June 13, 2016

The Importance of Restoring Manufacturing

Are the people concerned about revitalizing U.S. manufacturing obsessing needlessly over a sector that is declining in a manner that it completely natural given America's advanced state of economic development?  Isn't $100 of good food well served in a nice restaurant just as valuable to the consumer as $100 of nice electronic gear? 

From the perspective of each individual consumer, yes. But we must look at the manufacturing sector's broader contributions to the strength and well-being of the United States such as the following.

June 11, 2016

America’s External Deficit and the Domestic Savings Shortfall (wonkish)

Are America’s external deficits and its domestic savings gap really two sides of the same coin, one equal to the other?

The simple answer is, yes – provided that all of the variables used to measure the external deficit and the domestic savings gap are defined in a very precise manner. 

The remainder of this note, which is available here, provides the details. 

The full note also points out that, even if the variables are defined and measured correctly, the standard presentation (S – I = X – M) can lead to bad policy recommendations because the equation implies a one-way causal link between the domestic savings gap and the external deficit. In fact, the causality can run in both directions -- external financing can increase the domestic savings gap.

America Needs a Competitive Dollar - Now!

June 8, 2016

MAC High on WSJ List of Ideas to Restore U.S. Manufacturing

Today's Wall Street Journal carries an excellent article by Bob Tita entitled "How to Revitalize U.S. Manufacturing.

The Market Access Charge (MAC) advocated by Americans Backing a Competitive Dollar appears high in his list of the nine policies that "could spark new growth in factory jobs and the economic benefits they bring." By giving US manufacturers a fair, trade-balancing exchange rate, the MAC would "keep a strong dollar from further swelling the trade deficit."

Tita's full list of ideas, along with the advocates for each that he mentions, includes:

  1. Make exports more valuable -- Warren Buffett's Import Certificates - ICs
  2. Impose a value-added tax -- Harry Moser of the Reshoring Initiative
  3. Deal with an overvalued currency -- John Hansen's Market Access Charge - MAC
  4. Look at the true cost of offshoring -- Moser's Reshoring Initiative, Frenando Assens of Argo
  5. Purge duplicate regulations -- NAM 
  6. Look beyond jobs to innovation -- Robert Atkinson and the Innovation Foundation 
  7. Turn community colleges into career factories -- US Departments of Labor and Commerce
  8. Spend more on manufacturing R&D -- National Network for Manufacturing Innovation
  9. Create regional centers of expertise -- Bruce Katz of the Brookings Institution
All of these ideas are well worth considering and should be regarded, not as competitive alternatives, but as complementary parts of an overall policy package for revitalizing US manufacturing.

However, a careful analysis of rising trade deficits and declining competitiveness of America's manufacturing over the past forty years indicates that the overvaluation of the US dollar has been a primal cause of these closely-related developments. This overvaluation, which according to the latest PIIE estimates by Fred Bergsten has reached about 25 percent today, imposes a 25 percent tax on the selling price of all US goods that can be exported or imported. 

This sharply reduces the incentives to invest in worker training, R&D, plant and equipment, automation, centers of expertise, and all the other measures listed above that are so urgently needed to make American manufacturing internationally competitive again. 

Hence the urgency of implementing a policy such as the Market Access Charge that will bring the US dollar back to its internationally competitive, trade-balancing exchange rate.

America Needs a Competitive Dollar - Now!

June 3, 2016

Will the TPP's Costs Exceed its Benefits

Like many Americans, I have long been concerned about the net impact that the Trans-Pacific Partnership (TPP) will have on our country. Against this background, I testified before the International Trade Commission in January (my testimony and its published summary are available here and here).

When the ITC’s final report was released this month, I immediately began to review it. The report is quite good and tries to present a balanced assessment. However, though the report does not explicitly say so, the TPP itself is fundamentally flawed and needs to be redesigned to fix the following problems:

1.     The TPP’s net benefits for the American people are exceedingly small and highly speculative.
2.     Tariffs are not the main reason for our trade deficits, lost jobs, and off-shored production.
3.     Misaligned currencies, the real culprit, are largely ignored.
4.     Overall trade deficits and job losses in key sectors will increase with the TPP.
5.     The TPP ignores China – America’s largest source of trade deficits and lost jobs.
6.     Large international corporations will be the primary beneficiaries of the TPP.
7.     Further economic and political polarization are likely if the current TPP is implemented.
8.     America needs trade policies based on 21st century realities, not 19th century theories.
9.     Though better rules for trade are desirable, what America really needs is a competitive dollar.

These points are discussed in more detail here on this blog site.

America Needs a Competitive Dollar - Now!