BEA to begin tracking “trade in value added”

December 13, 2021

If you visit the web site for the “Bureau of Economic Analysis,” you’ll be greeted with an announcement that the Bureau will begin tracking “trade in value added,” which I find very interesting. Could this be the first step toward the U.S. imposing a “value added tax” – or “VAT” – on imports?

What is a “value added tax?” It’s a very complicated subject. It’s essentially a sales tax – one that would be levied by the federal government. Nearly every country in the world uses it to generate a substantial portion of their government’s revenue. The United States is one of the few, and most glaring, exceptions. When applied to imports, it essentially functions as a sort of tariff – but one that’s perfectly legal under the rules of the World Trade Organization.

Wikipedia has a very long article explaining the value added tax and it will leave your head spinning when you’ve finished it. What’s most important is the effect on trade. For that, zip right to the end of the article:

Many politicians and economists in the United States consider value-added taxation on US goods and VAT rebates for goods from other countries to be unfair practice. For example, the American Manufacturing Trade Action Coalition claims that any rebates or special taxes on imported goods should not be allowed by the rules of the World Trade Organisation. AMTAC claims that so-called “border tax disadvantage” is the greatest contributing factor to the $5.8 trillion US current account deficit for the decade of the 2000s, and estimated this disadvantage to US producers and service providers to be $518 billion in 2008 alone.

In other words, other countries use the VAT as a sort of tariff, which the WTO allows. The U.S. doesn’t, putting it at a huge trade disadvantage. So this announcement by the BEA that it will begin compiling “value added” data may be signaling that a move in that direction. In other words, the U.S. may finally have reached the conclusion that “if you can’t beat them, join them.” This would be an enormous development!

Some may protest that they don’t want to pay more sales tax – one to the federal government on top of what they already pay to their state. But if it were accompanied by a corresponding reduction in federal income tax, the only effect would be its role in leveling the trade playing field, at least to some extent (probably not enough to offset the the effect of population density disparities), bringing high-paying manufacturing jobs back to the U.S.

If the U.S. doesn’t have the guts to thumb its nose at the WTO and impose tariffs on imports (like Trump did with China), at least a VAT would be a smaller step in the right direction.

Trade Deficit Down as Exports Rise

December 11, 2021

In a rare bit of good news on trade, as announced by the Commerce Department this week, the overall trade deficit, led by exports of U.S.-manufactured goods, fell by $14.3 billion in October to $67.1 billion. Here’s the chart: The decline in the deficit was due to a big jump in exports, rising by $16.8 billion to $223.6 billion, shattering the previous record of $215 billion set in May of 2018. The jump in exports was more than enough to offset a $2.5 billion increase in imports, which set a new record of $290.8 billion, the fifth consecutive monthly record.

The best news, however, is that the decline in the trade deficit was led by a decline in the deficit in manufactured goods. Here’s the chart: Exports of U.S manufactured goods jumped by $10.3 billion to $125.5 billion, beating the previous record of $119.7 billion set only two months earlier. It was enough to offset an increase in imports of $1 billion to $207.4 billion – also a new record.

Clearly, the new records set by imports debunk the claim by some that the supply chain crisis is due in part to labor shortages caused by the pandemic at foreign manufacturers. That’s a ridiculous claim. We’ve been inundated with a flood of imports that has left warehouses stacked to the rafters.

The slowing increase in manufactured imports and the accelerating increase in manufactured exports is the best news in this report. It may be the early signs of a manufacturing revival in the U.S. and may also explain, at least in part, the “labor shortage” we’ve been witnessing. That, together with massive spending on infrastructure, have combined to attract workers to higher-paying jobs, leaving other industries that are dependent on cheap labor – like the restaurant industry (where over-building is also a likely factor) – unable to attract workers.

However, it remains difficult to draw any hard conclusion on any economic data until the dust from the pandemic and massive government stimulus spending begins to settle.

