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
“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.”
No doubt. My company started doing this with our IT department last year. Google did something similar where they built server farms out in West Virginia (for example) where labor is jive cheap.
I don’t know why it took these corporate morons so long to figure this out. Outsourcing has to be one dumbest ideas to kick off the 21st century.
Buffett was an early fan of Obama from a few years ago. He’s a fan of LeBron James too. I would hope Obama would seek Buffett’s advice too. I have been saying that recently.
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.
^^WORD! makes fucking sense to me. Good Shit!
EGC: Real smart read and thanks for putting that together. I’d be nervous if the Import Certificates weren’t over inflated for the sake of their scarcity in whatever type of market hosted their exchange.
I think it would be wise to decide, before the decisions are determined by the market to find out which industries we are getting behind [||]. Leaving it up to the Invisible Hand will work over the longer run, but in the short term I could see a lot of floundering and worthless jockeying for position in infancy. I just don’t want the wrong one(s) to get picked for the sake of ease in implementation.
Great idea, but…
The same special interests that would screw up any tariff plan would screw this up too. Who decides which export makers receive credits? Who decides which indiustries are covered?
Plus, whe whole thing could be shot down by Canada or Mexico because they have veto power over everything.
I say we vote for Nader, watch McCain take office, and start selling apples on street corners. (That is the actual fruit – sold out of a cart – not the laptops. No Americans will be able to afford those.)
@P-City asks “Who decides which export makers receive credits”
Here’s a simple example to illustrate the IC idea, which shows the system will be hard to game by Coporate Whore Lobbyists & special interests. For more detail, pls read the linked Buffet article.
1 Say if US-based P-City Inc sells $100 is P-City mixtapes & T-Shirts to Japan in Mar 08
2 P-City gets $100 in Import Certificates (IC) notes, which must be used by Sep 08 (6 month window to discourage speculators from entering the market & hoarding the ICs)
3 P-City Inc doesn’t need to import jackola, since his biz is nice like that & is a 100% true ‘Mericun that likes to source from ‘Mericun vendors because he hates when “furriners be takin our yabs” (c) South Park generic redneck workers rights activist guy
4 P-City Inc then sees that the current price of IC on the IC financial market is 7.2%.
5 P-City Inc figures the current price is dece, so he sells his $100 IC note at the 7.2% rate, thus getting $7.20 in his IC account, which he can cash out at anytime.
The plan seems difficult to implement since there idea of a national corporation has no more value than the idea of nationality. Companies like Motorola, General Electric, Boeing, and Esso(Exxon) have no national responsibility.
To compete in the global market Americans now have to remove the concept of economic nationalism from their vocabulary.
P-City Inc might decide to relocate the company’s HQ to Dubai. It does’nt matter since the t-shirt mfg is in Africa(check the status on African cotton exports) and the mixtapes are built up in Thailand
Any ideas for the American Auto industry…cause save for pick-ups American cars suck. I’m waiting for GM and friends to die.
@Dallas,
my understanding of the IC plan is the product or service has to be made in the USA to count as an export.
Also same-company transfers based on caking up off of labor arbitrage are imports.
So if Motorola’s factory in Shanghai makes phones, which are then IMPORTED in the USA to sell in the USA, those are also IMPORTS, regardless of whether’s Motorola’s HQ is in Chicago, Shanghai, or Dubai.
The example I gave says P-City makes his shirts & mixtapes in the USA, that’s the only way he gets to cop 100 ICs for his export to Japan. Get it?
EGC,
Get it? Yeah, actually no. What is any company’s motivation to secure import certificates?
America is on her death bed.
If a US company needs to import something to sell in the US, they need to buy ICs in order to legally do so.
Even if a US company NEVER imports anything, but export, they can make $ by selling their ICs
The purpose of the ICs is to balance US imports & exports. So instead of a 700B deficit, the trade balance will be close to 0.
This will stop the 37 year “operating at a loss” nonsense that the USA has been doing since 1971.
