Lessons from Greece

• As seen by Marty Feldstein
• As seen by John Cochrane
• As seen by Michael Spence
• As seen by Barry Eichengreen
• As seen by Joe Stiglitz
• As seen by Vincent and Carmen Reinhart

Is a VAT good for exports?

In a recent CNBC interview, former President Clinton endorses the idea of a value added tax.  (Click here.  The discussion of the VAT is around minute 2:45.)

One of President Clinton's main arguments is that a VAT would improve our trade balance, because it is rebated on exports and imposed on imports.  The problem is that this argument is well-known, at least among economists who specialize in this topic, to be a fallacy.  Here is Alan Viard on the topic:

A common fallacy holds that border tax adjustments�imposing taxes on imports and rebating taxes on exports�would enhance American exports and reduce imports. The reasoning behind this mistake is simple enough. A border adjustment seems to provide a subsidy to exporters and to levy a tariff on importers. Border adjustment proponents, noting that international trade rules allow nations to border adjust consumption taxes such as European-style value added taxes, urge the adoption of a consumption tax in the United States so that we can border adjust and enhance our trade competitiveness.

Yet, such an argument ignores an essential truth about imports and exports: over the long term, exports and imports must be equal. We can think of a country like a household. Purchases are paid for from the proceeds of sales, and sales are made for the purpose of additional purchases. In the long run, purchases and sales must be equal. A nation�s trade policy works the same way. Over a nation�s history, the value of exports in current dollars must equal the value of imports in present value. Any attempt to permanently increase exports and decrease imports is futile.

What would actually happen if we border adjusted imports and exports is that exchange rate movements would offset the trade effects and the dollar would appreciate. The key variable is the real exchange rate, which determines the terms at which a country buys and sells. (For the United States, the real exchange rate is the value of the dollar in terms of foreign currency�the nominal exchange rate�multiplied by the U.S. price level and divided by the foreign price level.) The real exchange rate adjusts to keep the present discounted value of exports and imports equal. The adoption of a border adjustment by the United States would trigger an increase in the real exchange rate that would offset the perceived boost to exports and the perceived restraint on imports.

Imagine, for the moment, that one euro and one dollar have the same value under the current trade regime. If a firm in the United States wanted to import one euro�s worth of German chocolate, the cost of the chocolate to the importer would be one dollar.

Now, let�s imagine that we institute a 25 percent border adjustment. The cost of the chocolate to the importer would increase to �1.33 (25 percent of 1.33 is 0.33). At the same time, the dollar would appreciate to �1.33; conversely, one euro would be worth 75 cents. At the new exchange rate, the �1.33 chocolate would still cost the importer one dollar, so there would be no net increase in cost.

The same dynamics would be at play in the case where the United States is an exporter. Imagine that a German importer wants to buy one dollar worth of Florida oranges, which would cost one euro under the current trade regime. Under the border adjustment, the United States would rebate the American exporter 25 percent, so the cost to the German importer would decrease to 75 cents. Because the dollar would appreciate to �1.33, however, the cost to the German importer would still be one euro. There would be no competitive advantage for U.S. exports.

These examples reveal that the impact on overall trade flows would be neutral.

None of this means that a VAT is a bad idea.  But the argument in favor of it should not rely on the fallacious claim that it would promote exports and discourage imports.

so happy together

{ set of two "happy" vintage champagne glasses by annietwobraids }

sorry for the lag in posting,  i've been happily:

• shipping a magazine
• buying (and returning) (and reordering) a wedding dress (!)
• entertaining an dear friend in town for the weekend
• carboloading
• running the capitol hill classic 10k (!!)

and... we booked a venue and have a date. america! F*#! yeah!

blogging will be slow this week due to day job, but i promise to post the custom watercolor map giveaway results.

thanks for reading!
xoj

Dr Young's pH Miracle Lifestyle and Diet Validated With Scientific Research

Several scientific research studies have been done showing alkaline lifestyle and diets, like that researched and developed by Dr. Robert O. Young, are beneficial. Examples include in vitro, animal and human studies. The first study of many studies that I will be sharing with you indicates that the external pH of solid tumors are acidic as a consequence of increased metabolism of glucose (a me...tabolic acid) and poor perfusion. The second study shows that acid-mediated tumor invasion is plausible through mathematical modeling.

