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Global Poverty Solution
MODIFIED KEYNESIAN THEORY
HOW TO WIN THE WAR ON POVERTY
AND SAVE THIS PLANET
The United States has many economic problems - poverty, unemployment, environmental degradation, etc. Politicians promise to fix those problems with higher taxes or lower taxes, with bigger government or smaller government, but nothing seems to work. Government debt is at a record level and increasing rapidly. Poverty level stays the same despite the war on poverty being waged for half a century. Economists warn that social security is bankrupt or will be soon. Some economic writers are even discussing the possibility of the federal government going bankrupt. Everyone is looking for a scapegoat to blame. Is it the Chinese stealing jobs from Americans? Or is it the Walmart selling Chinese goods? Should we increase taxes for the rich? Or should we reduce taxes across the board? Should we vote for Democrats or for the Republicans? And who should we elect as the president of the United States?
This Web Page provides clear explanations of the roots of our economic problems. In less than 10 minutes you will learn what is the most important problem of our economy and what is the solution.
For statistical purposes the federal government defines the poverty level as level of income. There are at least two problems with that definition. First, the ownership of real estate is not used as a criteria. Second, different areas of the United States have a different cost of living. As a result, a family of four which owns a house free and clear, has no housing expenses except maintenance of the house and property taxes, and with a $20,000/yr income in a low cost-of-living area of the country is considered to be at the poverty level. But a family of four which owns no real estate, has income of $25,000/yr and spends most of that income to rent an apartment in a high cost-of-living area of the country is not considered to be poor, even though this "middle class" family in reality is much more poor than many families with lower income. It's easy to see that housing expenses make all the difference. To reduce poverty we have to make housing more affordable. With lower housing expenses families will have more money to spend for goods and services. Standard of living of millions of poor families will go up, but the percentage of poor families will not go down for the following reason. As in any country in the world, the population of the United States can be divided any number of ways according to level of income or wealth. Unless we create a communist society where everyone is equally poor, we will always have 10% or 15% of families who have incomes lower than the rest of the population. If we define poverty as a certain level of income, so that 10% or 15% of the population meet that criteria, we can never reduce statistical poverty because 10% or 15% of the population will always have lower income than the rest of the population. All we should do is to increase the standard of living for the whole population.
STANDARD OF LIVING
Standard of living can be defined as affordability of goods and services. Many people everywhere in the world believe that in order to help the poor we have to increase minimum wages, but the reality is that an increase in minimum wages is neither good nor bad for the poor. When minimum wages go up, all wages will go up, the poor will have more money to spend, and prices of everything will go up. Your landlord will increase your rent. Why? Because you can afford to pay more. Manufacturers of goods and providers of services will increase prices either because you have more money in your pocket or because higher wages they pay to their workers increase the cost of production. In the end it's the consumer who pays for the higher wages. Democrats say that we have to help the poor by increasing minimum wages. The Republicans say that small businesses cannot afford to pay higher wages. Neither side tells the truth. The simple truth is that higher wages provide just an illusion of prosperity. The biggest problem in economics is this: you cannot eat two chickens if you raised only one, no matter how high the minimum wages go. If we really want to increase standard of living, we have to build more housing and to raise more chickens. Then every family will own a nice house or an apartment, and there will be a chicken in every pot. Increase in minimum wages is very much like a dog chasing its tail - a lot of action, but in the same place.
HOW TO BUILD?
At the present time real estate developers build mostly single family houses. We as a nation are covering the surface of the earth with single family homes and with streets and roads leading to those homes. As a result, agricultural land is disappearing. Open space is disappearing. Every suburban family needs at least two cars to get around. We are burning millions of tons of gasoline and poisoning our environment. A hundred of years from now so much of agricultural land will be lost that we will not have enough land to produce food for the population. Is there a better way to build enough housing while preserving agricultural land and open space?
HIGH DENSITY DEVELOPMENT
High density development is the only way to save agricultural land and open space. Use of public transportation is economically feasible only in areas with sufficiently high density of the population. Architects and city planners are capable of creating all kinds of city plans where residential blocks are located close to industrial and commercial blocks, and all city blocks are connected by efficient public transportation.
