You're a brave man, Emil, to jump into such a contentious subject. Two points:
A. I don't believe you covered the case in which countries' comparative advantages are not limited to specific industries but rather lie in differences in their relative abundance of the factors of production (land, labor, and capital). In those cases, if those differences are large, it is well-known (at least in the textbooks) that free trade will induce redistributions of income between those factors on very large scales. [See what happened when the Corn Laws were abolished in Britain, which was just as destabilizing as what is happening in America today.] Even in those cases however it is still possible, in principle at least, to compensate the losers out of the winnings of the winners and leave everyone better off than before. In fact, even allowing for free mobility of capital, it is still possible to make everyone better off than before.
The problem is that in practice, in both cases, the scale of redistribution required is beyond what is possible under current systems of taxation.
B. A way around this problem, in theory at least, is by means of a progressive tax on consumption, which, unlike a progressive tax on income, does not discourage savings and investment when marginal tax rates are set very high. In fact, quite the contrary.
Over the years of thinking about this problem I've managed to come up with an extremely simple "lobby-proof" version of such a progressive tax on consumption which you can read about here:
FWIW, I wrote about these issues at length in an article I published 30 years ago, in which I predicted exactly what in fact has come to pass in the three decades since. It's a cook's tour of contemporary "neoclassical" trade theory in language a layman can understand.
Interestingly, it took a full century from the time that Ricardo first developed his concept of "comparative advantage" at the industry level until this "special case" was understood in terms of the negative effects that free trade between high- and low-wage countries could be expected to have on the wages of workers in the high-wage countries. Believe it or not, most economists, in fact the overwhelming majority of economists, are quite ignorant of these theoretical findings even to this day, or else they would not worship at the shrine of free trade quite so blindly as they have been in a habit of doing. But all of that is about to change, I predict, if it hasn't started already.
Anyway, here is the article, which is essentially an indictment of the entire economics profession, starting with Paul Samuelson himself, whom I accuse of perpetrating the greatest intellectual fraud in American academic history (for which he had zero excuse since he was one of the few who knew the real score, may his name live in infamy): https://www.jstor.org/stable/40721553
@Luke Lea, thanks, your 1994 article includes reasoning I haven't seen before that severely needs to be seen & understood by all. Anyone with a few minutes to read more should follow your link above.
DOGE isn't going to cut government spending anywhere close to what they originally advertised, unless they make serious cuts to social security and military spending.
Entitlements are the only thing that matters. Trump can’t touch Medicare of SS, but he is trying to cut a lot of money from Medicaid at huge political risk.
The people complaining about tariffs also complain about Medicaid cuts. Their solution is higher income taxes.
Obviously the dems want more spending on everything.
I don't think these increases have anything to do with DOGE, but have to do with the annual increase in people entering retirement, and other entitlements. This pattern will continue even if DOGE does some cutting.
You are correct that these spending increases don't have anything to do with DOGE. I don't believe I ever implied that.
I only took issue with how you wrote that Trump is "frantically" trying to make more money (taxation) or cut costs (reduce government spending). I never heard of Trump proposing to increase taxes, so the US government wouldn't be making more money.
And while his administration is cutting government spending in many ways, but it will only amount to a splash in the bucket, unless Trump is willing to commit to some highly unpopular decisions. I highly doubt that he or Musk are going to cut spending anywhere close to what they originally promised. It will be yet another case where Trump and especially Musk over-promised on what they said they were going to do.
Yes they are, but Trump also advertised that he wants to cut taxes. He once said that the tariffs will replace the income tax. He won’t raise taxes overall if he’s replacing one tax with another.
Yeah, it kind of is to an extent. But I'm sure that there's plenty of room to cut down on the bureaucracy.
The US should also reduce its military aid to NATO countries, to incentivize them to increase their own military spending and pay for their fair share of the alliance.
Trump has proposed to eliminate income taxes with the tariffs. While he can’t eliminate the whole income tax, he couldn’t eliminate it the bottom 75% of taxpayers with a 10% tariff and the bottom 90% with 20% tariffs (this is all rough, you get the jist). I support this.
Trump is trying to cut spending at great political risk by going after Medicaid.
The people who hate tariffs all want higher spending and higher income taxes.
"The people who hate tariffs all want higher spending and higher income taxes."
My take is that the Trump tariff effort is designed to weaken China. Trump is a minion of the Deep State, and they want to continue as the world's hegemon in a unipolar world.
That’s the essential point I believe as well. China’s (im)balance of trade—from all parts of the globe, not just USA—make it a dangerous trading partner. Seems there’s little general understanding of this problem and discussion.
I think your analysis needs to be restated in light of percentage of taxes already being paid by your selected groups. From ChatGPT:
“ • The bottom 50% of U.S. taxpayers (by adjusted gross income) paid about 2.3% of all federal income taxes.
