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Practical economic choices for a more peaceful world
There are a number of economic ideas that can immediately begin to help make our world a better one. Just consider for a moment that making roofs white or light-colored sends sunlight back to space and reduces global warming equivalent to taking all the world’s cars off the road for 11 years. Source: Steve Conner, “Obama’s climate guru: Paint your roof white!,” The Independent, 27 May 2009. Steven Chu, the US Secretary of Energy and a Nobel prize-winning scientist, is the source and the article is online at http://www.independent.co.uk/environment/climate-change/obamas-climate-guru-paint-your-roof-white-1691209.html.
Idea 1 by Richard Caplice on November 8, 2009 - Tax credit to help correct balance of payments. THE PROBLEM We currently have a serious economic slowdown that can be remedied by government intervention and yet nothing has been down by lawmakers to have this happen. I refer to the imbalance of payments regarding foreign cars and foreign oil. Currently, in rounded numbers, each month we have an imbalance of payments to Japan for its cars sold in US of approximately 10 billion dollars and for all the foreign oil that we import we have a monthly imbalance of payments of approximately 22 billion dollars. In ballpark figures this amounts to 32 billion per month or 380 billion for the year. The effects this imbalance of payments has on the country is magnified many times beyond the 380 billion dollars by the multiplier effect. The end result is our GDP is reduced by 6 trillion dollars every year due to our imbalance of payments for foreign cars and oil. Recovering the GDP due to foreign cars is quite easy to do but this can only be done with the aid of our government. With imbalance of payments the multiplier effect has an enormous impact on our GDP. The multiplier effect is never discussed in public however it is central to our economic meltdown. Every citizen including our elected officials should be aware of this problem. Our countries economic health and strength is being depleted by our own actions or inactions without us being aware of what is the cause. The multiplier effect Assume two countries A and B existed that had identical economies. They both have same exports and imports which were in balance to each other. Then one of these countries A, bought a majority of its cars from a 3rd country and did not have any exports to that country to offset the cost of those cars . In all other exports and imports these two countries remained the same. What effect would this departure from its former practice of buying its cars from the domestic market have on the GDP of Country A ? Obviously the money that left country A to buy these cars was no longer part of the money traded within Country A. Money traded within one country multiplies itself about 12 times within a year. Each time the money is traded, it is added to the GDP. People do not store money under their beds, rather they spend it almost as soon as they get it. Paying for bills, planning for entertainment, trips, clothes education etc. A $30,000 car bought in the country amounts to $360,000 spent by the end of the year in terms of GDP (Gross Domestic Product). When a new car is bought , people at the car dealership get paid, people at the Auto mobile plant are paid, people who supply the automobile plant with necessary components are paid, stockholders are paid, banks holding the mortgages on all associated workers are paid, the governments taxes both federal and state are paid , government does not send out unemployment checks, food stores, consumer goods of all types receive a tremendous increase of business etc. Each location the money shows up at, is used to buy some item and is again dispersed to some other worker or supplier. Therefore 120 billion spent to pay for foreign vehicles ,outside of a country is 1.4 trillion dollars that will not be spent within the country ! A majority of the cost of the automobile has to be sent to the foreign country in order to pay for the cars manufacturing. This money ,120 billion, is sent outside the country and the many many people within country who would have seen some of this cash never get the opportunity. The imbalance of trade has a serious negative effect on the domestic economy. Now add the fact that country B continued to buy most of its cars from companies that were within its own border. That means all employees, contractors, and auto parts were derived from companies inside the boarders of its own domain. Then the cost for these automobiles would be an increase of 1.2 trillion dollars. The difference in GDP of these 2 countries regarding just the change in how automobiles were bought, would be 2.4 trillion dollars ! Notice a yearly 144 billion imbalance of trade results in a 2.9 trillion drop in GDP. ( 144 * 20 = 2880 ). This means every dollar of imbalance will generate a 20 dollar drop in a countries GDP. It is economic