OBJECTIVES, OVERLAPS, & APPEAL

This article has the following objectives. One, to recognize that President Obama’s 2011 Jobs Bill has several sensible items; Two, to argue that it cannot create net new jobs amidst trade deficits; Three, to recommend the “Trade Equilibrium” strategy to create net new jobs and; Four, to discuss the American-Chinese trade relationship.

Let me first note that some of the contents of this article are similar to some of my other writings and presentations at professional meetings, publications on Pace University faculty web, and publications in the Economy in Crisis, among others. However, some of the other contents of this article are different from my other writings and presentations in some important ways, such as, contents, reasoning, and structure. I should also point out that “trade equilibrium” is a widely used term. However, the theory of Trade Equilibrium, the focal point of my writings, as presented, is a self-contained, autonomous, one of a kind model.

I request the readers of my theory of Trade Equilibrium to (a) verify the practicality of its assumptions, (b) double check the accuracy of its calculations, and (c) feel free to post your comments and questions.

CONTENTS OF 2011 JOBS BILL

President Obama’s 2011 Jobs Bill worth $447 billion proposes, among others, to provide funds (a) to retain teachers, (b) to help refinance mortgages at low interest rates, (c) to improve infrastructure, (d) to extend reduced payroll taxes, and (e) to enhance training programs. These are all reasonable proposals. However, they cannot create net new jobs amidst huge trade deficits.

The Jobs Bill also recommends, among others, (a) to reduce payroll taxes for employees and (b) to provide tax credits to employers for hiring unemployed workers. These are also sensible goals. However, they cannot create net new jobs amidst huge trade deficits.

The Jobs Bill also urges, among others, (a) to discontinue Bush era tax cuts for the high income-earners, (b) to increase taxes on dividends, and (c) to rescind tax breaks for corporate jets and oil industry. These are also reasonable sources of raising funds. However, they cannot create net new jobs amidst huge trade deficits.

Why 2011 Jobs Bill Cannot Create Jobs

There are two reasons why this Bill cannot create net new jobs. One, American firms receiving the stimulus money would invest some of it overseas. Two, individual recipient of this benefit would spend a good portion of it to purchase cheaper products made abroad. It is like trying to fill a bucket full of holes with water. It is widely known that the 2009 economic stimulus worth $787 billion containing similar provisions also failed to create any noticeable number of net new jobs—though it did help millions of people keep their jobs and keep economy from further deterioration.

THEORY OF TRADE EQUILIBRIUM TO SAVE & CREATE JOBS

There were 6.8 million people unemployed in the U.S. in 2001. The number of unemployed jumped to 14.8 million in 2010. (Bureau of Labor Statistics).

So what is the solution? I suggest that America moves toward the state of “Trade Equilibrium” which I define as a situation when trading among different countries is such that the trading partners remain generally deficit-free from one another over a cycle of every 3-5 years. In other words, the value of a country’s imports is equal to the value of its exports. Let me clarify here that techniques such as export promotion and currency revaluation, are parts of the theory of Trade Equilibrium. (For details, see my article “America Cannot Create Jobs in the Midst of Trade Deficits,” Economy in Crisis, September 27, 2011).

Theory of Trade Equilibrium to Save Jobs

According to the U.S. Immigration and Naturalization Act, when re-interpreted in the current context, the U. S. loses about 10 fulltime jobs per about $1 million of net imports. Hypothetically, then, the U.S. which had a trade deficit of $500 billion in 2010 (U.S. Census), could have saved about 50,000 jobs from being off-shored in that year using the theory of Trade Equilibrium. (Note: Such calculations can also be made using some other methods.)

Theory of Trade Equilibrium to Create Jobs

The theory of “Trade Equilibrium” is also concerned with bringing back the millions of jobs that were exported in the previous years. In order to illustrate it, let me make the following assumptions: (a) that the U.S. would have an estimated trade deficit of $610 billion in 2012, (b) that the U.S. has committed to the mission of Trade Equilibrium beginning year 2012, and (c) that the U.S. has committed itself to reduce its existing foreign debt ($4.4 trillion in 2010) by 10%, or $440 billion in 2012.

