Sunday, March 26, 2006

Cost Cutting

A number of Posts are discussing the record Current Accounts Deficit, with Mark Thoma presenting a good expression:
why the trade gap appears stickier

The Answer as to why the Trade deficits remain stable with increasing percentage, though, lies not in foreign nations pegging their Currencies to the Dollar: these nations pegged to the Dollar because it was stable; instability would produce their transfer to a more stable Currency than the Dollar. The rationale for the absorption of U.S. Debt comes in investment opprotunity for nations which want to continue Trade with the United States because of the the generation of economic activity within their own nation, and reduction of their own Welfare Costs.

Unenlightened Americans might determine the best course adoptable is to provide impediments to foreign assumption of American debt--bad idea! It does not solve the basic problems of American Unemployment--read the NYTimes article on Laid-Off Workers in today's edition. A Policy change is necessary, not Fixes. So what do We base this Policy change on?

Examine the American Business format. Offshoring and Outsourcing does not just get rid of high Labor Costs, it gets rid of extensive Service taxes--Unemployment, Social Security, etc. This elimination provides its own Profits extension, over and above lower Labor Costs. American Business is able to offer Products at lower Cost to Consumers, taking their Profits from the Taxes saved by Outsourcing and Offshoring. American Products Overseas do not share in the benefit of such activity, and Exports do not increase as rapidly as Imports.

The Solution is to charge American Business the Cost of the surrendered Taxation coming from Outsourcing and Offshoring. Suppression of American Labor Costs is still maintained, while the economic profits of Tax evasion is prevented. Policy Change: Business should be charged the Cost of Welfare payments as would an functioning American company using domestic Labor. This imposed as a special Import Sales Tax. lgl

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