suicide to allow this imbalance to continue un a baited. For this reason, we feel it is imperative that every nation adopt a similar tax–credit plan for itself when their overall international trading is negative. Imagine , when someone buys a Lexus Sedan costing 80,000 that causes a 1.6 million drop in GDP ! The choice one makes in the car he purchases effects many others in the community just not the new owners pocketbook. The entire nation becomes negatively impacted when people make certain choices which impact our balance of trade. By governments insertion of tax credits the country can be motivated to bring the trade balance to 0. Some might be bitterly opposed to this manipulation and call this tampering with the market however they should look at the real economic dangers to the entire country when the government does nothing (our current situation !). This is not tampering with the market as much as adjusting the economy to an even keel. Most all nations understand the dangers of imbalance and adjust their foreign acquisitions to make sure this imbalance does not occur. What is stopping the United States from adjusting this very dangerous economic imbalance. Warren Buffett , who is very aware of the dangers of imbalance of trade on our countries economy has proposed legislation which would impose a stiff tariff on foreign products so that the imbalance was reduced to 0. We feel the tariff is not as powerful a motivator for domestic production as the tax-credit. The Tax-credit gives the home economy a tremendous push in the direction needed. It creates a fantastic economic motivator for consumption of domestic products because the consumer savings is fantastic and it frees up large chucks of money for additional consumer spending. A tax-credit would cost the Government nothing upfront and nothing in future years ! In fact it will give the government much additional revenue than it would receive if it does nothing! A tax-credit would infuse cash into the buyer’s pocketbook giving him a new car and much more spending money than if he continued driving his old car! A tax-credit would give the domestic car buyer $ 300 to $400 more a month of extra cash compared to the prospect if he was to buy a comparable foreign car. Lets look a hypothetical example. A negative 50 billion exists with automobiles made in the US compared to Foreign imports. The government offers a 25 billion dollar tax credit program allowing for all energy efficient domestic vehicles to have a 50% tax credit appended to the deal. Citizens will jump at this offer and almost instantly the imbalance will disappear. Most all Americans will buy into this program. The 50 billion Imbalance had created a negative 600 billion drop in GDP. Likewise the tax-credit program generated a 600 billion of additional GDP. Thus the country has a 1.2 trillion increase in GDP. The government can expect to receive 20% of every dollar added to GDP.( Look at Chart 5). In this case it would receive 240 billion of additional revenue while it only cost 25 billion to generate this additional sum ! The 25 billion cost of these Tax-credits come from the consumers future tax bills ; there is no upfront cost. By the time these tax-credits are paid the government has received much more additional revenue than what the tax-credits would defray. Back to the real world, 2.8 trillion dollars is the increase in GDP we as a country would receive if our balance of trade with Japanese cars was 0 or positive. If , in aggregate our trading of domestic vs. foreign automobiles was 0 the GDP in this country would be 2.8 trillion dollars higher each year ! This does not include the imbalance of trade with regard to oil. Oil is a bit larger : 22 billion dollars is imported each month. If we did not import any oil that did not have a corresponding export we would have a Gross Domestic Product that would be 4 trillion larger than it is. But because we spend abroad 240 billion per year for this oil which we turn around and immediately burn in the tanks of our vehicles we currently deplete our country of 4 trillion GDP which we would otherwise enjoy. For the remainder of this paper we will just restrict our attention to foreign autos and their effect on our economy. To change the oil imbalance will be treated in a separate article. Who controls our country and its decisions? What logic is in their decisions and why are these conditions allowed to continue? Our government policy needs to be changed. No other country in the world suffers from the imbalance we have. Our imbalance for automobiles alone is 3 times greater than the combined imbalance for all imports in any other nation in the world ! If our imbalance for automobiles was zero or greater we would have 2.4 trillion added to our GDP. The cost for the government to make this happen is zero. The added revenue to the government would be 6 times the (hypothetical cost) to implement this program. A SOLUTION There is no doubt that if the government was to implement the simple