The effect of these assumptions, when accomplished, would be as follows: (a) the U.S. would save itself from an additional export of 61,000 jobs in 2012 and (b) it would also create 44,000 net new jobs in 2012. Let me clarify that the $440 billion doesn’t have to come back home from a single creditor-country. It could be shared by several creditor countries. For information, here is a partial list of some of the major foreign holders of American debt of $4.4 trillion in 2010: Mainland China ($1.16 trillion), Japan ($882 billion), United Kingdom ($272 billion), oil exporters ($212 billion), Brazil ($186 billion), and Russia ($151 billion). (Wikipedia; the U. S. Treasury).

Let me also emphasize that the creditor-countries are not sending these dollars to invest in the American debt securities. Instead, they want to use dollars to buy American goods and services to improve their own economy, jobs, and standard of living. (For details, see my article “America Cannot Create Jobs in the Midst of Trade Deficits,” Economy in Crisis, September 27, 2011).

Theory of Trade Equilibrium: Implementation

I make the following recommendations to execute the theory.

One, the U.S. must resolve to bring parity between its imports and exports. Any person or institution can provide such leadership—(a) President of the U.S., (b) the U.S. Congress, (c) Democrats, (c) Republicans, (d) chamber of commerce, (e) labor unions, (f) IMF, IBRD, or (g) anyone else. “Trade Equilibrium” is a mutually beneficial phenomenon. Mr. Obama, the U.S. President would be an ideal choice to get started.

Two, the U.S. should try to explain repeatedly to its creditor-nations that they should use their dollar-surplus to buy American goods and services for mutual advantage. However, let me recognize that convincing a dollar-surplus nation to part with its hard earned foreign exchange will not be simple.

Three, if a creditor-nation does not cooperate, the U.S. must move its business to those countries which, on the one hand, can fulfill its import requirements and, on the other, would also use the dollars so generated to buy American goods and services. While finding alternate suppliers would not be simple, don’t forget that America continues to spend substantial amounts of time and money to help develop the Chinese economy, industry, and jobs.

Four, the elements of the theory should be clearly built into any future trade agreement, such as one with South Korea, Panama, and Columbia, currently under consideration.

Trading with China

Some Americans are concerned about pressuring China, a major American trading partner, to follow principles of free and fair trade (a part of Trade Equilibrium theory). They argue that trying to move China toward Trade Equilibrium can cause disruptions in their trade relations. One, it can have negative effects on American exports to China. Two, it can reduce imports of the low-price items from China and place an upward price pressure in the U.S.

But, these concerns are lopsided. In order to have an objective, balanced evaluation, let me present some of the concerns China would have infuriating America by not moving toward Trade Equilibrium. One, a decline in Chinese exports to America can cause a downward economic spiral in China, which in turn can cause political chaos there. Two, the reduced American imports can impede inflow of modern technology, equipment, and knowhow into China, which in turn can put brakes on its desire to become a super military power.

China is too smart to let all that happen. It has much more to lose than the U.S. After a few complaints, it will gladly participate in the move toward Trade Equilibrium, a mutually beneficial phenomenon. What else can they do with these piles of dollar bills? Of course they can frame them with an inscription that the dollar bill was printed in the U.S. and framed in China. It could be a nice souvenir containing real dollar bills. China can make new dollars selling old, framed dollars!

Theory of Trade Equilibrium for Mutual Benefits

This theory, in an environment of free and fair trade, can help America create net new jobs; reduce unemployment; and increase wages, salaries, benefits, and standard of living. It can help America increase investment, corporate profits, shareholders’ wealth, and management bonus. It can help America increase tax revenues; reduce tax rates; create balanced budgets; and support schools, hospitals, infrastructure, and community activities. It can expedite the arrival of the next economic revolution. It can help build world prosperity and peace.

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