A residential city block should be the size of one square mile. At the perimeter there are huge apartment buildings. A dozen or so of huge apartment buildings built at the perimeter of one square mile will form a line of buildings four miles long. How many apartments can be built and how many families can live in such a city block? It's reasonable to assume that as many as forty thousand people can live in such a city block. In the middle of this city block, in the walking distance, there should be almost everything that people need - a medical center, K -12 schools, after school programs facility, child care centers, and, yes, a Walmart, or Costco, or Whole Foods Market. At the perimeter, on the ground floors of the residential buildings, all kinds of businesses can be located - restaurants, stores, offices, etc. Public transportation like the subway or trolleys should be on all four sides of the block, near residential buildings. Our friend Gagik Karapetyan advised us to place one supermarket at each of the four corners of the residential block. He also believes that the first modern city will be built in Armenia.
The city can be built in a modular fashion, one city block at a time. Thousands of construction workers will have steady work. With public transportation near every apartment building most people will not need to buy cars. People will save a lot of money on cars, gas, repairs and insurance. Thousands of people get killed every year in automobile accidents. If we build modern new cities with public transportation, we will save thousands of lives every year. A good question is " How much will it cost to build new cities with modern public transportation?" Another good question is " How to finance construction of modern new cities?"
HOW TO FINANCE CONSTRUCTION OF MODERN NEW CITIES
At the present time it costs around $200 per one square foot to build apartments in high-rise buildings. A 1,000 sq. feet apartment will cost around $200,000 to build. If we take into account the price of land to buy and modest profit of the developer, buyers will pay somewhat higher prices. Also, who will pay to build what will take place in the middle of the residential block - the school, the medical center, and the Walmart? Whoever pays to build new modern cities will need to borrow money at low interest rates. That much is clear. If we assume that only 10,000 apartments will be built at the cost of $200,000 per each apartment, it's two billion dollars. Will commercial banks provide loans for construction? The answer is no, and not because banks have no money to lend. If commercial banks make too many construction loans, the following chain of events will take place:
1.Supply of housing will go up.
2. Prices of housing will go down.
3. Mortgages will become smaller.
4. Profits of banks will become smaller ( bad for banks!).
The problem is that small banks do not have the ability to lend billions of dollars. Only our biggest banks have the ability to loan billions of dollars for construction loans, but they will not do it for the reasons explained above. This is a little dirty secret of our economy. People need affordable housing, but the top management of our biggest commercial banks is smart enough not to make too many construction loans. We hit a brick wall. Is there a way around this brick wall?
Fortunately, there is a way. First, we need to learn how the financial system functions. The financial system includes many distinctive parts: a central bank, commercial banks, insurance companies, stock market, bond market, all kinds of finance companies, etc. We already know that commercial banks have no desire to loan billions of dollars for construction loans. All parts of the financial system are profit seeking private enterprises, and they have no incentive to make billion dollars construction loans at low interest rates. The only part of the financial system which is not obligated to maximize profits is the central bank. The central bank does not usually make loans to commercial banks. If the central bank starts making loans to commercial banks, they will have more banking reserves to make loans to buy houses and apartments, and it will cause inflation in real estate.
Here is a solution. The first step should be a creation of one commercial bank owned by the federal government. That government-owned commercial bank should have a mandate to borrow billions of dollars straight from the central bank, the Federal Reserve, and to make billion dollars construction loans to build modern new cities. There will be no inflation for the following reasons. The central bank has a right to print paper dollars, but that does not increase the amount of money in circulation. When the central bank makes a loan to a government-owned commercial bank, it will increase reserves, against which the commercial bank can make loans. Only when the commercial bank makes a loan, the amount of money in circulation increases by the amount of the loan. But in a few years the new city block will be built, the apartments will be sold, the construction company will pay back the construction loan plus interest, and the amount of money in circulation will go back to where it was before the bank made the construction loan. Amount of money in circulation will increase only temporarily, until the loan is paid back. For that reason there will be no inflation, but we will be able to finance construction of modern new cities.
