Creating jobs is a popular buzzword but no one seems to be doing much about it except in campaign commercials. President Barack Obama pledged to double U.S. exports by 2015 but we are nowhere near that and the nation's trade deficit has been hovering at or above a staggering half a trillion dollars since 2003, the year of the second Bush tax cuts. Amazingly, it has been in negative territory consistently since 1976 the beginning of the Carter administration.
In 2013 the deficit was $497 billion. Think about that number! It means that the United States is sending half a trillion dollars abroad annually instead of spending it at home. The trade deficit has claimed a huge chunk out of the economy and kept millions of U.S. workers jobless as the country imports products it might otherwise have produced at home. During the last two decades, this has amounted to no less than a $10 trillion stimulus package for the rest of the world. That is like spending 12 times as much as the "Obama stimulus" of 2009 except it was spent not at home but abroad. That's exporting jobs in a very big way.
According to conventional economic theory, the free market should resolve the problem on its own by adjusting exchange rates. But it hasn't because the Chinese are eager to send us their products for IOUs. The buy-now-pay-later strategy has been a weapon of mass destruction across the rust belt, successfully annihilating our manufacturing base. The Soviet Union was unable to do it with military might but the Chinese have figured out a more subtle way to do it using two of our major national weaknesses: the unquestioning free-trade ideology of our political elite and our proclivity for instant gratification. In order to overcome these shortcomings, what's really needed is some fresh thinking about how to finally get out of this mess.
Fortunately, a good solution to this endemic problem has been proposed, although it's nearly been forgotten. Warren Buffett, the famous investor, suggested it in Fortune magazine ten years ago. He suggested an ingenious way to fix the problem without picking on China or any other single nation, and also without raising tariffs on any single good.
Sounds too good to be true? Well, it isn't. His suggestion was for the United States to issue import certificates to all exporters, in amounts equal to the value of their exports. In turn, the exporters could sell these certificates to importers.
By establishing a market for import certificates, firms would have powerful incentives to bring the trade deficit into balance. All foreigners sending goods to this country would have to buy the certificates in appropriate amounts from our exporters. Overall, trade would become balanced quickly.
Importantly, our trading partners would not have the means to retaliate. The price of our exported goods would decline by the amount that the exporters received for the certificates from the importers. This would give U.S. firms an advantage in finding markets abroad. Implicitly, importing firms would pay an export subsidy.
U.S. companies would find it easier to export their products, and thereby could afford to hire the unemployed. Job creation at last! At least a couple of million U.S. jobs would be created which would also generate new government tax revenues and ease the budget deficit.
Admittedly the price of imports would increase, but likely not by much. The gains would be concentrated among the unemployed who really need a break, while the inconveniences would be diffused throughout the rest of the population and would be so small that we might not even notice them at all. Would you be willing to pay a dollar more for a shirt or $100 more for a BMW in order to end this jobless recovery?
There could be exemptions for strategic products such as oil. We could also have "threshold values" so small importers would be exempted. And the policy could be phased in over a number of years to give everyone time to gain experience with it.
In 2013, U.S. imports were $2.76 trillion, or 22% above the $2.26 trillion worth of exports. If we phased in the balanced trade policy, say, over a period of 4 years, we could reduce the deficit by $125 billion (or ¼ of the 22% =5.5%) each year. We might initially grant, say, $1.17 worth of import certificates for every $1.00 worth of exports. Then the year after that we could grant $1.11, $1.06, and in the fourth year grant $1.0 worth of import certificates for every dollar exported. The deficit would be a thing of the past and we could create a couple of million additional jobs by the end of the fourth year with the stroke of a pen.
After Warren Buffett published his idea a decade ago, two U.S. senators introduced a bill to turn it into law, but it went nowhere. Now, instead of embarking on another round of job-creation rhetoric and partisan stalemate, we should begin to do something about this pestering problem and put Buffet's idea into practice.
We know that procrastination is not working. We know that standard economic theory is not working. We know that rhetoric is not working. We know that 12% of the labor force is not working full time. We also know that 5% of the labor force gave up on working entirely. So it's high time to stop stimulating the rest of the world's economy, keep the money at home, and get back to working.