|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 https://fred.stlouisfed.org/graph/?graph_id=192470&rn=7163|
Sunday, June 4, 2017
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 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!