Monday, March 1, 2010

Global Trade and Conflicting National Interests

At least one economist appears to be working for the long term interests of the United States.
Source: Richmans' Trade and Taxes Blog
Among the relatively few economists who view the loss of American industry to foreign countries as a catastrophe in the making is Prof. Ralph Gomory, Research Professor at the Stern School of Business at New York University and President Emeritus of the Alfred P. Sloan Foundation. Prof. Gomory is no ordinary academic. His Ph. D. is in mathematics and he made his mark as Senior Vice President for Science and Technology at IBM...

In an article entitled Manufacturing and Comparative Advantage by Gomory in the July 8, 2009 Huffington Post, he wrote:

Ignored in all these discussions [of free trade] is the obvious fact that when you don't make for yourself the things you need, you will have to trade for them. If you have to import cars and all sorts of manufactured goods, you will be importing on a large scale; to trade for them you will need to create additional goods or services that you can export on an equally large scale....

If you give up large things and specialize in exporting small-scale things for which the demand is limited, you will not be able to buy many of the things that are needed on a large scale. If the things you are going to export don't add up to something big, you will be neither making nor importing what you need. You will simply not have them. You will be a poor nation.
The Richmans' continue-
As we have shown in our book, Trading Away Our Future (Ideal Taxes Assn, 2008), by buying U.S. financial assets, China kept the value of the dollar high and this perpetuated and augmented the trade deficits and contributed to the boom and bust of 1999. And we now add the housing boom which turned into a bust in 2006.

We cannot expect an economic stimulus package to have any success when it will not produce a single exportable good or service to produce a recovery. We have a huge trade deficit in petroleum while we prohibit drilling for oil on public lands and offshore and refuse to permit exploiting our huge petroleum reserves from shale, both estimated to exceed by far the oil reserves of Saudi Arabia. We cannot afford to spend trillions on developing energy from renewable sources while our trading partners are investing in low-cost energy from fossil fuels, e.g., Russia in the Arctic and China in Brazil.

Prof. Gomory agrees with us that we are on a suicidal course. In May, he advocated some version of Warren Buffett's Import Certificates plan to reverse that course. We advocate the same solution in our book and in this blog.

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