Trees and cars

This is from Warren Mosler's blog:

They used to tell the story about a guy who claimed he could make cars out of wood, and he started a company in Oregon that brought trees into one door of his giant building with new cars coming out of another door, and he wouldn’t let anyone inside to see how it was done. He was given an award for innovation and widely acclaimed, until one day someone got inside and saw he was shipping the trees out the back to Japan and bringing in new Korean cars. He was then arrested and jailed, etc. etc.

The point is, for the macro economy it didn’t make any difference what was going on behind those closed doors, and that for purposes of understanding one can think of foreign trade as a company that takes in all that you export and delivers back whatever is imported.

This model also promotes the understanding of how, in real terms, exports are the costs of imports, and optimizing real terms of trade is about getting the most cars for the fewest trees, which is likewise what productivity is all about for the domestic economy.

What about the jobs lost due to increased productivity? Well, history shows it used to take 99% of the workforce to grow the food we need to eat to live, and today in the US it takes maybe 1% of the workforce to grow enough food to eat with a lot left over to export. Yet unemployment isn’t necessarily any higher today than it was back then. Why? Because there’s always a lot more we think needs to get done than there are people to do it, and unemployment comes from a lack of funding, and not a lack of things to do. Today the service sector dominates, and more so every day, with no lack of services we’d like to have done as far as the eye can see. And unemployment, as currently defined, is necessarily the evidence that for a given level of govt. expenditure the economy is that much over taxed, as a simple point of logic. Not that policy makers understand that, of course…

Now let’s add a border tax to the model, for the purpose of creating jobs, not withstanding how that premise is categorically ridiculous, as per the prior discussion. But, to quote Don Rumsfeld, ‘We’ve got to fight with the army we’ve got.’ Anyway, a border tax would put a tax on importing the cars to attempt to keep us from buying them so we would have more jobs building cars domestically, and reduce the tax on exporting the trees so we would have more jobs cutting down and shipping out trees.

Let’s assume that’s what happened and look at those consequences. First, we would be shipping out more trees and getting fewer cars. This makes the nation as a whole worse off due to those reduced real terms of trade. The next step is to identify the winners and losers, recognizing the losses to our standard of living are higher than the gains. Best case we put more people to work growing more trees so we have just as many trees for ourselves, and we’d put more people to work building cars so we’d have just as many cars as before. So what we accomplished is that we are working more to be left with the same amount for ourselves.

That’s called a drop in productivity, and a decline in our standard of living, as work is an input and a real cost of production. Work itself is not an economic benefit. The economic benefit of work is the output produced. And the whole point of producing output is consumption of some type, either for immediate use or for future use. That is, it makes no economic sense to work and produce output for the purpose of immediately throwing it away.

So with the above ‘best case’ assumptions, the border tax does work to create jobs, and unemployment is a political problem, which is why the border tax has that element of political appeal. Not that it matters, but my first choice for job creation would be a fiscal adjustment, either a tax cut or spending increase, large enough to promote sufficient spending to increase sales, output, and employment to produce that additional output. That way we have that much more domestic output to consume plus all the imported cars we were buying before the border tax, and we don’t have to give away the extra trees due to the border tax proposal.

And how does it look from the government’s point of view?

First, the government expects extra revenue from the tax on the imported cars, net of the revenue lost from tax benefits for exporters. This means less spending power for consumers paying the tax, presumably offset by new tax cuts, making it all revenue neutral, which through some presumed channels is theorized to have its own positive consequences.

So in this ‘best case’ scenario Americans work more and get less, while consumer taxes go up and other taxes go down. Hardly seems worth a second look?


But that is only the economic best case scenario. All kinds of other things can happen, with the same model used for purposes of analysis.

Walgreens Charity Classic, Final Round

Never mind the suspense, Juli Inkster shot 64 and won.  Again.  By 5 strokes.  It's kind of unfair, almost like when Tiger used to be Tiger.