rule laid out below, our economy would go into full production within 3 to 4 months! Contrary to typical Washington politic’s , this plan has the American worker the US citizen as its main beneficiary. Having an imbalance of payments hurts everyone within the country much more so than those who benefit from the acquisition. It helps 1% and creates fear, uncertainty and worry for 99% of the country. In a nutshell it is wrong and should be amended. The following plan will do just that. The plan is quite simple. Its length and breath is but a few sentences as follows: Imbalance of trade rule “ Until the balance of payments of the aggregate trade of automobiles, domestic vs foreign is zero or greater it is the responsibility of government to offer tax-credits equal to 50% of purchasing price on domestic automobiles with fuel efficiency greater than 32 MPG. ” That is all that is required and our economy would begin to flourish! Unless this is implemented our economy will continue to decay until it is totally bankrupt. It does not take a economist with a PHD to understand the perils inherent with a large imbalance of payments. Foreign Cars and foreign oil reduces our GDP by 6 trillion per year! This imbalance of trade rule should be for all nations - not just for the U.S. This rule is a safeguard against the hazards of free trade without destroying the spirit of its purpose. However if you look at the attached sheet of all countries of the world the US is perhaps the only country that really falls under this imbalance of trade rule ! 98% of the countries of the world have a positive balance of trade ! For every dollar of imbalance our GDP falls 20 dollars ! Congress can revitalize our economy overnight. Only congress can do this. Only it has the power to tax and give tax credits. It would be no effort for the government to offer this Tax-Credit for energy efficient vehicles , the government would receive 5 to 8 times the revenue it would take to implement this program , the country would be 2.4 trillion richer in GDP and most all citizens would be fully employed. So the question is why has not Obama with Geithner and Summers done something ? What is in their reasoning for doing nothing? Obama’s clunker Stimulus What was Geithner and Summers and his economic hit team thinking when they gave us the clunker Stimulus. This stimulus was not limited to American cars, the same tax-credit was given to foreign vehicles. Foreign vehicles sold more than American vehicles. Lets say 10 % more foreign than American were sold. Statistics say 145,000 cars were sold . 10% of total would be 14,000 vehicles and average cost was 25,000. This is 336 million imbalance multiplied by 20 gives a GDP depletion of 6.7 billion. What is the Obama team thinking ? Are they trying to destroy our economy? Real Stimulus Reducing imbalance of trade has a 20 to 1 effect on our GDP. No other stimulus comes close to this figure. Yet the government has not helped with any tax-credit for domestic cars. Only the government has the power of issuing Tax credits to restore this balance. Clearly if this simple tax credit was made a rule, millions of Americans would be back to work, our GDP would be much higher. The US Auto industry by itself can do nothing to motivate the consumer to buy their vehicles however the government can do so at the stroke of a pen. It is the sole responsibility of the Government to do something and to date it has done very little ! Why ? What harm will it do internationally by presenting this Tax Credit? We recommend any country that has a negative trade imbalance with any other country to offer similar Tax Credits to its citizens. From what can be seen we are the only country with this problem. We would strongly recommend any country with similar imbalance of payments to do a similar tax-credit to bring their trade balance to 0. This plan is do able. It will give hope to the nation and will restore millions into the workforce and will cost the country nothing. I think it is the duty of our elected officials to examine the soundness of this policy run it buy many experts as possible. Then get the democrats in the house and senate to examine it and push it into law. Within months hundreds of thousands will be buying domestic vehicles , people will be back to work and its positive effects will only accelerate month to month. Many Americans have lost all their equity with the housing bubble. To implement the car-buying spree the government could offer thru the car companies financial subsidiary a 5 year low interest loan. Each year when filling out their taxes the owners would request 50% tax-credit of all payments made that year towards their car loans. The taxes not paid would be offset many many times by the increase in the countries GDP. It can be shown that the increased savings on gasoline caused by the consumer getting out of his 12 MPG car and riding an energy efficient vehicle will of itself completely offset the tax-credit cost to the government. As exhibit # 3 shows the government can expect to acquire about 20% of all added GDP. If this tax-credit was installed, in addition to the 80 billion added in gas savings, this tax credit would bring in an added 600 billion of additional revenue. (Look at Excel Spreadsheet EXHIBIT # 4 for the facts behind this statement.) There is talk about giving anyone buying a new energy efficient vehicle a 7,500 tax credit. Foreign or domestic. This shows little economic sense. If you look at exhibit 4 It details what would happen in this country if 12 million bought foreign or domestic vehicles that were either energy efficient or not. At the bottom of the report you can see the difference in terms of GDP. It is staggering . Allowing foreign vehicles to compete with American Vehicles when there is a huge imbalance of payments is asking for total bankruptcy of the economy. If trading was close to 0 or positive then most definitely equal rights for all, however due to the a skewed results under an imbalance of trade the home land and all its citizens must be protected. It has little to do with free trade as it has to do with economic stability. It has nothing to do with which is a better product rather everything to do with economic strength. The government needs to step in and stabilize the playing field. So far the government has only hampered this very weak economy. It has done very little to strengthen our economy and the auto industry. We as a whole nation suffer directly due to the governments lack of economic common sense with this regard. When the wall street fiasco for sub prime loans blew up the experts Greenspan etc brought forward these most complicated of formula’s with mathematical models no one could possible understand. These formula’s were the basis for the acceptance of derivative trading. Do we have a similar group of formula’s that guide our policy makers with our international trading ? What has been presented is nothing sophisticated but which can be proven by anyones practical application. If this logic is found to be inaccurate then it will be simple to explain however , until that is done, it seems a far better approach than what the current administration presents. If I did not know better, I would think that the current administration in light of our huge imbalance of payments for autos and oil is trying to bankrupt our economy, put our economy in the hands of the IMF and to destroy our planet at the same time. 1. No tax-credit for domestic energy efficient vehicles 2. Billions for two wars in order to give OIL Companies unlimited reserves. We are Supposedly trying to get off oil yet the only money allocated is for defense (really offense) in order to stockpile billions of barrels of oil - Insanity !!! 3. No aggressive action to make Big Trucks, Cabs, Police cars, Mid-size trucks run on Natural Gas 4. No commitment to end Global Warming If in the last year alone, since Obama came to office, if we had spent the money we spent on the war for energy effecientcy we would be trillions of dollars richer, we would not depend on foreign oil, we would be well on our way of ending Global warming. But none of this is true. Our people our nation our economy is all suffering. Obama has taken the lead from Bush and it is just Business as usual. We all are headed for bankruptcy and the destruction of the Planet. Obama is not leading morally or responsibly but rather by the commands given him by the rich and powerful. It really is sad and far different than we expected when he was running for office. Again, it would just be a matter of the pen and most all our people would be back to work making domestic cars with all its suppliers working as well. The effort to get us off foreign oil is not much more difficult than getting people to buy our domestic cars. We could reduce our intake of foreign oil by 1/3 in a year if we really wanted to. It would take 1/100 the effort and cost we now spend to fight the “islamist terrorist” in Iraq and Afghanistan. Within two years we could have reduced our foreign oil by ½ and the cost of oil would have dropped down to under $30 a barrel. Our GDP would be 5 trillion greater. In five years we would not import any foreign oil and global warming would have ceased to be a major concern. These two things imbalance of payments and global warming are the two most pressing problems we face as a nation and yet Obama is devoid of any leadership on either issue. Sadly , what has transpired , since he has come to office, is no different than as if Bush was into his 3rd Term. Exhibit 1 - Supporting Excel Spreadsheet (Excel) Exhibit 2 - Current Account Balance (PDF)
Idea 2 by Dave Dionisi on November 8, 2009 - Tax credit to help correct balance of payments. THE PROBLEM Millions of people starve each year and billions do not have access to clean drinking water. A SOLUTION
To contact the author of this idea, write to rcaplice@hotmail.com or provide comments to contact@teachpeace.com. |
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