Article 1, Section 10 of the United States Constitution states that no state shall make anything but gold and silver coin a tender in payment of debts. It means that states do not have a right to issue paper currency, but the federal government of the United States does have this right, because it is not prohibited. Many people mistakenly believe that gold and silver coins are the real money, and paper currency is worthless and unconstitutional. Those people point to Article 1, Section 10 of the Constitution and argue that gold and silver coin are real money, otherwise why is it written in the Constitution?
The framers of the Constitution knew very well that if every state started printing its own paper money, then no one would be able to determine the value of one state's money in comparison to other states' money. That is why states have a right to mint gold and silver coins, which are commodity money, and only the federal government has a right to issue paper money.
In "The Wizard of Oz", Dorothy and her three companions learned that they had to follow the yellow brick road to see the "wizard". At the present time proponents of the gold standard agitate to follow the yellow brick road, but there is not even one country in the whole world where money is backed by gold or silver. The reason for that is that with gold standard a central bank can issue only gold certificates, but without gold standard a central bank can issue currency which is backed by TOTAL WEALTH of that country, and not only by gold or silver.
HOW MUCH WILL IT COST?
It costs about the same to build a single family home or an apartment in a high-rise building. If we build one million apartments in modern cities instead of one million single family homes, it will cost the same. Still, how much? If we assume that it costs $300,000 to build one spacious apartment, one million apartments will add six zeroes: $300,000,000,000. It's $300 billion. At the present time neither a construction industry nor a construction materials industry are capable of building one million apartments in high-rise buildings, because different construction materials will be needed, different machinery - cranes- and a different labor force, much better educated and trained. Still, we should start small and slow, and get up to speed. The federal and state governments are very much capable of helping. The federal government owns about 50% of land in our western states. Why not sell some of that land at a low price, or even donate it for free? A commercial bank owned by the federal government should be established as soon as possible; our construction materials industry needs a lot of financial capital to build new plants.
BENEFITS OF BUILDING MODERN NEW CITIES
Construction of modern new cities will help to improve the situation in many areas. At the present time our society is struggling with many problems. We are facing challenges with poverty, unemployment, pollution, traffic, loss of agricultural land, and loss of open space. Every year we are building around one million single family homes and covering the earth with streets and roads leading to those homes. This is insanity. Construction of modern cities will reduce the size of the cities and will reduce the length of the roads in the modern cities. The federal government creates new rules and regulations with stated objectives to reduce consumption of gasoline. If the objective is really fuel economy, let us build modern cities where public transportation like trolleys in San Francisco will be near every apartment building, and children will walk to their schools instead of being driven to their school in an SUV.
Problems of poverty and affordable housing are closely related. Housing is too expensive, to buy or to rent. Families spend a large part of their income just to keep roofs over their heads, and after paying rent or mortgage there is not much left to pay for anything else. That is the main cause of poverty. If we build at least one million apartments in modern cities instead of one million single family homes, it will make housing more affordable.
There are many hidden costs associated with urban sprawl. When we build far and wide in the suburbs, the suburbia needs a lot of infrastructure - lines of water, sewer, electricity, roads and bridges, etc. Who pays for the infrastructure, both construction and maintenance? The federal and state governments pay the biggest share. But regardless of who pays - the federal government or the state - in the end it's the taxpayer who pays for everything. Some costs - roads, bridges, highways, high voltage electrical lines, etc. - are visible, but many costs are not. When we build far and wide and cover the surface of the earth with single family homes and roads and highways, we pay a very high price when we lose agricultural land and open space. At the present time America has more than enough agricultural land, but will we have enough of it to feed the growing population 50 years or 100 years from now? There will be much less pollution in modern cities. If public transportation is readily available, most people will not buy cars. Large trucks will still be needed to deliver goods. To produce electricity for trolleys, power plants will still be needed.
