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Government Leaders and Their Economic Advisers Have No Idea How to Create Jobs
Raymond Richman, 7/12/2011

Princeton Prof. Alan Blinder, in an opinion piece in the Wall Street Journal, 7-13-11 demonstrates the mental bankruptcy of most of America’s leading economists when it comes to developing solutions to reduce unemployment. He finds the May and June, 2011 unemployment reports “catastrophic”. The fraction of the population that is employed is lower than it was “when the recession officially ended in June, 2009”. (Officially?!). Republican proposals “to slash government spending” are “ways to kill jobs, not create them”. So what does the professor, a former member of the Board of Governors of the Federal Reserve System and a member of Pres. Clinton’s first Council of Economic Advisors, recommend? 

He prefaces his recommendations with two statements one of which we challenge. First, he writes, there is no magic bullet. Yes there is as we show below– it is called “balancing trade” by our single-country scaled-tariffs. Over the last four decades, China and other countries, including Japan, Germany, and the OPEC countries have siphoned an estimated five to eight million jobs from the U.S. manufacturing sector.  We can recover those eight million jobs.

Second, “there is no free lunch” by which he means the U.S. taxpayers will have to pay for the solution.  And what is his solution? He begins his proposal with the statement that “Creating jobs cost money –whether it’s via tax cuts or more spending." We have already spent trillions of dollars since 2009 in tax cuts and more spending, including a Keynesian $800 billion economic stimulus plan, and as Blinder pointed out, the results of all this spending was a level of employment lower in 2011 than it was in 2009.

So to whom does he want to give the tax cuts and subsidies and for what? He advocates a tax credit for companies who add workers to their payrolls, something which he also recommended in November 2009. He gets specific: “companies might be offered a tax credit equal to 10% of the increase in their wage bills (over 2011 levels, say.”  Those companies would under current rules of international trade be unable to export.  And, if they had American competitors, it would give the company receiving the tax credit an enormous competitive advantage. To be charitable, let us merely state that the proposal has many negatives, not the least of which is the impact it would have on the budget deficit. A our readers know, we proposed abolishing the corporate income tax and integrating if with the personal income tax as we do with partnerships or substituting a value added tax which can be rebated to exporters and imposed on imports under current rules of international trade.

Prof. Blinder does not mention the trade deficit at all. Prof. Blinder, like the vast majority of economists, is obviously a free trader which is an ideology not economic theory. International trade theory justifies free trade only when all countries practice it and there is free movement of workers and capital, as among the United States of America. In 2010, the trade deficit on goods exported and imported amounted to $645.9 billions, roughly equivalent to the value-added in manufacturing of 6.5 million manufacturing workers.

Our proposal for restoring full employment is to levy a tariff on imports of goods with the tariff rising and falling with increases and decreases in the trade deficit in our trade with a specific country. Countries with which we have no significant trade deficit are not affected. The negative is that prices of imported goods would rise but we could lower taxes or reduce the budget deficit with the proceeds of the tariff. The benefits would include millions of jobs in manufacturing beginning immediately and within a single year or two.

And there are other things we could do that Prof. Blinder doesn’t mention. Pres. Obama in the foolish belief that reducing carbon emissions is more important than jobs, has been restricting the drilling for oil in the Gulf of Mexico, on public lands, offshore, and in the Arctic. We have become dependent on foreign countries for 60 percent of the oil we consume. New discoveries of sources of oil and gas can make us self-suffficient. All government has to do is get out of the way. To make matters worse, government, federal and state, are granting huge subsidies (30 percent from the federal government alone) plus guaranteeing loans to the alternative energy producers, which promises to worsen the federal deficit when these enterprises fail. Sounds like a free lunch for those who believe that global warming is man-made.

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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]

    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]