Yay for tariffs

Posted by Josh Friedlander | 2 Comments

Another gem from the NYTimes boards in response to Krugman being vacuous and unspecific.

One of my degrees is a specialization in the political, social and economic history of the 1930s. Prof. Krugman has nailed the central question about the current collapse. The 2008 economic crash is mimicking the 129-32 collapse. The remedies on the table – the best we have at hand – are the same as deployed by the New Deal. The circumstances as to the underlying capacity to generate jobs is far different – and that realization is like peering into an apparently bottomless black hole since there is no previous situation that is similar.

In 1933, the manufacturing plants existed – they were merely closed and shuttered for a lack of buyers for their goods. If a large enough portion of the populace regained income, they would be able to purchase the washing machines and cars made in US factories which would put the shopkeepers and manufacturing employees back to work and in turn those workers would have money to spend and generate more demand.

The problem is different this time. The US has stopped making things of value – real wealth that one can touch and use like steel, rubber, washing machines and other durable goods (which are different from a whole lot of cheaply made t-shirts and electronic toys.)

It is a conundrum as to exactly what US workers can do for work. The data for the past few years has shown the fast growing jobs sectors to be FIRE (finance, real estate & insurance) and service/hospitality/retail and medical. The first group got us into this mess and those jobs are gone for a very very long time (and based upon what those people did, one can only say ‘thank god’!). The second group are extremely low wage jobs that leave households unable to meet daily living expenses. The last group – medical services – sounds like a good bet until one realizes that there is and will be a small problem in that households won’t be able to afford medical services.

The concept that the US was supposed to abandon manufacturing and reinvent itself as “The Knowledge Economy” has always eluded me. First, the vast majority of workers do not have the ability to get that PhD in computer programming or physics or that MA in engineering. There has to be work for the 75% or so who do not have those kind of intellectual abilities. Second why on earth was the implicit assumption always made that the US could corner the market (so to speak) in providing intellectual paper-pushing services? Together China and India have nearly 9 times the population of the US. They have just as many smart people as a percentage of the population as the US – and in total number there will be at least as 9 times as many as in the US. They can corner the market on any services not requiring a worker’s presence at the place of business as they have undercut the manufacturing.

It may be time to resort to tariffs. And before the ant-tariff, free marketers start screaming ‘but but but Smoot-Hawley’, an important difference has to be recognized. Yes the enormous tariffs under Smoot Hawley did make the Great Depression worse. No, it is not the same situation. In 1929 the US was a creditor nation and its debtor-nations could not repay their debts because they could not sell their goods in the US because of the tariffs. In 2008, the US is now the biggest debtor nation in the world. It is a dirty little secret among economists that tariffs HELP debtor nations improve their internal economies by forcing the production of goods within its own borders. (The global free traders like Krugman on the left who worry about Indonesia and the rest and Mankiewz on the right who wants maximum corporate profits try to ignore this basic economic fact since it does not advance either agenda.) Impose enough tariffs so that US corporations who want to make their goods abroad but then re-import them to sell them in the US will have higher costs for goods they import which kills their profits and all at once they will decide to reopen those US factories where costs will be lower because of not being subject to such tariffs. (And no, the US consumer is not entitled to cheap goods if it means their neighbors end up on food stamps. And no, the lower income workers will not be worse off in the medium run as they will be able to get jobs at the plants.)

Maybe it is time to slap huge taxes on US companies who outsource jobs. Take the amount of wages that they paid for the US jobs they sent off to India and hit them with a 50% or higher tax. That money can be used to provide a social safety net.

Maybe it is time to treat any foreign division or company owned by a US corporation as if it where located in the US and nail them for income taxes. Most corporations keep their foreign divisions profits out of the US to duck the taxes. If they want to be a US corporation, then the profit from any division or operation which they own anywhere in the world should be fully subject to US income tax- no deductions, no exclusions.

— AnnS, MI

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