A majority of Americans are concerned about saving for their retirement. Large companies have pension plans for their workers, and pension plans invest in stocks and bonds. The higher the current value of the pension plan the higher is the amount of money available to fund the pensions. But people do not understand that stock market dollars cannot guarantee the same purchasing power as the dollars circulating in the economy. To illustrate this point let's consider the following hypothetical example. Suppose, there is X amount of money in circulation, and the economy is producing Y amount of goods and services, and the dollar value of the stock market is Z. Suppose now that people become concerned about saving for retirement and they start to save by investing in the stock market. As a result, demand for stocks increased, prices of stocks went ballistic, and now people have the same number of stocks at twice the price. In other words, the dollar value of the stock market was equal to Z before people started to save for retirement, but now the dollar value of the stock market is equal to 2Z. Now let's take one step back and look at the big picture. People believe that they have twice more money in the stock market, and they have twice more purchasing power. But do they? The economy is producing the same amount of goods and services. There is the same amount of money in circulation. Is it possible to buy 2Y amount of goods if the economy is producing only Y amount of goods? No. It is an illusion. Illusion of wealth. What will happen when most baby boomers start selling their stocks and bonds to fund their golden years? There will be just a long "poof" sound. The hot air will come out. Everyone will see that the king was naked.
The biggest problem in economics is this, "you cannot eat two chickens if you raised only one." If we as a country want to save for retirement, our goal should not be to create a million of pension funds in all large businesses so that we increase the dollar value of the stock market from Z to 2Z, to 3Z, to 5Z, and to 10Z. That is not the creation of wealth. That is the creation of illusion. The smart will take the money out of the stock market. The dumb will be left behind to hold the empty bag. Shares of the stocks are certificates of ownership of businesses. The goal of ethical businesses is to produce goods and services for the economy and to make profit. The more goods and services the economy is producing the richer our nation becomes. All we need is to put more people to work to produce what our nation needs, and housing is one of the basic needs.
Politicians complain that wages in this country have been flat for the last 40 years, and they promise to create good jobs to help the poor. But the truth is the most important thing is not to educate more doctors and lawyers and accountants. The most important thing is to build more housing. Supply of housing will go up, prices will go down, housing will become affordable, and we will finally win the war on poverty. Some advocates for the poor are waging the war for higher wages. "If only", they say " the McDonald's and Walmart's paid $15 per hour, it would help the poor." But how will it help the poor? If we don't build more housing and don't raise more chickens, then not everyone will own a nice apartment and there will not be a chicken in every pot. On the other hand, if we build modern new cities, a husband and a wife working in a Walmart for $10 per hour and earning around $40,000 per year will be able to buy an apartment in such a city for $300,000. Affordability of housing is more important than higher wages. To build affordable housing in new modern cities, only three major things are needed: 1. To buy land at a low price. 2. To get enough financing in the form of a construction loan. 3. To train enough construction workers. The federal government should sell some land it owns in the west. The federal government should create a commercial bank owned by the government which will have a right to borrow billions of dollars straight from the Federal Reserve and to make construction loans at low interest rates. If inflation runs at, say, 2% per year, a construction loan can be made at 3% per year. We should remember that all costs are passed on to the consumer, and in the end it will be the buyers of apartments who will pay for everything. If construction costs are kept low, the housing will be affordable; the buyers will pay to the construction companies, the construction companies will pay to the commercial bank, and the commercial bank will pay to the Federal Reserve. There will be no inflation because the construction loan will be paid back. New money will be created only for a few years it will take to build the new city block and to sell the apartments.
I can hear a good question," Where will people get the money to buy apartments?" People will get mortgages, just as they always do. And if the banking system does not have enough money ( banking reserves) to make loans to buy apartments? This is also a good question because the top management of the banking system will not be interested in making this whole project a success. If the bankers will not make loans to buy apartments in modern new cities, the federal government has more than enough power to correct their business practices, including creation of another government-owned commercial bank which will make mortgages.
There is nothing impossible in this proposal to build modern new cities. By doing so we will save agricultural land and open space; we will increase real wealth of our nation; we will greatly reduce poverty; make the housing more affordable; over time we will take millions of cars off the road, reducing traffic and smog; and we will create millions of jobs in construction and construction materials industries.