• The top 1% paid about 45.8% of all federal income taxes.
• The top 10% paid roughly 75.8% of the total.
“
Seems there is not much personal income tax to be eliminated in the bottom 90%. What has happened—as far back as Reagan—has been a repeated reduction in “skin in the game” for the majority of the voting public. Hence fiscal responsibility verses tax and spend means little to most of the populace and pol’s tend to swing toward largess rather than fiscal responsibility. The majority of the public simply wants hand outs paid for by someone else. Inflation would seem to be the only way to access this cost to everyone, and here we are…
Yea, I already knew that. Of course someone in the 90th percentile could be paying something like $30,000-$50,000 in income taxes (this can get complicated, just trying to give scale). Even a bit lower on the percentile scale and we are still talking five figures.
So that would be a big deal to a lot of people.
It seems to me you can’t have it both ways. Either these tariffs are not a lot of money in which case they should not be crashing the world economy (maybe the absurdly high PE ratio was bound to burst anyway). Or it is a lot of money and thus you could offset a lot of taxes with it.
I agree. I’m just not being clear or talking along a point you’ve not made. We could of course, eliminate *personal* taxes as they are just a part of the tax revenue stream currently received. It seems close, but not absurd given potential revenue from tariffs.
I guess my point—if any—is that the elimination of personal taxes does not affect the majority of taxpayers, and more important is probably the wrong direction to go in. People who don’t pay taxes, don’t give rip about raising such on others, nor increasing such spending as making tax increases necessary.
I'm glad you wrote this, because it's Trump and his policies are so haphazard, they tend to amplify voices on just one side of the debate
Trade policy is complicated.
I'm not sure that 78 year old Donald Trump is the guy to juggle all the balls intellectually.
You're a brave man, Emil, to jump into such a contentious subject. Two points:
A. I don't believe you covered the case in which countries' comparative advantages are not limited to specific industries but rather lie in differences in their relative abundance of the factors of production (land, labor, and capital). In those cases, if those differences are large, it is well-known (at least in the textbooks) that free trade will induce redistributions of income between those factors on very large scales. [See what happened when the Corn Laws were abolished in Britain, which was just as destabilizing as what is happening in America today.] Even in those cases however it is still possible, in principle at least, to compensate the losers out of the winnings of the winners and leave everyone better off than before. In fact, even allowing for free mobility of capital, it is still possible to make everyone better off than before.
The problem is that in practice, in both cases, the scale of redistribution required is beyond what is possible under current systems of taxation.
B. A way around this problem, in theory at least, is by means of a progressive tax on consumption, which, unlike a progressive tax on income, does not discourage savings and investment when marginal tax rates are set very high. In fact, quite the contrary.
Over the years of thinking about this problem I've managed to come up with an extremely simple "lobby-proof" version of such a progressive tax on consumption which you can read about here:
https://shorturl.at/mUsuj
Feel free to criticize.
FWIW, I wrote about these issues at length in an article I published 30 years ago, in which I predicted exactly what in fact has come to pass in the three decades since. It's a cook's tour of contemporary "neoclassical" trade theory in language a layman can understand.
Interestingly, it took a full century from the time that Ricardo first developed his concept of "comparative advantage" at the industry level until this "special case" was understood in terms of the negative effects that free trade between high- and low-wage countries could be expected to have on the wages of workers in the high-wage countries. Believe it or not, most economists, in fact the overwhelming majority of economists, are quite ignorant of these theoretical findings even to this day, or else they would not worship at the shrine of free trade quite so blindly as they have been in a habit of doing. But all of that is about to change, I predict, if it hasn't started already.
Anyway, here is the article, which is essentially an indictment of the entire economics profession, starting with Paul Samuelson himself, whom I accuse of perpetrating the greatest intellectual fraud in American academic history (for which he had zero excuse since he was one of the few who knew the real score, may his name live in infamy): https://www.jstor.org/stable/40721553
Or, for those without access: https://shorturl.at/fA0tr
@Luke Lea, thanks, your 1994 article includes reasoning I haven't seen before that severely needs to be seen & understood by all. Anyone with a few minutes to read more should follow your link above.
Why, thank you!
DOGE was mentioned in this article, but US government spending has still increased, in spite of spending cuts by DOGE. https://www.wsj.com/politics/policy/trump-doge-government-spending-increases-5903992d
DOGE isn't going to cut government spending anywhere close to what they originally advertised, unless they make serious cuts to social security and military spending.
Entitlements are the only thing that matters. Trump can’t touch Medicare of SS, but he is trying to cut a lot of money from Medicaid at huge political risk.
