Sunday, June 4, 2017

Trump ’n Trade - A better standard of living for all

I submitted this little piece to the Albuquerque Journal. My last submission before I cancel my subscription to that neoliberal rag. Actually Vera finds the New Mexican much more informative. This was published in the Albuquerque Journal North on June 9.
In fighting a war, generals on the battlefield know that a frontal attack is not always the best tactic. A flank attack is often a better move. So it is also with foreign trade.

President Trump sees trade deficits, more import expenses than export income, as bad and surpluses as good. So, where we have trade deficits the frontal attack is the president’s tactic of choice. He talks about taxing the imports to make them more expensive. Let’s take a closer look. There is a better option.

When we import we increase our standard of living by purchasing something we want, say lumber from Canada or cars from Germany, after considering price, quality and availability. The president thinks we are not paying enough for these things. He wants us to pay more or do without these goods thus lowering our standard of living. 

Other countries like to export to us so they can get US dollars, the widely favored foreign exchange currency. They give us real goods in exchange for our depreciating dollars. Who is the winner in that exchange? In terms of real goods, the real economic terms of trade, the winner is the importer. The exporter bears the real cost as its productive labor is serving a foreign economy.

In real terms of trade our trade deficits make us winners not losers. So, what is the down side of being a winner. When we spend into a foreign economy rather than our own the result is higher unemployment. 

The conundrum is this. We must reduce our standard of living by reducing imports to maintain employment or suffer increased unemployment to enjoy a higher living standard.

The Current Account closely matches Trade Balance deficit. Also, current account closely matches the Capital Account, the measure of capital leaving US. We can afford it. See

The frontal attack is to tax our trade deficit as proposed by Speaker of the House Paul Ryan and threatened by President Trump. The flank attack is to learn how to deal with unemployment in general. We can do that, although we haven’t since the New Deal in the 1940s.

A federal Job Guarantee (JG) would provide work for anyone willing and able to work. It would be federally funded and locally administered to serve the public. This would provide a pool of workers that businesses could draw on when they decide to hire. 

Workers would earn a minimum wage with benefits. The program would set a national minimum wage and maximize employment. Unlike the much ballyhooed Basic Income Guarantee (BIG), the JG would be countercyclical to inevitable business cycles. That is, it would increase when business hiring is weak and decrease when business hiring increases. 

The cost of the JG would be less than one might think, and it would be superior to the BIG. The work done would add to GDP, while an idle worker adds nothing. And, it would reduce the costs of unemployment benefits and add to tax revenues. There is considerable literature on the subject generated by its proponents. The JG would help to maintain consumption and profits for business.

When we manage our unemployment by employing all able workers, including immigrants, we can enjoy the benefits of imports and increase our GDP. The end result is a better standard of living for all our inhabitants. That’s making America great!

Sunday, May 14, 2017

Conservative economics yield poor results

I submitted this to the Albuquerque Journal on May 7, 2017. They didn’t publish it. Well, I’ll admit  it is a bit strident, so I’ll try to do better next time. But, these are strident times.
The only thing more wacky than Robert Samuelson's column in the Journal on Saturday morning was its title, "Health entitlements consuming more GDP.” So called entitlements don't consume GDP, they add to and are a part of it. Samuelson complains that “entitlements” make up too much of GDP. 

A large fraction of health care costs make private investors rich, which means we have a health profit system and "care" takes a back seat. The fix would be more care and less profit.

Then we have Social Security, that the rich don’t need to care about. But, most old people care. When they buy things; food, clothing, smart phones, cars, they contribute to the economy. They consume, but they don't consume GDP.

As Samuelson observes, after we add in defense and other discretionary spending, Federal spending adds up to 15-20% of GDP. I think it should be more. For those, who think it is too much, we can do what any third grader can understand: Increase GDP! 

How do we increase GDP? We increase consumption, which typically makes up 75% of GDP. How do we increase consumption? We increase the income of workers by giving them a greater share of the benefits of our increasing productivity. It does not help GDP to give tax breaks to the rich. They don't spend more. They have no reason to invest in more production when customers have little money in their pockets. 

From Tcherneva 
real-world economics review, issue no. 71 

For almost a half century, we have followed the neoliberal, free market, trickle-down economic myth and have paid for it with a sluggish economy. Workers have not benefited from increased productivity. By now we should realize that the neoliberal paradigm exploits labor, the environment, legislatures, and ignores the arts and sciences to enrich the few at the expense of many.

Unfortunately, the neoliberal emphasis on nonproductive financial products has increased the  well known wealth gap. The financial sector acquires over 40% of corporate profits. This becomes overhead on everything we buy including productive labor. This overhead is the main reason our labor costs are not competitive. 

Samuelson concludes with the old neoliberal bugaboo over federal deficits. This is just a myth to convince us that federal spending must always be avoided in favor of privatizing public services to gain more profit. 

Federal spending increases demand for goods and services. Too much spending will cause inflation only if our productive capability falls short of demand. Meanwhile, deficits add to private savings, and the government can buy anything that is for sale in US dollars including labor.

So, government can be involved in increasing GDP. It can afford to hire staff for healthcare, teachers and facilities for a more capable work force, workers to build infrastructure, and to support senior citizens with a decent retirement. Our children and their children benefit from wise federal spending without having to pay off the national debt. They don’t owe it; they own it.

Samuelson and other neoliberals would have us believe it's all about money. It's not. It’s about allocation of our productive resources, which are people and facilities. We can afford anything we can do. It is not about living within our means; it’s about living up to our means.