How many jobs can we create? If one apartment costs $300,000 to build, and an average construction worker earns $30,000 per year, then $300,000 paid for the apartment will create jobs for ten workers who are paid an average $30,000 per year. If one apartment creates jobs for ten workers for one year, then construction of one million of apartments will create jobs for ten million workers for one year. There is no need to argue how to create good jobs. If we get up to speed and build two million affordable apartments every year, then with low housing costs every job, including in Walmart and in McDonald's will suddenly become good jobs.
We should stop blaming the Chinese for stealing our jobs. There is a great need for affordable housing. Let's create twenty million jobs to build two million apartments every year.
With construction of modern new cities the supply of affordable priced housing will go up. Millions of families who at the present time are priced out of the housing market, will be able to buy apartments. After the mortgage is paid off, millions of families will have very low housing expenses, which is very important for retirement. If two retired spouses do not pay neither a mortgage nor a rent, even a modest income from social security will allow them to have a decent standard of living. In contrast, a retired couple who don't have their own home paid off, will be in a much worse financial situation. Politicians are debating what to do about the social security system, but they cannot find an acceptable solution, because the only debated options are either to increase taxes, or to cut benefits, or both.
The debate about social security is very similar to the debate about minimum wages. In both cases people want more money, but they don't understand that if we give more money to minimum wage workers, and to unionized workers, and to social security recipients, and to people on welfare, then everyone will have more money, and people will pay more for everything. The only way to help people is not to give them more money, but give them more jobs to build affordable housing. If retirees own an apartment free and clear, then- only then- they will be secure financially. That is the only reliable solution to the social security problem. Otherwise, we will never win the war on poverty.
Scarcity of the financial capital is one of the cornerstones of economic theory, from classical economics to Keynes, to monetarism, and to everything in between. With the gold standard, the central bank could not print money and make productive loans, and that was a very big disadvantage. Today, the central bank can make low interest loans to a government-owned commercial bank, which will make a low interest loan to build modern new cities. We can increase both supply and demand, and standard of living and finally win the war on poverty without increase in inflation.
President Trump has a stated goal to create jobs, but that is a wrong goal. The right goal should be to improve our standard of living. Jobs by themselves do not improve standard of living. Even if we have zero imports (ZERO!) and manufacture everything ourselves, it will not improve our standard of living. To improve our standard of living, we have to increase the supply of everything people want to buy. Only if we increase the supply of affordable housing significantly, will we be able to improve our standard of living.
GLOBALIZATION IS A PRESCRIPTION FOR SUICIDE
America is debating the advantages and disadvantages of globalization and free trade. The intellectual elite, politicians, political scientists, economists, and most of the business leaders, advocate globalization and free trade, but a vast majority of Americans are against it. Who is right and who is wrong?
Globalization can be defined as doing business in the global marketplace as opposed to the national marketplace. The most important advantage of globalization is that it allows companies to become more profitable. If the whole world is your marketplace, you have more potential customers and higher sales. Small companies cannot afford to make big investments in automation and robots because they have low sales. Global companies, with their huge customer base, have incentives to invest millions of dollars in plant and equipment as well as research and development because the cost of investment will be spread over the volume of production that is sufficient enough to justify that amount of investment. Automation and robotization tend to reduce demand for production workers. True, highly educated engineers do find jobs to design robots, but the total amount of human work required for production of goods is being drastically reduced year after year. Lower labor costs are passed on to the consumer, and in the end it is the consumer who benefits from lower prices.
Globalization allows countries to produce only those goods already in production which the country has a comparative advantage. For example, some African countries have a comparative advantage in growing coffee and cocoa. Because chocolate is made from cocoa beans, and the whole world loves chocolate, it is more profitable to grow cacao and coffee in Africa than to grow wheat and rice there. Because countries like the United States and Canada not only sell food staples like wheat, corn, and rice in the global marketplace, but they also buy coffee and cocoa beans in the global marketplace which provides the balance so the whole world has a better standard of living. The highest standard of living for the whole world can be achieved only if there is complete globalization along with an absolutely free market, without quotas and tariffs. The only problem is that such globalization would hurt many countries.
POVERTY AS A COMPARATIVE ADVANTAGE
In order to understand the disadvantages of globalization and free trade, let's first take a quick look at the major factors that determine the standard of living in any country. Standard of living can be defined as affordability of goods and services. For goods and services to be affordable, a country has to either produce them domestically or to produce some goods for the global market providing the funds to buy some other goods in sufficient quantities for the domestic market.