In other words, the bodega will still be owned by an ‘Merican arab that lives in your city, instead of a “furriner” arab from Kuwait or some shyt, that is buying up American real estate with a “sovereign wealth fund”, since they have too many damn US Dollars & gotta buy SOMETHIN with them. No KKKramer jic intended on my arab brothers & sisters, of course, just trying to illustrate the point.
Read the Buffet article, Grandpa Warren B explains it better than I do.
EGC – (nice post, by the way… you should do more drops)
I’m not disagreeing with everyone and saying that is SHOULDN’T work. I’m simply saying that it WON’T work.
I think that similar “credit” programs (e.g. carbon emissions credits) work because it is clear that the resulting behavior is a net positive – less carbon in the atmosphere.
Exports aren’t so clear cut. The goal should not simply be to increase exports, but to help support the companies and workers that create those exports. There must be an enforceable mechanism in place to ensure that credits only go to those companies that contribute to a net positive for the US economy – jobs and investment. Without that, you’ll see a system pimped by smart attorneys – just like the farm subsidies.
Does it really help the economy if RJR manages to earn another billion a year in credits for dumping smokes in the Philippines? Can you imagine the crap that we will be dumping on the Third World if the government helps to guarantee 7% on every unnecessary widget sold? What about items assembled here from parts made elsewhere?
If we place the money (i.e. a market for “credits”) out there without any direction, we simply enrich the few who know how to effectively build one product – shell corporations.
Rather than subsidizing the creation of any item for export, let’s focus on subsidizing R & D in specific industries (e.g., green energy, autos, biotech, etc.) Europe and Asia are killing us because they are targeting specific industries such as aerospace or steel. If we allow “the market” to determine where we place our focus, we might as well just quit.
I disagree with Buffet’s assessment that foreign ownership of US currency is a bad thing. I think that the unbalance in trade is closely tied in with the failed US foreign policy of exporting democracy. 1971 is the realization that we have wasted our time and our resources in VietNam. The money that was expended in that campaign sent us tumbling into a recession in the mid-70’s where inflation was out of control and people had to wait on ginormous lines for gasoline.
I don’t believe that these IC’s will be the ‘magic bullet’ that rescues the US domestic economy until we can manage the greed aspect that is so pervasive in capitalism right now.
When we discussed your article last week you made a solid point about helping an alcoholic straighten his steez after thirty years on the drank. I argue that Import Certificates equal a liver replacement, but NOT a lifestyle change.
These are the only i.C.’s that I fucks with.
@ P-City, you raise a good point with the example of RJR dumping cigarettes in Asia just to pimp ICs.
Perhaps only the exporters of certain industries & products should earn ICs, such as green energy equipment, high-tech manufacturing, professional services in engineering/medical/IT/etc (reverse offshoring!), etc. Actually, this would actually turn the trade balance into an exporting surplus, since only a subset of exports get ICs, which ALL imports still gotta compete for. Shiiit, after 37 years of spending more than we earn, a surplus would prolly be great for US for a few years at least.
Like I said P-City, IMHO this IC idea is the best idea I’ve read to balance the trade deficit, but I’m agnostic about it. If there is a better idea, I will fux with it, pls detail your idea of subsidizing R&D for certain industries, maybe that’s better. The problem I see with “certain industries”, is that our Politrickians are very easily bought & sold by the Corporate Whore Lobbyists, so how do you ensure the “right industries” end up being the ones that are subsidized?
@ Dallas
I never said ICs are a magic bullet for the US economy. I specifically said ICs could balance the trade deficit, which is probably the main problem of the US economy, but not the only problem.
For the US economy to improve, we will collectively need to “walk & chew gum” simultaneously. Obama seems that he is probably capable of doing multiple initiatives simulateously, even ones that will enrage the Corporate Whore Lobbyists.
Why can’t the next President attempt BOTH
1 Implement ICs
2 Implement a Ron Paul-style reduction in the US military empire.
2a end the Iraq occupation.
