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Pres. Obama's Job Act Ignores the Jobs Lost as a Result of the Trade Deficits, Environmental Foolishness, and His Opposition to Oil and Gas Drilling
Raymond Richman, 9/21/2011

As we wrote a few days ago, Pres. Obama’s so-called Jobs Act is more appropriately titled a “No Jobs” Act. Is it a coincidence that three of  the major causes of our stagnant economy were ignored in the president’s proposals. The three are 1) doing nothing about the foreign trade deficits,  2) preventing the development of our huge reserves of oil and natural gas, and 3) imposing enormous costs of government subsidies to green energy onto taxpayers and enormous regulatory costs on businesses.

1) The foreign trade deficits are the major cause of the de-industrialization of the U.S., the growth of China as a rival power, and have cost us five or more million jobs. The President knows this and so do all of his economic advisers. All that they advise is an increase in U.S. exports but have not idea how to achieve that. The trouble is that for three decade and increasingly since 1997, imports have been increasing faster than exports. Look at the following table showing our trade balance with the rest of the world from 1992 to the recession of 2009.  





































































The explosion in the trade deficits is evident from 1998 on. Presidents Clinton, Bush, and Obama all ignored their growth. All their economic advisers were “free traders”. An OEEC study showed that the U.S. had the least barriers to trade of any industrial nation. American industrialists complained that they could not export their goods to China. Pres. Clinton who loves to talk did nothing but talk and so did the more reticent Bush and the more loquacious Obama. Roughly, each $100,000 of deficit represents the loss of one manufacturing job; each worker in the manufacturing sector on average is associated with $100,000 of GDP. In 2008, the contribution of the trade deficits to GDP was a negative $698 billion!

Economists fell in love with free trade as a result of the writings of the classical economists, Adam Smith and David Ricardo. Nothing in economic science recommends “free trade” except when all the trading partners permits unrestricted movement of labor, capital, and goods and services. Ninety-nine percent of economists have ignored the consequences of unilateral free trade practiced by the U.S. Even my professor, Milton Friedman, used to say that if foreign countries are willing to exchange their goods for paper we can print, why should we complain?  Prof. Allen Meltzer, of Carnegie-Mellon University e-mailed me essentially the same thought. Both are conservatives. But Keynesians like Profs. Summers, Roemer, and Goolsbee, until recently advisers to Pres. Obama are likewise “free traders”. Keynesian Prof. Krugman observed the growth of our deficit with China and asserted that China was engaging in the mercantilist practice of keeping its currency undervalued and proposed a 25% tariff on our imports from China unless it revalued its currency. He ignored all the other evidence of Chinese barriers to our exports to China which would remain after any revaluation of the yuan.

We do not. We don’t believe that revaluation of the yuan would be effective. The yuan has increased relative to the dollar several times over the years without any noteworthy reduction in the increase in the trade deficit. As for Krugman’s concern about the yuan beng undervalued, the euro rose 50% against the dollar in a decade without reducing the trade deficit with Germany and France.

We at Ideal Taxes Association invented and proposed a variable tariff which we called a “single-country-scaled-tariff which would fall when our trade imbalance with a specific country falls and rise when the trade deficit increases. Moreover, we believe it conforms to international trade rules which authorize countries to impose barriers to imports from countries with which it is experiencing chronic trade deficits. It does not matter what causes the trade imbalance, mercantilist practices or differences in domestic fiscal and monetary policies. Obviously, foolish domestic policies that discourage private investment contribute to the trade deficits and encourage outsourcing.  

2)  The President’s actions have demonstrated opposition to the development of our huge reserves of oil and natural gas. We are dependent on imports of crude oil for sixty percent or more of the crude oil we consume.  He not only continues to prohibit drilling on public lands, he  kept production of oil and gas shut down unnecessarily in the Gulf of Mexico, offshore in the Atlantic and Pacific and he proposes to eliminate tax loopholes like percentage depletion allowances. Meanwhile he subsidizes so-called green energy and makes public lands freely available to wind and solar plants.

In spite of environmental extremists, the boom of natural gas from shale promises to revolutionize motor transportation efficiently unlike the hybrid gas and electric engine and purely electric vehicles like the Volt which need to be subsidized. Construction of stations to pump natural gas is growing. In the Pittsburgh area, the largest supermarket chain is buying natural gas trucks and building its own natural gas stations which will also sell compressed natural gas to the public. The large oil companies which have joined the development of natural gas from shale are creating terminals to ship natural gas abroad. The environmental extremists succeeded in getting New York State to ban the production of gas from shale claiming it is fouling the acquifers, an assertion  which government authorities state is untrue. Like the Communists of old, the objective of the anti-fossil fuel extremists  appears to be to weaken capitalism not clean the air and water.

3) The President’s proposed increased taxes on oil and gas and increased regulation of drilling do not apply to wind and solar plants and their billion in subsidies. A Spanish economist, Prof. Gabriel Calzada Alvarez, drawing on his research in Spain, estimates that for every green job created in the U.S. there will be a loss of 2.2 jobs in the productive sectors of the economy. The high cost of constructing wind energy plants, their negative social costs and lack of reliability make them very costly to consumers of electricity and incapable of passing an unbiased cost-benefit analysis. The foolishness ranges from the government prescribing what electric bulbs citizens may use to huge subsidies to wind and solar plants, to subsidizing insulation of private buildings, to forcing the use of subsidized ethanol, to forcing  truck owners to use more expensive biofuels,  etc. etc.

To make matters worse, the President has declared that man-made global warming is “an undeniable fact” justifying the huge expenditures of taxpayer money to reduce carbon emissions. Many distinguished scientists disagree and as we pointed out recently on this site, there is now, as a result of the recently completed CLOUD experiment at CERN, Europe’s great nuclear research facility, an alternative theory that the sun’s magnetic cycles  by their effects on cosmic rays reaching the earth, determine climate warming and cooling. At any rate, an English scientist predicted the recent decades of cooling and the lasts two years of freezing weather in Europe and the U.S. No scientist associated with man-made global warming was able to do the same.

The work of Prof. Svensmark of Denmark in the early 1990s led him to publish this alternative theory in 1997, which politicians like former V-P Al Gore succeeded in concealing from the public who are easy prey to his “the sky is falling” fables.

We can recover from this recession and achieve real growth if the federal government gets out of the way, ends all subsidies to industries it favors, and bridles the Environmental Protection Agency. The only things it needs to do to restore American pre-eminence in manufacturing is 1) balance trade and we have provided the mechanism for achieving that, the variable single-country-scaled-tariff, 2)  go all out facilitating the production of ol and gas which will reduce our dependence on foreign oil and stimulate the natural gas boom , 3) end the subsidies to green energy and end the harmful environmental regulations. 

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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]