Wednesday, December 7, 2016

Trade

by -
High Unemployment

The simple answer is: a global economy.

But a lengthier explanation is due. As long as we, as a nation, import more than we export we will have enough goods to fill the needs of all of the populace without requiring the labor of all of the populace to produce those goods.

Some say it is because too many companies outsourced jobs. But whether an American company hires workers in a foreign land or buys and imports products from a foreign company, the result is the same. It still comes down to the imbalance between what is manufactured here and what is consumed here. Imports vs. exports.

Others blame automation, but that’s not new. The industrial revolution caused the loss of some jobs, but created others. In a closed economy, where most everything was produced here, many people were needed to manufacture whatever was in demand. But in a global economy, all of our labor is not needed to satisfy all of our needs. It’s as simple as that.

What isn’t simple is a viable solution.

We didn’t get to this point overnight. Nothing can be done that will reverse the trend overnight. If you drive your car in the wrong direction and eventually turn around, it will take you about as long to get back to where you started as it took to get to the wrong place.

A good starting point – the first step in turning around – would be to lower our corporate tax rate. It is currently higher than just about every other industrialized nation. We shouldn’t be surprised by the actions of some companies to avoid those taxes. An increasingly popular process, where an American company buys a foreign company and moves their headquarters to that other nation, is called “tax inversion”,

It’s also been called unpatriotic – mostly by people who don’t understand business. A business must make a profit. Otherwise it will go out of business. Unlike the government, which can make terrible decisions but never go out of business, companies must make decisions that ensure profitability. It has nothing to do with patriotism. If the company fails, it will be unable to employ anyone. Now that might be considered unpatriotic.

But if our federal tax rate was lower than other nations, our companies would be more competitive, which is good for their bottom lines. Lowering the tax rate just might reverse the trend toward inversions. Foreign companies might want to employ that trick to lower their taxes by relocating to the US.

The more we manufacture, the more we can export and the less we need to import. More manufacturing in the US would employ more Americans.

Balanced trade is the best cure for unemployment.

Before fiat monetary systems replaced the gold standard, international trade had to balance. If it didn’t, nations that imported more than they exported had to pay the difference in gold. Once we went off the gold standard balanced trade was no longer considered necessary.

I don’t expect to see the gold standard re-instated any time soon, but that doesn’t mean we can’t at least try to balance trade. The best first step toward that goal would be to create a tax code that encourages businesses to locate in the US – and stop penalizing companies that do.

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