I've taken a hell of a lot of shots at policy over the last three years, and have on occasion gone after specific policy mandates and recommendations.
This will be an attempt to back the lens out and take a wider view. That is, we're going to look at first principles, not the fine details.
If we want to fix America's economy, we have to address the distortions that have been exploited by those in American business, and especially those in foreign businesses. This means, broadly, two things:
The solution to both of these problems is the same - the exercise of original power granted to US Congress in The Constitution. Broadly:
If you do these two things then most of "global wage arbitrage" disappears. Now we get down to brass tacks - is our legal and tax environment really disadvantageous for business, or is the real issue that manufacturers want to abuse their employees and trash the environment?
If manufacturers want to make things overseas, that's fine. But if we really have a colorable argument for our policies in regard to wages and environmental issues, we have not only a right but a duty to prevent firms from evading those laws yet enjoying full and free access to our markets at the same time. We're either right on the facts and the ethics, or we're wrong.
Second, we must stop the BS games when it comes to taxation. Favoring one firm over another, or one line of work over another, is simply wrong. If you want innovation you have to get the hell out of the way. We can't do that with the existing Internal Revenue Code. Hell, most people are forced to use tax software of some sort because it's almost impossible to logically figure out how much tax you owe, and most businesses are forced to hire accountants for the same reason - and neither of those is a guarantee that the rules won't get changed out from under you.
All but the most-hardcore anarchists agree that the government requires some level of funding. The debate there is over "how much?", yet our tax system intentionally disconnects the people from this debate and it's consequences. That is, when the government spends more your taxes don't necessarily go up - indeed, they might not go up at all! Some people have no effective tax rate at all, even though they consume federal resources - we all benefit, for example, from national defense, and if you believe that a life is a life and that all have equal value, then you must also agree that the benefit gained from a strong national defense is equally-apportioned across all of us.
At the same time there are people who cannot afford to pay as much as others. But having anyone who gets a "Free Ride" on the tax system leads to obvious problems, in that increased expenditures not only don't cost those people anything, they might actually get a larger handout from it, and thus will automatically support it as there's no apparent cost.
There's one solution I've seen to this problem that works - The Fair Tax.
What is The Fair Tax? First, a replacement for all Federal Taxation on incomes. Corporate, personal, FICA, Medicare, Unemployment. All Federal Taxes other than tariffs and imposts are replaced with a national sales tax.
The Fair Tax includes a "prebate", which is sent to all legal households in the United States every month. This check is for the amount of Fair Tax that will be charged on a poverty-level income for the household size in question, and adjusts with the Federal Poverty Level tables. So if you live a lifestyle at or below the poverty line, you will pay no federal taxes.
Note that this is a decision by you. That is, no matter how wealthy (or poor) you are, you can choose to live a lifestyle right at the federal poverty line. If you do, your net tax cost on a federal level will be zero.
As your lifestyle choices dictate more spending, you will pay more tax. If the base Fair Tax rate is 23% then at double the poverty level spending your effective tax rate will be 11.5% (since half will be prebated back, the other half you will pay.) At 4x the poverty level spending you will pay an effective tax rate of 17.25%. At 10x poverty level spending (or above) you will effectively pay the whole 23% on every dollar spent.
But your lifestyle choices will be dramatically greater. That is, only a new car is subject to The Fair Tax. A used car is not. Therefore, if you want the best, the newest, the brightest, you will pay more tax. If you are satisfied with a vehicle that gets you to work, you will pay less tax.
More importantly, however, is that corporate taxes and their compliance costs will disappear. This will result in a flood of companies into the United States. After all, while we may have a nasty tax system we do have one of the best systems of corporate organization and protection around. Freed from all the cost-shifting tax games the United States will enjoy an employment boom unlike any in our history.
You have to address both employment and manufacturing to solve these problems.
Yes, the $30 DVD player will disappear. But with the job base coming back here for manufacturing, it can disappear. The money will stay inside our borders rather than go to China. Our policy actions will bear primarily here, instead of "leaking" out to foreign lands (or being hidden - on purpose - over there.) And reform of the tax system will mean that ordinary Americans will not need to file ANY sort of tax return or do anything tax-related at the federal level beyond paying through their purchases as they do with state sales tax.
There will be howls of protest from all corners that this is "Hooveresque" in it's implications. Nonsense. These tariffs are not intended to support prices at all. They are rather intended to prevent abuses that we deem criminal acts and unacceptable in our nation by those who enjoy the privilege of unfettered access to our citizens and their consumption.
Both the left and the right in this country are hypocrites when it comes to these issues. The left argues for Minimum Wage laws and living wages, yet it refuses to impose the same standards by proxy on those nations that both ensconce slave-labor conditions and then use that to export cheap products to our multi-national corporations here in the US. They go even further when it comes to environmental laws - these same folks who argue against CO2 emissions are just fine with them so long as they happen in China!
The right, for it's part, claims that "globalization helps Americans." Uh huh. Well, that $30 DVD player does help you buy one - if you have a job. But when the jobs that used to pay middle-class wages - $50,000 family incomes - doing things like building televisions all disappear over into a sweatshop in Asia, what do you replace that job with? Flipping burgers at McDonalds? That's a great trade-off - sure, the DVD player is half the price, but food didn't come down by half and neither did your gasoline bill. Guess what - your actual affordability of that DVD player is no better, and may be worse, than it was before "globalization."
Finally, these policies have made our own economic and monetary policy impossible tasks. Bernanke can play with liquidity but capital is agnostic - it will go wherever it can if there are no barriers on it's movement. This is not a hypothetical issue:
If the doubters are right, then the government has an inflation problem that it either hasnít figured out how to measure, or has chosen to ignore.
Remember, China doesn't release individual baskets and categories, like we do. Sure, we game the numbers - China simply obscures them and refuses to report. But there are plenty of non-official reports that suggest that real inflation in many of the things that Chinese people need to buy are up by 10, 20, even 30% - over the last year.
Lydia Wang, a 28-year-old marketing manager in Shanghai, gripes that the shoes and clothing she normally buys are at least 50 percent pricier than in 2009. Wu Sengyun, a 54-year-old retiree in the coastal city of Ningbo, Zhejiang, says prices of fruit and fish are up more than 20 percent in the past year.
Doesn't sound like "tame" inflation to me.
This is "leakage" of economic and monetary policy, and it is something we cannot control so long as we have a global market where labor and environmental arbitrage is permitted to take place.
We had asset inflation here and they had price inflation there. Now we're trying to counter asset deflation and it's failing because the price and wage inflation is going OVER THERE TOO! There's no way to stop it so long as the "free trade" globalists are allowed to rule the day where their definition of "free trade" means "enslave someone and ruin the environment, so long as you don't do it here, and it's all good."
We have hard choices to make folks.
These are three acts we could take today that would make a huge difference in our economy.
No, it would not mean "no pain to take." The pain of our malinvestment and bad policy still has to be borne out, and it will be - whether we like it or not.
But these changes would repatriate a huge amount of manufacturing into the United States, a necessary thing if we are to have a stable economy on a forward basis, and the tax changes would immediately remove the uncertainty from businesses with regard to punitive "pick the winner" games out of Washington DC.
You want solutions, there they are.
Politically popular they are not.
Effective, however, they are.
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