Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



Income inequality and the trade deficit
Howard Richman, 10/18/2015

As shown in the chart below, which I just put together, there is a pretty good correlation between household income inequality and the U.S. trade deficits from 1954 to 2012:

InequalityAndTradeDeficit.gif

The trade deficits began to grow in 1977 and so did household income inequality in the United States. The correlation looks pretty close, except that the trade deficits are much more volatile than income inequality. Due to trade deficits, the jobs lost to imports were not replaced by jobs producing exports. They were simply lost. This graph supports our contention in our 1988 book Trading Away the Future, that the growing trade deficits worsened the income distribution. We explained:

Those who lost their factory jobs did not remain unemployed but competed for and found other work. Their competition had the effect of bringing downward pressure on wage rates in general. The resulting wage stagnation and worsening of the distribution of income has contributed to increased income inequality in the United States over the last three decades.

The decline in manufacturing and other exportable production associated with the trade deficit is compounded by its long-term effects on American competitiveness. The loss of entire industries (e.g., television, computers and shoes) to competitors in other countries makes it difficult for the United States to reenter those markets later. A variety of economic models incorporate the benefits of building upon what already exists (factors such as increasing returns to scale and the roles of intellectual property and learning-by-doing). By continuing and allowing policies that sustain the trade deficit, we prevent American firms from gaining the scale and competitive advantage that they might otherwise achieve, and we destroy firms that previously had a competitive position (and would not have lost it were trade in balance). (pp. 25-26)

The Democratic candidates for President are all running on redistributionist planks. They want to take from the rich and give to the poor to reduce income inequality. They won't succeed. They'll just reduce the incentives to produce, which will reduce income overall. 

Meanwhile, the Democrat Party's own president, President Obama, is pushing through a treaty that will enable currency manipulation and expand the trade deficits, thus further increasing income inequality.

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

    Archive
    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

    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 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

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Real Estate Taxation
    Trade

    Miscellaneous

    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.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [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]