Elon Musk’s Take on Falling Birth Rate

December 8, 2021

I really like Elon Musk. He’s an incredible entrepreneur. I love the fact that, already an extremely wealthy man, he was willing to risk building his own car company to compete with the giants in the industry, something everyone said couldn’t be done. I love the fact that he’s dedicated to building the cars he sells in America right here in America, including the development of his own battery technology – batteries that he also builds right here in America. Musk is an extremely smart and ambitious man – an American hero.

So I found his take on falling birth rates – as reported in this USAToday article – very odd and disappointing. For such a smart man, his take is, well, downright dumb. Musk believes that:

  1. There are “not enough people in the world,” and
  2.  “… one of the biggest risks to civilization is the low birth rate and the rapidly declining birthrate,” and
  3. “…  if people don’t have more children, civilization is going to crumble,” and, finally
  4. people shouldn’t “try to live for a super long time.”

First of all, let’s get one thing straight. Yes, birth rates have been declining. But they’re still high enough to drive exponential population growth, doubling the population every forty years. Look at this graph of world population growth. My God, that’s not fast enough growth for him?!?

It’s not surprising that CEO’s of major corporations favor never-ending population growth. They see it as a source of never-ending profit growth. After all, more people mean more customers. However, in this case, it seems contradictory for the CEO of a company like Tesla, dedicated to producing “green” products to combat climate change, an existential threat to human life, to actually be advocating for the very thing that’s driving that threat.

We live in a finite world that can only support a finite population. Any child who has ever had an aquarium with guppies understands this. Item no. 4 above seems to indicate that perhaps Musk has some grasp of this too. After all, if everyone lived forever, the birth rate would have to fall to zero. Otherwise, the world would quickly become very badly overpopulated. But advocating for a shorter life span and a higher death rate? Yikes!!

Economists assert that mankind is clever enough to overcome all obstacles to growth and, when they say this, they are talking not just about economic growth, but population growth as well. We know this because they say it in direct response to Malthus’s fears of the consequences of overpopulation. Such a statement has no basis in fact and is nothing but pure hubris. Just because it’s proven true up to this point doesn’t mean it will always hold true. Mankind is, in fact, very clever, but not that clever.

There are endless limitations that make never-ending population growth impossible. Human beings are made up of compounds whose supply on earth is limited. Take water, for example. We’re mostly made of water. As I pointed out in my book, Five Short Blasts, if population growth continued at today’s rate, in 850 years the world’s land masses would be carpeted in human flesh several feet deep. In only 1,100 years, every drop of water on earth would be locked up in the make-up of human flesh. These scenarios are obviously impossible. If theories don’t hold true when tested at their limits, then those theories are invalid. Mankind is not clever enough to overcome all obstacles to growth.

Other obstacles will prove to be insurmountable long before we reach the above scenarios. We may be witnessing some already. Take climate change, for example. Commitments to reduce carbon emissions are broken as fast as they are made because of a dirty little secret: the goals are unattainable, though we continue to pretend they are. All of the renewable energy can’t make a bit of difference without a backup source of power. And what about methane? Landfills emit tons of methane, and we need more landfills all the time. Cattle emit tons of methane, but we need meat. People emit methane, but no one talks about that. Instead, people like Musk insist we need more people.

Then there’s the one that’s the subject of this blog. Growing populations mean more crowding, which drives down per capita consumption and, along with it, employment. Nations, especially the U.S., are getting poorer thanks to social safety net programs meant to deal with the effects of rising unemployment. Maybe we could spend more to fight climate change – like making electric Teslas more affordable – if we weren’t being bankrupted by the costs of overpopulation.

I wish Elon would take a break from his Tesla and Space-X duties and spend some time pondering the subject of population growth a little more carefully. If he did, and came to the conclusion that maybe a lower birth rate and a stabilized population would actually be a good thing, he could have more influence in saving the planet from an existential threat than all of his electric cars ever could.