery Act’s $782 billion went to the states to repair roads and bridges. How many jobs were created? Not as much as the money appropriated would indicate. Most of the road and bridge projects were already planned by the states; only the source of funding changed. 2) “We could have a serious program of mortgage modifications, reducing the debts of troubled homeowners.” That is exactly what the Obama government has been doing, spending a lot of money and hardly making an impact on the problem. 3) “We could try to get inflation back up to the 4 percent rate that prevailed during Ronald Reagan’s second term, which would help to reduce the real burden of debt.”  During the past 12 months the Consumers Price Index increased to 3.2 percent,

A worse set of recommendations can hardly be imagined. Inflation is not likely create much employment. All it will do is create economic distortions.   Leading economists like Obama’s Harvard professor Lawrence Summers, who was his chief economist, Prof. Christina Romer, his chief of the Council of Economic Advisers and one of the authors of the Recovery Act of 2009, must have given the president similar advice. So Krugman is only saying, “Do more of the same” i.e., another economic stimulus plan that will widen the enormous budget deficit and create a trillion more of debt. The Tea Party supporters may not be economists but their instincts tell them that widening the budget deficit is no solution at all.

Is increased government spending the answer? Of course, not.

Krugman during this past year recommended imposing a 25% tariffs on imports from China because in his view China has refused to allow the yuan to increase in value relative to the dollar. He makes no mention of the huge trade deficit of the U.S., not only relative to China but to the rest of the world. We’ve lost six to eight millions jobs as a result of outsourcing of American corporations to foreign countries. It was reported that high tech companies like Apples, HP, Dell, etc. have ten times as many employees abroad as they employ in the U.S. In March, the goods deficit increased $3.0 billion from February to $62.1 billion in March. Exports of goods increased $7.1 billion to $124.9 billion, and imports of goods increased $10.1 billion to $187.0 billion. The continued loss of jobs as a result of the trade deficit in goods is ignored by Krugman and by Obama’s economic advisers.

We do not ignore the huge job-costing trade deficits. We recommend single-country scaled tariffs to be levied against the nations with which the U.S. has large chronic deficits. The tariffs would rise and fall as the trade deficit with our trading partners rises and falls. It is better than Krugman’s proposed 25% tariff of imports from China because it would not effect our trading partners with which we have close to balanced trade or a surplus. The tariffs would yield a huge amount of revenue and help reduce our budget deficits. We believe the adoption of scaled tariffs would encourage manufacturers to invest once again in the U.S. and create jobs. How many? We estimate a million in one year and 5 million over five years!

Here are some more suggestions.

1. End the bans and environmental restrictions on drilling for oil and gas on public lands in the 48 states and Alaska, and end the bans on off-shore drilling.  We estimate a half million jobs the first year and a million jobs within two years.

2. Let’s change the anti-business bias to a positive environment for doing business in the U.S. We recommend abolishing the corporate income tax and integrating it with the personal income tax. There need be no loss of revenue and it would make the U.S. the best place to invest in the world. How many jobs would this create? A million jobs within two years and millions of jobs every year after that.

3. Convert public transportation systems to natural gas or electricity and reduce the barriers to conversion of autos and trucks to natural gas. Lower prices for public transportation and other consumer goods would have multiplier effects by providing workers higher real incomes.

4. Get rid of most government subsidies and inefficient government regulations. These will help balance the budgets of federal and state governments. It would encourage investment in new businesses and factories in the U.S.  

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  • [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]

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  • [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....

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  • 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]