Editor’s note: With the cRap Music Fantasy league stuck in a stalemate this fiscal quarter, El Gringo Colombiano antes up his $.02 to save the US economy from itself.
In reading Paul Craig Roberts’ article ‘Obama & Global Trade‘, I came across the best idea I ever heard in balancing the US Trade Deficit, from a 2003 essay by Warren Buffet, which highlights Buffet’s idea of Import Certificates.
You see the United States has been in a trade deficit since 1971, with over $100 billion annual deficits in most years since 1984. Not surprisingly, G Dubbz has made the situation 2x worse, with the then record deficit of $379 billion in 2000 mushrooming to upwards of $700B in each of the last three years.
Some smart-dumb economists say a perpetual trade deficit is good. But I never got that memo along with some economists and non-economists with COMMON SENSE who also share my view. How can any economic entity be operating at a loss for 37 consecutive years?!
An individual, or family cannot operate at a loss for more than a few years without wiping out their savings, going deep in debt, and subsequently being forced to declare bankruptcy.
Even in the info-tech, dot-com boom (circa 1996) startup companies could not operate at a loss for more than say 5 years without going bankrupt, or being acquired by a competitor for a deep discount.
Fortune 500 companies can’t lose money for more than a few quarters without massive layoffs and CEO/mgmt team firings.
Even soverign countries, like Argentina, are never allowed to do this. The US gets away with it, since the US dollar is the global favorite reserve currency of our main exporters, such as China and the Arab Oil exporters like Saudi Arabia.
I would like the smart-dumb economists who favor these perpetual deficits to point out ANY example of ANY economic entity (person, company, or country) that operated at a loss for 37 consecutive years, in ALL OF WORLD HISTORY. I doubt it’s ever happened!
Eventually, the US will have to do one(1) or more of the following problematic actions to balance the trade deficit…
Problem: The government has to pick & choose which products and, or industries to protect. The way the US political system in recent years has been dominated by special interests, there’s the likely chance this process will be corrupt and far from optimal for the US economy.
Problem: It may be impossible to create enough exports from a few such industries, because the labor cost advantage of ChIndia. Plus ChIndia’s increasing ability to innovate in high-tech markets by itself.
Problem: Duhh! The obvious! This will cause serious inflation and will become an overt tax on most US Citizens, since most of us US citizens’ assets are 100% invested in dollar related assets such as a home, US stocks, & USD’s themselves in Certificates of Deposits, money market accounts and plain ol’ passbook savings accounts. Personally, I don’t want my dollars to be worth say .5 as much 5 years from now since they have already become significantly weaker during the G Dubbz regime.
IMHO, Buffet’s idea of Import Certificates is superior to these actions and any other idea I’ve heard thus far. The gist of Import Certificates goes like this…
The effect will be that US Exporters will be encouraged and US Importers will be discouraged.
Import Certificates will work like a tariff, however the “invisible hand of the free market” will decide which “stuff” gets tariffs.
Which jobs will come back to the US? Clothing manufacturing or software engineering? The Fed Gov’t will not decide it, but the market will, based on the marginal utility of having to pay X% of the cost of their stuff for Import Certificates.
I think one immediate effect of this policy will be to help the rural American economy. I also imagine that US corporations won’t offshore the call center to India because they can’t afford the Import Certificates. Yet on the other hand they can’t afford the labor cost of an Atlanta or a Dallas. Their solution: Put their customer service center in the economically devastated Flint, Michigan.
I really hope Barack Obama gets elected and brings in Buffet as Treasury Secretary to implement the Import Certificate policy.
-EGC