At the present time, millions of workers in China are paid around $15 in local currency for a whole workday while in the United States workers are paid $15 per hour for the identical work. Why is there such a discrepancy? The explanation is simple. China is producing at least five times less gross domestic product per person than America, and this fact is reflected in the monetary compensation of workers.
The term “low wages" requires some explanation. Gross domestic product (GDP) is a poor measure for determining the true amount of goods and services produced in the country. In many developing countries there are significant numbers of households which produce goods and services that are not counted in government statistics. In villages, a household may raise a hundred chickens and collect a thousand chicken eggs in a given year, but because that is for consumption of the family, it is not reflected in GDP. Women perform household services like laundry, cooking, taking care of children and the elderly, etc., as well as having fruit trees, vegetable gardens. None of this is reflected in government statistics for GDP, and the country looks ten times poorer than it really is, especially if the majority of the population build and maintain their own houses. A worker might earn only $15 a day in local currency, but very often that is not his only income.
Some people say that China manipulates the exchange rate of its currency in order to stimulate exports, but the truth is that China does not even need to manipulate the currency. With wages in China so low, American companies are hard-pressed not to close factories here and to relocate production into China, where they can pay $3 per hour in local currency, but in China that is a very good wage.
Just a few decades ago Richard Nixon convinced Chinese leaders to try capitalism and a free market in exchange for American investments and access to America's market. We will never know what he was really thinking and who really convinced him to open China for business, but hindsight is 20/20, and now it is clear that it was a mistake. As soon as Nixon opened China, American companies, attracted by abnormal profits, started to invest in China, and not in the United States. From 1988 to 2016 the standard of living in the U.S. did not increase, and this is not a coincidence. This is, without any doubt, the logical effect of opening China for business. Financial and business elite make abnormal profits in China, but the debilitating process of deindustrialization still continues in America. The problem is that China has a competitive advantage: low wages and a lot more poverty than in America.
Many people don't understand why Donald Trump became our president. Hillary Clinton still does not understand why. It's jobs, stupid! During the presidential campaign she was promising to create well-paying jobs, but people knew she was lying. With labor costs five times lower than in America, better-paying jobs can more readily be created in China, not here.
Both major political parties are firmly in the back pocket of Wall Street. Wall Street and politicians of both parties perpetuate the brainwashing idea that America is already a post-industrialized society and we don't really need manufacturing. Wall Street's main goal is to enter into the insurance and financial services of China. There are huge profits to be made, but only temporarily, and only in the near future, until the communists cut off the oxygen line. But Wall Street is willing to pay the price of admission by relocating America's manufacturing to China. The process is already well on the way, and it will not stop there. China's universities churn out thousands of very capable engineers and scientists. Those wages and salaries are also five times lower than in the United States. Is there any reason not to move research and development to China? At some point in the future wages in the U.S. and China will become equal, and at that point the U.S. will become a supplier of agricultural goods to China.
In a perfect world it would be absolutely reasonable and acceptable if China were to become a leader of the world in high-technology manufacturing and related sciences. America would gain a comparative advantage to supply China with agricultural products. Alas, we are not living in a perfect world. Our world is very dangerous. Nominally, the United States is still the most powerful country, but in reality that is not so. During Obama's presidency, Russia deployed hundreds of anti - ballistic batteries to protect her territory from ballistic missiles in case of an all-out nuclear war. A logical response from America would have been to deploy anti- ballistic missiles on both coasts of the U.S. - the East Coast and the West Coast, but Obama ,”the peacenik” decided that America does not need any protection. Now it would take only one Russian submarine to destroy the East Coast, and another to destroy the West Coast. At the present time, China and Russia are moving quickly in the direction of a full military alliance. Leaders of both countries see that globalization makes America weaker. They know that it is only a matter of time until the old tiger dies of natural causes. Even North Korea sees only a paper tiger. The unholy trinity is hell-bent to help the American tiger to die sooner rather than later.
