“Five Short Blasts” Theory Explained: Part 5A

This post is the fifth in a series of articles that explains the new economic theory I proposed in Five Short Blasts. If you haven’t read the previous articles yet, just go to “The Theory Explained” category of this web site. This series of articles will be archived there in reverse chronological order. Just scroll down to find the beginning of the series.

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In Part 4, we learned how the U.S. economy is feeling the effects of overpopulation, the effects predicted by the theory presented in Five Short Blasts – rising unemployment and poverty. We saw how these effects are accelerated by free trade with overpopulated nations, effectively importing their unemployment and poverty and exporting our jobs and financial assets. In essence, we are participating in a “misery-sharing” program, relieving overpopulated nations of their unemployment and poverty and taking it upon ourselves.

At the end of Part 4, I said that Part 5 would be the last in the series. Well, I soon realized that it would take much too long an article to do this final subject justice, so I will split it into Parts 5A and 5B. In these parts, we’ll examine policies that would reverse the damage done to our economy by our own overpopulation and by the imported effects of overpopulation, and we’ll begin with the latter – the trade deficit. Although the damage that’s been done is staggering and has brought our economy to the brink of total collapse, this damage could easily be unraveled in less than ten years.

How? Well, let’s begin by listing the actions that have proven to be failures over the past thirty-three years since our last trade surplus in 1975.

  1. Negotiating with our trade partners and relying upon their promises to consume more American goods.
  2. Filing complaints with the World Trade Organization about unfair trade practices and waiting for enforcement action, affording the offending trade “partner” time to come up with a new scheme for maintaining their trade surplus.
  3. Cajoling trade partners to stop manipulating currency exchange rates. Even if and when they do, nothing changes because the currency exchange rate isn’t the root cause of the trade deficit.
  4. Placing blind faith in economists who assure us that trade will return to a balance once our trade partners have become wealthy enough and begin to consume at the same rate as Americans. Decades of experience has proven them wrong.
  5. Fiddling with interest rates to stimulate the economy or to squelch the purchase of imports.
  6. Tax breaks to encourage corporations to invest in domestic production.
  7. Improving productivity, cutting costs, working smarter and all of the things that consultants come up with to make us more “competitive.” The American worker is working him/herself to death to be more competitive and it hasn’t made one iota of difference. Our trade deficit just gets worse.
  8. Job training programs. American workers have been trained and retrained more than circus chimps, but to no effect because the programs lack one essential ingredient – jobs that are going unfilled due to a lack of trained workers. Despite what some special interest groups may say, groups interested in importing more workers to keep the labor supply and demand balance in their favor, there are no such jobs. The end result is that the glut of labor is moved from one sector of the economy to the next, eroding wages in each as it goes.

Every one of these approaches has been tried repeatedly for decades, and matters have only gotten worse. None of these things have worked because none address the fundamental problem or address it in a way that puts control of the outcome in our hands instead of relying on our trade partners to solve our problem for us.

It’s time for the U.S. to take control and take actions that are assured to restore a balance of trade in manufactured goods. Notice that I have consistently qualified my discussion of the trade deficit to limit it to manufactured goods, and have consistently identified overpopulated nations as the source of the problem. Free trade in natural resources is indeed beneficial, as is free trade in manufactured goods between nations approximately equal in population density. A large, persistent trade deficit in natural resources, as in oil for the U.S., is not an indictment of free trade in natural resources. Rather, it’s a clear indication of a state of overpopulation. And a persistent trade deficit in manufactured goods with a nation of roughly equal population density isn’t an indictment of free trade, but a clear indication of being uncompetitive.

But when it comes to trade with overpopulated nations, it’s imperative that those nations compensate the U.S. for their overpopulation-induced inability to provide us with access to an equivalent market. The only way to accomplish this is with a return to the trade policies employed by the U.S. for the first 171 years of its history to build it into the world’s wealthiest and most envied nation – tariffs. It’s only through tariffs that the price of imports from overpopulated countries can be kept high enough to provide the profit potential motive for companies to manufacture products domestically, assuring a balance of trade. The best way to do this fairly is to implement a tariff structure that is indexed to nations’ population densities, assessing the highest percentage tariffs on products from the most densely populated nations. (This would also provide them with incentive to tackle their overpopulation problem.)

For example, we could structure a system of tariffs on manufactured goods that would tack on 5% for every increase in population density of 100 people per square mile. Every nation with a population density of 100 or less would be tariff free. (The U.S. is at 85 people per square mile.) Every nation with a population density between 100 and 200 people per square mile would be subject to a 5% tariff. Each with a density between 200 and 300 would be subject to a 10% tariff, and so on. Under such a tariff structure, China would be subject to a 15% tariff. Germany would be subject to a 25% tariff, Japan – 40%, Korea – 55% and so on. This tariff structure could be adjusted up or down based upon trade results. The goal, after all, is to achieve a trade balance, not a surplus and not to generate federal revenue. Isn’t it only fair to expect the rest of the world to buy as much from us as we buy from them? As long as a balance of trade is maintained, the tariffs could be steadily reduced, but immediately raised again if the balance begins to tilt back toward a deficit.

The beauty of such a system is that overpopulated nations are not prime sources of natural resources. So those nations who do supply us with natural resources would be mostly tariff free. There would be no tariffs on the natural resources and most would be free of tariffs on their manufactured goods as well. Consequently, they’d have no incentive to implement retaliatory tariffs. The only nations who would tend to retaliate would be those with whom we have large deficits and, in such a trade war, it is only the nation with the trade surplus who would come out the loser. We could simply match them tariff for tariff, effectively cutting off imports from that country. They may briefly attempt such a foolish move, but would soon realize that some exports to the U.S. are better than none at all.

Such a system would have to be implemented slowly, ratcheting up the tariffs a little at a time, affording domestic industry the time needed to recognize the new profit potential in manufacturing in the U.S. and implement plans to build new capacity here. For example, since we still have domestic auto manufacturing capacity, it could be ramped up very quickly to meet new demand. But it may take years to restore our capacity to manufacture electronics products. Also, it’s critically important to implement tariffs across the board, and not product by product. For example, early in the administration of President Bush, he imposed tariffs on steel to help the domestic steel industry survive. But soon, domestic auto manufacturers complained that they were being made uncompetitive by high steel prices. An across the board tariff system would have prevented this problem.

Ultimately, I believe this nation would be well-served by amending the constitution to forbid running a persistent trade deficit. Our founding fathers probably couldn’t envision that our nation’s leadership would ever be so stupid as to allow such a situation to persist. If they were here today, they’d probably have such an amendment drafted and ready to submit to the states for ratification by tomorrow.

That’s the solution to the trade deficit – the importation of unemployment and poverty from overpopulated nations. In Part 5B, we’ll tackle solutions to the problem of overpopulation right here at home.

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