I want to bring attention to a post today,Balance Trade—Make Jobs, by Bill Parks. In the post Parks writes about the harm being caused by our trade imbalances:
The U.S. trade deficit—like an infected appendix—not only won’t get better on its own, it will get worse. It’s an ongoing problem that is destroying the American heartland and without an effective intervention will only make us poorer.
. . . Over the more than thirty years that my company has been importing and exporting products, the decline in the relative competitiveness of the United States has become increasingly clear. Even the most amateur economist can observe the devastating effect that the collapse of American manufacturing has had on millions of Americans.
. . . Living standards are rising all across Asia, but the median income in the United States has scarcely budged in more than thirty years. In fact, the lower 80% of U.S. wage earners are worse off than they were forty years ago. Keynesians would admit that without running up the deficit and household debt over the past 30 years, our standard of living would have decreased. The added interest burden of this and future debt as well as a continued trade deficit assure a future lower standard of living for the majority of Americans.
Instant Balanced Trade
Parks suggests a deeper look at an idea by investor Warren Buffett to remedy the problem. Buffett’s suggestion:
We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties—either exporters abroad or importers here—wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.”
Simple idea: when you export you earn an import certificate. You can’t import without a certificate. Import Certificates earned by exporting would be tradable, like carbon and other pollution credits so manufacturer not only gains from exporting, but from the resulting allowance to import. Part of the money from such a sale goes to We, the People, to funds for deficit reduction.
Creating Demand For American Manufactured Goods
The effect of this plan?
The ICs would likely cause a huge jump in demand for domestically manufactured products with the attendant jump in employment, and as manufacturers grow their production capability and new factories are built the added employment will produce a multiplier effect on the economy. Along with the multiplier effect on the economy will come the accelerator as factories gear up by purchasing everything from machine tools to computers to support the higher level of production. This one time boost could pull the economy out of the doldrums in record time. Flexibility in cranking down the IC ratio is required to avoid domestic and international economic disruptions. We should no more use a fixed formula to implement certificates than we would use one to control monetary or fiscal policy.
Parks suggests limiting this system to manufactured goods and outsourced jobs, and not using it for commodities. I would suggest phasing in import certificates for oil, too, as a way to ramp up our own Green economy.