Friday, October 28, 2011



is my guide to economics.  Of course, I've never read any of Keynes' works.  All I've read is articles about him and his theory of economics.  Lately I've read long articles in The Nation and The New Yorker magazines.  These articles present the writers' opinions as to what advice Keynes would be giving us if he were alive today.

Both articles convince me that Keynes would state that the fundamental problem the United States has is an unfavorable balance of trade.  We buy more than we export.  Hence, foreigners, particularly the Chinese, have an excess of dollars that they can't spend right away.  Where do they put those dollars?  They buy US Treasury bonds, the safest investment in the world at present.  Hence, we accumulate debt to foreigners.  Eventually that debt is going to ruin us and probably the rest of the world as well.

What should we do?  One reason for our trade unbalance is that American firms have closed domestic production plants and opened plants in foreign countries, particularly Mexico, the rest of Central America, and China.  The American firms that do this save money in taxes as well as labor costs.  Corporate tax rates are about half of the American corporate tax rate in many countries.  In foreign countries the owner or operator of a manufacturing plant does not have to provide subsidized health insurance for the employees.  The governments provide that in many cases.  In other cases it is not the practice for anyone to pay for the employees' health care, certainly not the employers.

Keynes would recommend that we encourage investors to put money into starting new industries that provide goods that can be sold to foreigners as well as to Americans.  These investors further have to be persuaded to keep successful enterprises in this country and not to move production overseas.

Two proposals would provide incentives.  First, adjust the corporate tax rate to match that of most other countries.  That is, reduce it from the present rate of about 28 percent to about 15 percent.  (That's a Republican proposal.)  Second, relieve the domestic enterprises from the burden of providing health insurance for the workers.  Instead, provide, for example, a single-payer health care plan.  (That's a Democratic proposal.)  These two plans would go a long way toward encouraging firms to keep the production facilities here in the United States and also keep jobs here.

If we can do this, the additional workers would pay taxes and help reduce the federal deficit.  The additional production would reduce the trade deficit.  Ideally, we would achieve equality between imports and exports.  The multiplying effect of the extra workers would get us out of recession.

I believe this is the advice that Mr. Keynes would give us.  I think it is good advice.  The present practice of simply trying to reduce federal expenditures will not do anything to correct the balance of trade problem.

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