2b 90% reduction in US forces at military bases globally. Why the fock do we need big bases in Germany or South Korea? Those are rich ass countries, they can defend themselves, we are too broke to keep subsidizing their defense.
3 Energy initiative, such as 2X the MPH of all new American cars in 10 years, by using electric, diesel cars like Loremo, etc.
4 etc
i think my brain just exploded. thanksnkac i w lo tnjd guys…
When attacked as a four prong economic development plan with Import Certificates actually being in the rear of a revised energy schedule and most certainly a reduction of the military industrial complex(you see how your second point has three apendages).
The trade deficit has so much more to do with our system of ‘capitalism gone wild’ and until corporations can accept compassionate capitalism we will never achieve surplus nor balance.
Also, for point three I assume you mean miles per gallon as opposed to miles per hour which would be cool if you are proposing the R & D for teleportation.
yeah Dallas, MPG, my bad
I think you, P-City, & myself are all in the same ballpark. Any of the things we are mentioning would be a big improvement on the status quo we have currently.
EGC, nice drop. Dallas, P-City, good work too. I have little to add but two parallels: 1) between the U.S. economy and U.S. efforts in international basketball since 1996… we may still have the best talent but it’s not developed and focused well enough to expect anything but slippage on the world stage. And 2) between the last time a Democratic presidential candidate rode “the acceptance and support of elite sectors of the mass communications media…rocket-like to the top of the opinion polls” (http://en.wikipedia.org/wiki/Jimmy_Carter) in the midst of a messed-up economy due in no small part to a wrong-headed war…
I’m still saying that we chip in and buy that cart of apples. (But we will only accept Euros.) Shit is about to get rough out there.
Has anyone noticed that gold is up almost 50% over the last 6 months?
@omegaSB
They say Jesus rose on the 3rd day! It ain’t over.
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As far as the blk Lincoln goes, is there anyway we can get that on a coin, preferably a penny, because that is all I have after gas and taxes and I just picked that up off the sidewalk!
Have you ever wondered why the penny was brown?
Lay all of your coinage out (quarter, nickel, dime, penny) face up and notice that Lincoln’s back is turned.
They gave Lincoln the darkest “dirtiest looking” coin and lowest denominator because they said he turned his back on his ppl.
There goes the sayin in my opinion:
“Common denominator, nigga numerator” – Dre 3000 – Outkast
@EGC
“Implement a Ron Paul-style reduction in the US military empire.”
For real Eisenhower, Bush (the 1st) both spoke on this and Clinton started doing it. When the war kicked off they blamed the lack of troops on Clinton’s cut backs. Clinton was following the aforementioned gents thoughts that instead of sending in a bunch of troops we basically bomb the hell out of folks then use minimal troops. Despite the fact that Bush said this is what we need to do, the right has put alot of the failure of this war on Clinton for actually following through with the policy.
In the end people like to “see” numbers as it relates to people and paper – like here when they had cops making “quality of life” collars. It’s all about allowing someone to cite a number during an election.
Software engineering & clothing manufacturing?!?
Mugatu will have somebody killed really quick!
I really doubt that IT companies will go from paying engineers $90K+ a year when they can pay some one more than competent, who will be happy with $40-$60? I do not see that happening. The U.S may lead in entertainment, but the U.S. is not a leader in science, math and technology.
^D, nah foreign ownership of U.S. currency sounds like a really-really-really bad thing. It’s already bad that many taxes we face are due to bullshit factors, but add an external sovereign nation’s interest and I can imaginge imagary tariffs levied just because. Taxes sucks. Remember no taxation without representation? The government will not represent the people when they need to come up with capital to pay off their creditors.
VEe,
Foreign ownership of US currency allows the US government to print more money. If that currency were backed by silver or gold that would be fucked the fuck up for the rest of us, but since there is nothing to keep the currency honest i say pass around the dollar bills like christmas cookies.
“i say pass around the dollar bills like christmas cookies.”
and word to g dubya we do…nice post…great comments.