What should be done? First, we should recognize that both China and Russia want to become the world leaders in high technology. Globalization is the best way to achieve that goal. Science and technology always, always, have military applications! The guy who invented the wheel made the greatest military discovery of his time. Our adversaries don't have a goal to promote democracy and free trade after they destroy our economy. They will do what Mongols did centuries ago, but on a larger scale - globally. First of all, we have to understand that globalists on Wall Street don't really care about America. For the right price - access to China's financial services market, for example - the globalists will not hesitate to destroy whatever is left of America's manufacturing, and the debilitating process of deindustrialization will continue.
To protect our economy, we will need a combination of tariffs, quotas, and tax incentives for our high-tech industries. Tariffs are taxes on imports. Quotas are limits on imports. Tax incentives for high-tech industries can take a number of forms. One way to stimulate high-tech would be to abolish taxes on profits of those Venture Capital companies that invest in high technology startups.
We should understand the limitations of tariffs. Let's consider the following example. Suppose, it costs $100 to manufacture a certain high-tech item in the United States. It will cost $20 to manufacture an identical item in China. To protect our manufacturers, we need to impose a tariff in the amount that will bring the price of the Chinese item at least close to the price of an American item. The tariff must be ($100 - $20) $80, or 400%. We should be aware that China might decide to dump high-tech equipment on our market at a price below cost, with an intention to bankrupt our manufacturers and drive them out of business. In that case we will need to enforce strict limits on import- quotas as low as zero.
We should drastically reduce subsidies to the agricultural sector. With subsidies, our agricultural commodities are artificially cheap. When we export subsidized agricultural goods, we in effect are subsidizing other countries. Do we really want to become an agricultural colony of China? If we want to subsidy anything, we should introduce stiff tariffs on high-tech goods from China and use that money to subsidize our own hi-tech industries, science, and health care. We should also gradually increase tariffs for all manufactured goods from China, not only high-tech.
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Update: Our book THE END OF THE AMERICAN CENTURY: SLOW DEATH BY GLOBALIZATION is published and available on Amazon, and on this website for free.
MODIFIED KEYNESIAN THEORY
Modified Keynesian Theory calls for the creation of a commercial bank owned by the federal government. The commercial bank will not be taking deposits from the general public. Instead, the commercial bank will be borrowing reserves straight from the Central bank, the Fed in the USA. In other words, the Fed (or the Central bank) will be printing currency, billions of dollars, and making loans with zero interest rates to the commercial bank. The commercial bank will be making loans to real estate developers. The real estate developers will be investing the money to build new modern cities with modern public transportation, where most of the residents will not even need to own autos. As real estate is built and sold, the real estate developers will be paying back their loans to the commercial bank. The commercial bank will be paying back its own loans to the Fed (the Central bank). In the long run, there will be no increase in inflation. New money will be created as a result of making construction loans. The same amount of money supply will be destroyed when the construction loans are paid back. The end result will be no permanent increase in money supply -- and no increase in inflation in the long run.
Keynes could not propose this approach because the government at that time did not have a legal right to print paper currency not backed by gold. Now, with no gold standard to tie our hands, the Modified Keynesian Theory will profoundly improve the economic development of most countries.
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Contradictions in Marxist theory
The Marxist theory describes a number of alleged contradictions in a capitalist society, but the solutions that Marxists offer -- the class struggle, bloody revolutions, and dictatorship of the proletariat -- contain their own contradictions.
Exploitation is the cornerstone of the Marxist theory. Labor theory of value correctly states that labor is the source of wealth, but the conclusion is that owners of capital are not entitled to any share of wealth created by labor. In practical terms, it means that if you own a chicken farm, then your workers create 100% of wealth and value; you create nothing. It does not matter that you bought the land, built the chicken farm, and created jobs for your workers. Now your workers are being exploited by you, the worthless owner of the chicken farm. Exploitation means that you pay your workers less than they deserve. And how much do they deserve? They deserve to be paid so much that your profit equals zero. It means that the selling price equals the cost of production. Any profit is a "surplus value" and evidence of exploitation.
