Here is a particularly naive post at Zero Hedge, which is noted for naive posting. Michael Synder provides data showing that the US grew at a much faster rate as it was approaching the apex of development as an emerging economy, just like China and India are reporting similarly spectacular growth. However, there is a point at which emerging economies transition to developed economies, called the Lewis turning point, when abundant cheap labor begins to dry up,wages increase, and the consumer economy develops.
At this point the economy begins to switch from an investment driven export economy to a consumer economy in which the service sector increases more quickly than the industrial sector. Then the rate of growth cools down and hopefully stabilizes with the purchasing power of a prosperous middle class. If that doesn't happen at the Lewis turning point, then the economy develops into a have and have-not economy with high inequality.
Synder correlates this with the institution of central banking and an income tax instead of recognizing the obvious correlation in terms of developmental stages. For example, during the developmental stage when the country was a net exporters, it protected developing industry with tariffs, and tariffs, which are taxes on the external sector, were the principal source of funding. As the country developed and trade became less crucial to development when the domestic economic bagan to take off, tariffs began to be replaced by taxes as the chief source of public funding.
The other point that Synder overlooks is the explosion of the domestic economy as well as exports post-WWII. Even though public debt was in the triple digits, there was low inflation and explosive development of the consumer economy lead by the baby boom, which continued to influence the US economy ever since and will continue to do so for another generation. And this with a central bank and a progressive income tax with a top bracket of over 90%. In fact, as the tax rate was reduced, GDP growth rate dropped.
Michael Snyder is blowing smoke. Read it if you want a good laugh.
Zero Hedge
The US Economy Grew Fastest With No Fed And No Income Tax
Michael Snyder | The Economic Collapse blog
7 comments:
he US ran trade deficits throughout much of the 19th century during a period of dynamic growth and expansion.
I am not saying that tariffs caused the growth, although they did reduce demand leakage from the domestic private sector by providing government funding in lieu of taxes.
Were high import tariffs somehow related to the strong U.S. economic growth during the late nineteenth century? This paper examines this frequently mentioned but controversial question and investigates the channels by which tariffs could have promoted growth during this period. The paper shows that: (i) late nineteenth century growth hinged more on population expansion and capital accumulation than on productivity growth; (ii) tariffs may have discouraged capital accumulation by raising the price of imported capital goods; (iii) productivity growth was most rapid in non-traded sectors (such as utilities and services) whose performance was not directly related to the tariff.
Tariffs And Growth In
Late Nineteenth Century America by Douglas A. Irwin, NBER
The US was a net exporter in the second half of the 19th c.
This paper reviews the main developments in U.S. trade and the balance of payments from the first years of the 19th century to the first decade of the 20th. American export trade was dominated by agricultural and other resource products long after the majority of the labor force had shifted out of agriculture. The shift out of agriculture was more rapid among the major trading partners of the United States because the American land area increased in the first half of the nineteenth century and agricultural land increased throughout the century. The rise in agricultural land area and a rapid decline in transport cost increased the supply of U.S. agricultural products to Europe and further displaced European agriculture and encouraged migration from Europe. The existence of the large world market, relatively open to the products of American comparative advantage and with a high price elasticity of demand for American exports, encouraged the expansion of U.S. land, agriculture, capital inflows, immigration, and the western migration of population.
U.S. Foreign Trade And The Balance Of Payments, 1800-1913 by Robert E. Lipsey, NBER
Oops. Neglected to provide the link for the last quote.
U.S. Foreign Trade And The Balance Of Payments, 1800-1913
The Fed is implicated in two major causes of World War II:
1) The Fed financed entry of the US into WWI broke a stalemate that would otherwise have ended with a peace that did not humiliate Germany.
2) As Ben Bernanke admits, the Fed caused the Great Depression, another major cause of WW II.
So the question is: How much growth justifies 50 - 65 million lives and the destruction of Europe? And since shares in Equity are also a form of asset-backed money, who needs money ("credit") lent into existence anyway?
Quote: "I am not saying that tariffs caused the growth, although they did reduce demand leakage from the domestic private sector by providing government funding in lieu of taxes."
It's not the reduction of demand leakage but the reduction in cost information loss created by importation that makes proper sector adjustment easier which allows for an economy under protection to grow whereas Imperialist "Free Trade" dumping destroys price signaling for domestic producers.
The "Free Trade" Liberals never even looked at the arguments of the economic Nationalists just like the don't look at the arguments of the Chartalists who are simply Monetary Nationalists describing the actually real world system.
The best situation for a nation is one where raw materials are freely imported and along with developmental tech importation exclusive for reverse engineering for later domestic production. No finished product importation or exporting whatsoever.
Simply, the best situation is where all added real value is kept domestic as much as is technically possible.
It's really very simple. Take the all best raw materials and best people and keep as many kinds of jobs domestic as you can so you can to create network effects. You grow you capacity type i.e. sector diversity so that you have capital specialization driven by labor specialization and feedback loop of improvements.
You trade on the absolute advantage in skilled labor working productively with high capital at high wages to undersell unskilled low capital low wage labor in total share of type of goods.
If your workers can produce more types of high value goods than a low skilled labor force per hour per worker then you can beat them simply by creating a larger market due to the fact you introducing more kinds of higher value items for people to buy than the low wage low skill worker can even if the cost per unit is higher because the "free trade" country can't sell what it doesn't know how to make and thus can't compete with you.
Lots of Cheap goods make people poorer. Wealth is having an section of high value goods not an abundance of cheap crap.
The free trade argument assumes a fix number sectors producing a fixed number of types of goods which both countries know how to produce. It doesn't even deal with question of how you get new sectors and effects those new sectors will have on comparative or absolute advantage of the old sector but thus Ricardo's entire argument is a total joke starting assuming two countries that make to two kinds of goods.
Wrong! Nations only make one kind of good; their people. People make an indeterminate number of goods.
No finished product importation or exporting whatsoever. septeus7
Typo? Since the rest of your comment seems to imply finished goods exporting?
But I disagree. The problem isn't that we have exported all but the highest tech jobs but that the profits derived therefrom are not justly shared.
Not that we should exploit foreign workers. We should share with them too and encourage them to likewise be generous.
The generous man will be prosperous, and he who waters will himself be watered. Proverbs 11:25
Argentina provides examples of trying to reach this consumer economy.
The Lewis point has resulted finally into a consumer economy because they are engaging in deficit spending in their own currency and trying to shut out the foreign currencies.
They have many times failed at the Lewis point and that resulted in have and have not situations which the ruling farming families enjoy since they like to see people suffer unfortunately.
When you meet those who are farmers and spoiled, they are constantly griping about the President of Argentina taking "their tax" money and giving it to people who are calling dumplings or something.
They fail to realize that the economy will crash if what is the equivalent of food stamps are eliminated.
Argentina has inflation in the time where the USA and Europe are facing deflation spiral.
The Gold bugs say that they are printing money printing money but where is the inflation and where is the money ?
Small business is the indicator and we'll see.
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