References:

(1) Ian F. Robey, Brenda K. Baggett, Nathaniel D. Kirkpatrick, Denise J. Roe, Julie Dosescu, Bonnie F. Sloane, Arig Ibrahim Hashim, David L. Morse, Natarajan Raghunand, Robert A. Gatenby and Robert J. Gillies (2009). "Bicarbonate Increases Tumor pH and Inhibits Spontaneous Metastases". American Association for Cancer Research 69: 2260. http://cancerres.aacrjournals.org/cgi/content/full/69/6/2260.

(2) Robert A. Gatenby, Edward T. Gawlinski, Arthur F. Gmitro1, Brant Kaylor, and Robert J. Gillies (2006). "Acid-Mediated Tumor Invasion: a Multidisciplinary Study ". American Association for Cancer Research 66: 5216-5223. http://cancerres.aacrjournals.org/cgi/content/full/66/10/5216.

BUENOS AIRES - maria magdalena, palermo soho, 05/14/10

Guess the Author

Read the passage.  Then click on the link below to learn the author's identity.

In our own times, a coherent socialist movement is nowhere to be found in the United States. Americans are more likely to speak of a golden past than of a golden future, of capitalism's glories rather than of socialism's greatness. Conformity overrides dissent; the desire to conserve has overwhelmed the urge to alter. Such a state of affairs cries out for explanation. Why, in a society by no means perfect, has a radical party never attained the status of a major political force? Why, in particular did the socialist movement never become an alternative to the nation's established parties?

In answering this question, historians have often called attention to various charcteristics of American society... an ethnically-divided working class, a relatively fluid class structure, an economy which allowed at least some workers to enjoy what Sombart termed "reefs of roast beef and apple pie"--prevented the early twentieth century socialists from attracting an immediate mass following. Such conditions did not, however, completely checkmate American socialism.... Yet in the years after World War I, this expanding and confident movement almost entirely collapsed....

From the New York socialist movement's birth, sectarianism and dissension ate away at its core. Substantial numbers of SP members expressed deep and abiding dissatisfaction with the brand of reform socialism advocated by the party's leadership. To these left-wingers, constructive socialism seemed to stress insignificant reforms at the expense of ultimate goals. How, these revolutionaries angrily demanded, could the SP hope to attract workers if it did not distinguish itself from the many progressive parties, if it did not proffer an enduring and radiant ideal? How, the constructivists angrily replied, could the SP hope to attract workers if it did not promise them immediate benefits, if it did not concern itself with their present burdens?...

Through its own internal feuding, then, the SP exhausted itself forever.... The story is a sad but also a chastening one for those who, more than half a century after socialism's decline, still wish to change America. Radicals have often succumbed to the devastating bane of sectarianism; it is easier, after all, to fight one's fellows than it is to battle an entrenched and powerful foe. Yet if the history of Local New York shows anything, it is that American radicals cannot afford to become their own worst enemies. In unity lies their only hope.

Click here to learn who wrote this.

Flu Shot Suspended in Australia After Adverse Reactions

Seasonal flu vaccinations have been suspended in Australia for all children under the age of five. The suspension comes after 23 children in Western Australia were admitted to hospitals with convulsions after receiving flu injections. More than 250 children may have had adverse reactions to the vaccine, with symptoms including fever, vomiting and convulsions.

Today reports that:

�Another 40 convulsion cases had been detected in the past month in children at other metropolitan hospitals ... Doctors are now working to determine how many of those children received the flu vaccine.�

"When will this madness stop of trying to provide immunity by poisoning the blood and tissues with a highly acidic vaccine. True immunity comes from maintaining the alkaline design of the body fluids with an alkaline lifestyle and diet," states Dr. Robert O. Young, Director of Reserach at the pH Miracle Living Center.

Sources:

WA Today April 23, 2010

News.com.au April 27, 2010