Successes & Failures of 2016 U.S. Elections — Part 19

MACROECONOMICS OUTLOOK AND PUSHING THE NEW AGENDA:


 The country belongs to “We the People” and the land belongs to the people.  Water, minerals, air and the airways, forests, and rivers all belong to the people.  With few exceptions, such as forestland, others (resources) belong to people, although corporations and governments are constantly claiming, abusing, and controlling these.  


by Sunil J. Wimalawansa 

“Members of this Court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments.  Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them.  It is not our job to protect people from the consequences of their political choices.” ~ Chief Justice John Roberts, Supreme Court of the United States.

(January 19, 2017, Washington, D.C., Sri Lanka Guardian) Historically, United States has gone ups and downs many times, cyclically, over the past three centuries.  On each occasion when the times were bad, United States, a nation of immigrants has demonstrated its true character and resilient in overcoming the situation, for the betterment of the country.  This includes social unrest, and military, political and economic downturns.

However, the changes expected in 2017 seems to be vast and may be uncreditable.  Under the direction of Mr. Trump, the team of Mike Pence carry out the domestic and international policy agenda effectively, one would be optimistic to see a rapid growth.  Mr. Pence has an excellent understanding of macroeconomy as he clearly demonstrated as the governor of Indiana.  We expect that he will be appointing under-secretaries of key government departments to implement his policies.

Being the largest democracy in the world, on January 20th, 2017, once again American will be demonstrating true colors of matured democracy with peaceful handover of executive power.  This further emphasize its character and pliability, in respect for democratic governance and global leadership.  The key question is to what degree the Congress will cooperate with the executive branch over the next four years.

Global trade, international policies and politics:

Click on the image to read the previous parts of this series

Based on promises made by Mr. Trump, global trade and America First foreign policies are coming to the front line during this year.  Regarding global trade, Mr. Trump is intended to negotiate Trans-Pacific Partnership (TPP) (that excludes China) and renegotiating the North American Free Trade Agreements (NAFTA), during this year.  Program also encompass another important trade renegotiation with China, that Mr. Trump has been hammering during his election campaign.

These negotiations are intended to establish a new trade agreements with our important trading partners, in favorable term to American business.  Although these intentions are worthy and trade negotiations are essential for bargaining, the people who negotiate trade deals, and the approaches they adopt to achieve the desired changes and goals are important for gaining tactical advantages.  However, it is essential that trade negotiations are done by people with great expertise and experience not only on the subject matter but also with high-end negotiating skills; such people are surely cannot be politicians or political appointees.

Effective Comparative Advantage–International trade:

Trade is multilateral, with many cogs and wheels involved in the fast-moving, complex network.  One cannot expect to change a single component of this intricate system without affecting (or not expecting change to) another.  Changing any one component, such as tariffs or quotas, will affect other key aspects, such as goodwill, barriers, and prices; this is inherent in manipulating any macroeconomy.  Therefore, in addition to the expected goals, all unintended consequences must be considered before drastic decisions and actions are taken.

Despite the rhetoric, one should be careful not to blindly follow the theory of comparative advantage when interfering with international trade and foreign policies–simply looking only at the outcomes one wants.  Instead, the new negotiating teams should consider using dialogs with “knowledge-based intelligence” with longer-term targets and focus on effective comparative advantage for the United States.

This is vital for establishing the America First theme and, secondarily, the rest of the world.  This is especially important regarding world trade and all other macroeconomic decisions.  This has been elegantly explained by Professor of Finance and Economics, Rutgers Business School, Dr. Farrokh Langdana [http://www.business.rutgers.edu/business-insights/donald-trump-angry-americans-and-misapplied-trade-theory].

With the removal of excessive regulations, the administration should take precautionary and calculated steps to prevent unscrupulous people, companies or countries alike, taking advantage of America and its businesses.  Unfortunately, this has been the case over the past few years, where few countries constantly exploited America regarding trade.  Thus, it is essential for the administration to take proactive step to use these trade negotiations with the focus on benefiting of American industries, generating jobs and preventing the occurrence of another financial crisis and recession.

In most non-communist countries, including the United States and Great Britain, the vast majority of jobs are create by the private sector, not by the government.  Consequently, bringing the corporate tax bracket from 35% to 15% and removing restrictive regulations would give a major boost to big and small industries, paving the path to success of businesses and large-scale job creation in the United States, and markedly increase tax revenues.  However, this is not necessarily straightforward, as discussed in the next article.

Bold decisions are needed to make America Great Again:  

While taking, bold decisions affecting the entire economy of the country is necessary, the systematic removal of not only macroeconomic disablements but also purposefully erected existing barriers to imbalance trade (i.e., renegotiation or reversal of disadvantaging trade deals, as described above) is needed for the benefit of the United States.  Following the inauguration of the president, many are eagerly looking to see the real policies of the new government.  Policies, the mode of achieving these goals and action plans, will have major impacts not only on the U.S. and the global economy but also the stock market.

Renegotiating the North American Free Trade Agreement (NAFTA) and negotiating the Trans Pacific Partnership (TPP), and modifying these deals also would facilitate the return of some manufacturing jobs that have been outsourced and planted offshore.  Considering the expenses and the energy need to spend, and the risks, on trade negotiations, the negotiated new deals and agreements must be markedly better than existing ones to be beneficial for U.S. industry and the nation.  There is no room for failure.

Endogenous job creation and organic growth should be the focus:

However, a considerable proportion of manufacturing jobs have been superseded by advances in technology.  Because of the advances in electronic technology and mechanization, the scale of job creation by bringing manufacturing jobs back to the United States will be relatively small; considerably, smaller than what has been informed to the public.

Thus, one must be cautious not to be solely dependent on this approach to create the needed, millions of jobs in the United States.  In addition to creating jobs organically, significant focus and effort should be made to create the opportunities and proactively retrain the workforce for todays’ and future needs, and creating jobs endogenously.  The country needs genuine growth with GDP approximating (or exceeding) 4%; not adding to the escalating deficit.

Tax benefits for corporations: 

Repealing and replacing the global repatriation tax from 35% to 10% is expected to encourage the return to the United States of more than $1.0 trillion of corporate assets that are stashed elsewhere.  This capital investment inflow, together with the relaxation of regulations that remove the barriers to industrial expansion, will strengthen major investor confidence and large-scale job creation in the country.  Consequentially, when the tax-income begin to expand, it should be reinvested by the treasury for a variety of development and infrastructure projects, and enhancing and reforming the educator and healthcare sectors.

To be Continued


Professor Sunil J. Wimalawansa MD, PhD, MBA, DSc, is a Physician-Scientist, Social Entrepreneur, Philanthropist, and Educator with strategic long-term vision.
The author can be reached via
 wimalawansa.org

 

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