Shelley Hamlin made up a 3-shot deficit in 3 holes, with a birdie on 17 while Jan Stephenson was making bogies on 16 and 18, and then won the Honors Division on the first hole of the playoff.

I walked with Karen Davies and Cindy Figg-Currier today.  Karen is from Wales, lives in Carefree and teaches at Pinnacle Peak CC, and is no relation to Laura "Big Mama" Davies, who is English.

Cindy is a hot ticket.  She was the talkative one, and had a couple of half-empty wine bottles ("a nice Pinot Noir") in her golf cart, the remnants of a bet on the practice round.

They both started the day at -1, 4 strokes off the lead, but were unable to do any good today.  Karen birdied the first hole, but never got lower than -2, and finished with a double bogey on 18 for 76.  Cindy had 9 pars on the front, then bogies on 10 and 12.  She hit the pin with her approach on 16, then missed the 5-footer for birdie, and drained a 30-footer for birdie on 17, for 73.

Patty Sheehan continued to have troubles, and shot 77 to finish T43.

I saw Rosie Jones before the round, and she wanted me to walk with her again today (I'm her good luck charm), but I had a previous commitment.  She shot 74 and finished T9, 10 shots behind Juli.  I waited for her at the scoring tent, and apologized to her for not being able to help today.  She says "Oh, yeah, who did you go with, INKSTER!?"  I replied "Oh, NO, I would never do THAT!".  I may have to go back on Facebook and tell her to ask for me next year.

The problem for Democrats

In President Trump's address to Congress were several lines that could have been written by President Obama, Hillary Clinton, Bernie Sanders, Elizabeth Warren, or other liberal Democrats:

"with the help of Prime Minister Justin Trudeau, we have formed a council with our neighbors in Canada to help ensure that women entrepreneurs have access to the networks, markets and capital they need to start a business and live out their financial dreams."

"I believe that real and positive immigration reform is possible, as long as we focus on the following goals: To improve jobs and wages for Americans, to strengthen our nation's security, and to restore respect for our laws. If we are guided by the well-being of American citizens, then I believe Republicans and Democrats can work together to achieve an outcome that has eluded our country for decades."

"Tonight I am also calling on this Congress to [enact] reforms that expand choice, increase access, lower costs, and at the same time, provide better healthcare."

"expand treatment for those who have become so badly addicted."

"I am calling on all Democrats and Republicans in Congress to work with us ... Here are the principles that should guide Congress as we move to create a better healthcare system for all Americans. First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the health care exchanges."

"My administration wants to work with members of both parties to make child care accessible and affordable, to help ensure new parents — that they have paid family leave."

"To invest in women's health, and to promote clean air and clean water, and to rebuild ... our infrastructure."

"Every American child should be able to grow up in a safe community, to attend a great school, and to have access to a high-paying job."

The question, then, is whether the Democrats will support and work with the President to achieve these goals. It is truly a Hobson's Choice for them: if they do, they will be helping him to have a successful presidency and possibly win re-election. And if they do not, they risk being accused of not really caring about these issues.

Walgreens Charity Classic

I volunteered today (and tomorrow) at the LPGA Legends Tour tournament.  In my group were Rosie Jones, who shot a bogey-free 68 and is tied for 2nd, and Hall of Famer Patty Sheehan, accompanied by her Hall of Fame caddy, Carl Laeb.  Patty shot 79, with two loose shots into water hazards, another mere inches from OB, one into the rough that ended dead behind the only tree in the vicinity, and about 5 missed putts of 3 feet or so.  Rosie could easily have had 65, she left three very makeable birdie putts straight on line and short.

I can't imagine Patty missing all those short putts for lack of skill or misreads or mishits.  My theory is that she just got a new pair of glasses, or else she needs a new pair of glasses.

In the field is Christa Johnson, perhaps my most admired LPGA pro.  You can read why here.  She shot 70 and is T9.

Back again tomorrow.

And oh, yeah, Patty has the same M2 hybrids that I have.  She likes them, too.