The people complaining about tariffs also complain about Medicaid cuts. Their solution is higher income taxes.
Obviously the dems want more spending on everything.
I don't think these increases have anything to do with DOGE, but have to do with the annual increase in people entering retirement, and other entitlements. This pattern will continue even if DOGE does some cutting.
You are correct that these spending increases don't have anything to do with DOGE. I don't believe I ever implied that.
I only took issue with how you wrote that Trump is "frantically" trying to make more money (taxation) or cut costs (reduce government spending). I never heard of Trump proposing to increase taxes, so the US government wouldn't be making more money.
And while his administration is cutting government spending in many ways, but it will only amount to a splash in the bucket, unless Trump is willing to commit to some highly unpopular decisions. I highly doubt that he or Musk are going to cut spending anywhere close to what they originally promised. It will be yet another case where Trump and especially Musk over-promised on what they said they were going to do.
Tariffs are taxes.
Yes they are, but Trump also advertised that he wants to cut taxes. He once said that the tariffs will replace the income tax. He won’t raise taxes overall if he’s replacing one tax with another.
Military spending is discretionary.
Yeah, it kind of is to an extent. But I'm sure that there's plenty of room to cut down on the bureaucracy.
The US should also reduce its military aid to NATO countries, to incentivize them to increase their own military spending and pay for their fair share of the alliance.
Thanks, this is a nice introduction for an economically illiterate person like me
Argentinian beef is good, but if you want great beef, try Uruguayan beef!
"Currently, the Dow Jones average is down to the level of August 2024."
But even at that, the market is overbought.
Trump has proposed to eliminate income taxes with the tariffs. While he can’t eliminate the whole income tax, he couldn’t eliminate it the bottom 75% of taxpayers with a 10% tariff and the bottom 90% with 20% tariffs (this is all rough, you get the jist). I support this.
Trump is trying to cut spending at great political risk by going after Medicaid.
The people who hate tariffs all want higher spending and higher income taxes.
"The people who hate tariffs all want higher spending and higher income taxes."
My take is that the Trump tariff effort is designed to weaken China. Trump is a minion of the Deep State, and they want to continue as the world's hegemon in a unipolar world.
That’s the essential point I believe as well. China’s (im)balance of trade—from all parts of the globe, not just USA—make it a dangerous trading partner. Seems there’s little general understanding of this problem and discussion.
I think your analysis needs to be restated in light of percentage of taxes already being paid by your selected groups. From ChatGPT:
“ • The bottom 50% of U.S. taxpayers (by adjusted gross income) paid about 2.3% of all federal income taxes.
• The top 1% paid about 45.8% of all federal income taxes.
• The top 10% paid roughly 75.8% of the total.
“
Seems there is not much personal income tax to be eliminated in the bottom 90%. What has happened—as far back as Reagan—has been a repeated reduction in “skin in the game” for the majority of the voting public. Hence fiscal responsibility verses tax and spend means little to most of the populace and pol’s tend to swing toward largess rather than fiscal responsibility. The majority of the public simply wants hand outs paid for by someone else. Inflation would seem to be the only way to access this cost to everyone, and here we are…
the incentive for work, self-investment is higher the lower one's income but presumably is dampened by income taxes.
Yea, I already knew that. Of course someone in the 90th percentile could be paying something like $30,000-$50,000 in income taxes (this can get complicated, just trying to give scale). Even a bit lower on the percentile scale and we are still talking five figures.
So that would be a big deal to a lot of people.
It seems to me you can’t have it both ways. Either these tariffs are not a lot of money in which case they should not be crashing the world economy (maybe the absurdly high PE ratio was bound to burst anyway). Or it is a lot of money and thus you could offset a lot of taxes with it.
One or the other. Not both.
I agree. I’m just not being clear or talking along a point you’ve not made. We could of course, eliminate *personal* taxes as they are just a part of the tax revenue stream currently received. It seems close, but not absurd given potential revenue from tariffs.
I guess my point—if any—is that the elimination of personal taxes does not affect the majority of taxpayers, and more important is probably the wrong direction to go in. People who don’t pay taxes, don’t give rip about raising such on others, nor increasing such spending as making tax increases necessary.
Slash spending.
Trump is proposing huge cuts to Medicaid.
The dems are proposing no cuts to anything and huge spending increases funded by massive taxes.
"Trump is proposing huge cuts to Medicaid."
Trump proposes, promises, and claims all manner of things...delivering is another matter.
It's ingenious to have a consumption tax only payable on imports.
“Having debt means one must pay it back with interest.”
No it doesn’t. Sovereign debt is rolled over, not repaid.
The Federal Reserve can buy as much US government debt as it likes.
You cannot go bankrupt in your own currency.
But devalues the currency.