An Economic Program for Stimulating U.S. Economic Growth
Officially, the unemployment rate is 5.1 percent of the labor force, defined as those working or, if unemployed, actively seeking employment. Millions of Americans have given up looking for jobs, millions more are on welfare, and millions are working part-time involuntarily. The real unemployment rate is closer to 20% and the country’s malaise shows it. The BLS has just reported that the average wage actually fell in 2014. And the U.S. Bureau of the Census reported Wednesday that for the past three years the median household income stagnated following two years of declines. A dismal picture indeed.
The bankruptcy of both the Democratic and Republican Parties cannot be remedied by a single presidential candidate of either party, although the Trump candidacy for the Republican nomination offers a glimmer of hope. The entrenched oligarchies that control both major parties are incapable of pursuing rational economic programs in the national interest, as evidenced by the huge international trade deficits that converted the U.S. since 1970 from the world’s leading creditor nation to the world’s leading debtor nation. The same oligarchies seek the votes of every voting group in the country and thus are incapable of pursuing the national interest. Although the Republicans pretend to be against a big central government, when in power they failed to eliminate a single agency of government (except one -- the Export-Import Bank, which they eliminated on ideological grounds. Not only did the Ex-Im Bank not cost the government a red cent but it was the only government agency that created export jobs!), supported every Democratic proposal to send government jobs overseas like the General Agreement on Tariffs and Trade, the World Trade Organization, and the TransPacific Trade Agreement, all of which caused or will cause U.S .international trade deficits and will continue to cause the movement of American factories overseas and the loss of millions of good-paying U.S. manufacturing jobs. It has nurtured the anti-global-warming movement which has caused the federal and state governments to waste hundreds of billions of dollars subsidizing crony capitalists with no -- literally no -- effect on climate change. Following is a program to change all that:
First: we should end our huge chronic trade deficits which have decimated our manufacturing sector and caused the loss of millions of good American manufacturing jobs. Our policy should be balanced trade which economic theory supports rather than free trade which is supported by economic theory only when countries have a common currency and free movement of capital and labor (as among the States of the United States). We should use the “Scaled Tariff” (our invention!), a single-country variable-tariff that rises as trade deficits widen significantly, whatever the reason, and are reduced to zero as trade is brought into balance. Countries like China, Japan, Germany, Korea, and Mexico have had chronic trade surpluses at our expense. While the scaled tariff is in effect, we should realize huge tariff revenues. Current international trade rules permit countries to impose single-country tariffs to bring trade into balance. And there is no need to enquire whether or not a country is using artificial trade barriers to secure a trade surplus.
The “Scaled Tariff” will provide us with a huge amount of revenue while trade gets balanced. Of course, the price of products produced abroad will rise but that is a small price to pay to get rid of the huge damage to domestic manufacturing and the loss of millions of jobs of American workers caused by the trade deficits. The products imported from the foreign factories of American companies are foreign-made products. Foreign car manufacturers from Germany, Japan and Korea will face substantial tariffs which will favor producing cars in the U.S. And other products imported from these countries will rise in price giving a significant boost to manufacturing those products in the U.S. until trade if brought into balance.
Second: abolish the corporate income tax, the worst broad-based tax ever invented, and tax corporate earnings as the personal income of shareholders under the personal income tax. Economists know well the following defects of the corporate income tax:
Corporations as an artificial entity do not bear any of the tax burden of the corporate income tax; shareholders bear the burden and the rate is the same on billionaire shareholders, 35%, as on the poorest shareholders whose pensions, mutual funds, and IRAs are invested in corporate stock. It causes corporations to engage in such uneconomic practices as reliance on debt financing, causes them to buy back shares of their own stock instead of declaring dividends because the former results in capital gains which are taxable at lower rates under the personal income tax than dividends (until recently!) Corporations that export are disadvantaged. They face international competitors who are subject to lower corporate income tax rates.
Some who object to the high rates of the corporate tax advocate replacing it with a value-added tax (a sales tax!) forgetting that the states rely on sales tax revenues as a major source of financing and the central government to all intents and purposes has a monopoly on income taxation.
Third: abolish the federal minimum wage which was first enacted by Pres. Franklin D. Roosevelt at the request of anti-black lily-white unions in the 1930s. The minimum wage law has been lamed by economist Thomas Sowell for the high levels of unemployment and the disintegration of black families since the end of WWII. In 1930, blacks had lower levels of unemployment and fewer single-parent families than whites.
Fourth: end the ban on the export of American-produced oil. One effect of the ban has been to reduce employment in the oil-producing industry. Its ban would stimulate employment in the oil-producing industry
Fifth: repeal the Dodd-Frank bill and other foolish business regulatory legislation which has stifled private enterprise and reduced the demand for labor. History has shown that the great majority of senators and congressmen are economic illiterates. They have by their many foolish interventions in the private economy caused recessions and depressions and were incapable of stimulating economic growth. End the multitude of inefficient government interventions in the private economy. These range from laws requiring all government contractors to pay union wages on all federal contracts, minimum wage laws, a law barring the export of American-produced oil, and a host of regulatory bodies from those created by the Dodd-Frank bill, to the Community Investment Act of 1977 which forced banks to make sub-prime loans and led to the severity of the Great Recession.
Sixth: reduce federal government inefficiency and waste by eliminating many federal departments and agencies such as the Department of Education, the Department of Urban Housing and Development, the Environment Protection Agency etc. which have no constitutional authorization. Economists have shown that increased government expenditures cause a decrease in private investment. Reduction in government expenditures will expand private investment and expenditures and provide employment. Besides, education is a state function, and cities and local governments are creatures of the States. The EPA should be abolished and replaced by a law that prescribes environmental rules. Congress granted the executive numerous authorities which is an invitation to abuse and corruption as the EPA has so clearly demonstrated. Replace regulatory bodies by laws that specify the regulations. Congress should prescribe rules, not create authorities that make their own rules and regulations and retard private investment.
Seventh: half of the revenue from the federal income and estate taxes should be allocated by Congress to the States on the basis of population. The 16th Amendment to the Constitution authorized the federal government to levy an income tax and changed the nature of our government by giving enormous resources to the central government which it used to control state policies by grants-in-aid, transforming the U.S from a republic in which, under the 10th Amendment to the Constitution, all the powers not specifically granted to the federal government were reserved to the States or to the people. The federal government has become an all-powerful central government like all the European powers replacing the primacy of the state governments and the people as envisioned by the 10th Amendment to the Constitution.
Eighth: end the Federal Reserve’s power to control interest rates. The market should determine all interest rates except the rate that the Fed charges for its loans to the banks. The principle is that markets, not governmental authorities, should control prices charged in the market and the determination of prices should be in accordance with the laws of supply and demand, relying on competition to determine equilibrium prices. The so-called quantitative easing of the Fed caused asset prices to skyrocket resulting in the enrichment of billionaires and multi-millionaires and causing a maldistribution of wealth. Stephen D. Williamson, vice president of the St. Louis Fed, concludes that quantitative easing was designed to spark good inflation but actually resulted in just the opposite and had at best a tenuous link to actual economic improvements.
These reforms would stimulate economic growth and provide good jobs to millions of American workers.
The writer is Prof. Emeritus of Public and International Affairs at the Univ. of Pittsburgh and holds a Ph.D. in economics from the University of Chicago.