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Prof. Feldstein Has No Recovery Policy
Raymond Richman, 8/11/2011

We don’t often disagree with Prof. Martin Feldstein, a distinguished economist,  but we do with his opinion piece in the WSJ, 8-1-11 in which he writes, “A falling dollar may be the only major economic change that can accelerate the anemic pace of recovery and prevent a new downturn in U.S. economic activity.” We believe there are a number of good policies that can be easily implemented and that a devaluation of the dollar is not one of them. He believes that a falling dollar will stimulate U.S. exports by making American goods cheaper to foreigners. “The declining dollar has been the key driver of American exports. … Although exports are only 10% of U.S. gross domestic product (GDP), the rise in exports during the past four quarters contributed more than 50% of GDP growth during that period.” We believe the data in the following table belies that assertion.

He does not mention imports although the trade balance, exports minus imports, is what contributes to the GDP and the trade balance was negative and growing during the past four quarters.

Let’s look at the foreign trade data from 2nd quarter 2010 to 2nd quarter 2011.

        US Trade Balance 2nd Quarter 2010 and 2nd Quarter 2011




2d Q 2010

2d Q 2011




Net exports of goods and services




































Net exports of goods





Net exports of services





 The net exports (exports minus imports) grew from $-531.2 billion in the 2nd quarter of 2010 to $-586.7 billion in the 2nd quarter of 2011. It did not contribute to the growth of the economy; it contributed to growth in the rest of the world, in China, Japan, Germany and some oil exporting countries. In the national income accounts, it had a negative effect on the growth of GDP of $-531.2 billion in the 2nd quarter of 2010 and $-586.7 billion in the 2nd quarter of 2011.  Each worker in manufacturing adds about $100,000 to the GDP. In 2011, the negative trade balance caused a “loss” of 5.9 million jobs! 

In other words, it would take 5.9 million workers to produce sufficient exports to bring trade into balance. The suggestion by Prof. Feldstein that allowing the dollar to fall in value relative to other currencies is unworthy of him. The dollar fell relative to the Euro by sixty percent since the Euro was introduced without causing trade with Europe to come into balance. Prof. Krugman of Princeton and others have suggested that China is maintaining a low value of the yuan deliberately to grow its trade surplus with us and he proposed a 25% tariff on China’s exports to us.  

 We, too, have proposed employment of  our invention of the “single-country-scaled-tariff” against those countries with which we have chronic trade deficits. The scaled tariff does not affect the balance of trade with the many countries with which our trade is in balance. A general devaluation of the dollar would tend to cause them to experience trade deficits. They would not be affected by scaled tariffs which only apply to those countries with which we are experiencing.

FED chairman Ben Bernanke has stated the there is no automatic market mechanism to bring trade into balance. We agree. We believe the scaled tariff is authorized by the rules of the World Trade Organization. Any country experiencing chronic trade deficits with one or more of its trading partners as we are is entitled to use the scaled tariff to force trade into balance.

 But balancing trade is only one of a number of policies that would create good jobs.  Pres. Obama has got to change from impeding oil and gas drilling on public lands and offshore to supporting such growth and employment creating activities.  Building factories in the U.S. is impeded by excessive regulation and environmental rules. We have to end the subsidies to uneconomic wind and solar plants; they create few permanent jobs and the subsidies will need to go on forever as they cannot compete with more efficient and less costly natural gas. We need to abolish the corporate income tax which is passed on by those who produce for the domestic market but place an uncompetitive burden on those who produce for export. We have written about these policies on this web site for years.   

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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]