Marxists are agitating to create a better world, where there is no profit, no surplus value, and no exploitation, but how exactly the promised better world will be better than the present capitalist system? The history of Russian Revolution offers a good understanding of how Marxist brainwash the population with promise of a better future, then make them fight for the better future, and then, when given total control of the government, create institutions of such inhumane terror that any shortcomings of the capitalist system look absolutely insignificant.
In 1917 Russian Marxists promised to confiscate land from owners of big estates and to redistribute that land to poor peasants. At that time close to 90% of Russia's population were poor peasants. 90% of Russians military were also poor peasants. Agitated by Marxists, soldiers and sailors of military bases around Petersburg, which was the capital of Russia at the time, stormed, guns blazing, and took control of all most important buildings housing the government institutions of Imperial Russia. Almost overnight, the mighty Russian Empire collapsed and disintegrated.
And how the peasants were rewarded? They were given land, but were obligated to sell agricultural products to the government at 20% of fair market price. The government exported wheat and some other agricultural products, and used the profit to pay for import of the industrial machinery from the West. That is how industrialization in the Soviet Union was financed. It was financed by robbing the peasants silly.
Now let's try to answer a very interesting question. Was it morally right to finance industrialization of the Soviet Union by robbing the peasantry? Was it a case of exploitation when producers were paid less than they deserve? Socialists will tell you that there was no exploitation because all the profits went to the government which used the money to accumulate productive capital, and accumulation of productive capital makes the whole economy more productive, which means higher standard of living. As we see, Marxist socialism does not eliminate profit, exploitation, and accumulation of capital; it just makes profit, exploitation and accumulation of capital morally acceptable because the government does it, and not the private individuals.
Socialism does not eliminate inequality, either economic or social. In the Soviet Union the top level of the Communist Party occupied all the important positions in the government institutions. There was a name for this elite -- Nomenklatura. Marxists and Democratic socialists are always complaining about economic and social inequality in capitalist countries. Well, in any of the Marxist - socialist countries the elite of the ruling party enjoyed economic and social benefits that are in many cases even greater than the benefits capitalists enjoy.
Then why are all those Democratic socialists lamenting about inequality? Because the socialists lost all the standard talking points after the disintegration of the Soviet Empire. Now everyone knows that government ownership of means of production does not make the economy more productive. On the contrary, the point can be made that in capitalist economies profits ( extraction of surplus value) finance accumulation of capital which makes the economy more productive, and which means higher standard of living for the whole society. Democratic socialists have only one avenue left to destroy the capitalist system -- to agitate about inequality, which has been rediscovered as the most important issue of the modern world. Millions of college students in the United States are being brainwashed about growing economic inequality. Hundreds of thousands of students get worthless degrees in subjects like sociology. They have no clue about economics. They have no clue how to reduce poverty by building more housing and producing more goods and services. These "highly educated" people learn only about growing inequality in the U.S. And about the only solution to this problem -- redistribution of wealth and income. To pull off a socialist revolution, Marxists need a certain number of revolutionaries. During the Russian Revolution it was only 1% of 1% of the total population of Russia who stormed buildings and handed the power to the Communists. In the United States, Marxists cannot easily brainwash our military to believe that a Communist dictatorship will be able to establish a heaven on this Earth. We all see how workers' paradise works in Cuba, North Korea, and Venezuela.
American Marxists have a different strategy to seize power. No, they are not communists like those barbarians in poor countries populated by the backward people. They are just Democratic socialists who just want to reduce inequality. Marxists never proclaim the end goals of the real strategy. No, they are not trying to establish a dictatorship; they are for democracy and a better future. In Russia, and China, and Cuba, and everywhere, those Democratic socialists always promised just to redistribute wealth from the rich to the poor and to give power to the people in a more rational and democratic society. And every time, without a single exception, the promised better future has degenerated into the terror of the French Revolution, Gulag and Nomenklatura of the Russian Revolution, and pain and suffering of ordinary people under a variety of despots. Socialist revolutions always deteriorate and degenerate. The leaders, always under grand illusions and delusions from the start, slowly become disillusioned. They start fighting over tactics, over strategy, over power, and over everything. Then they start settling their differences. The favorite method of the French Revolution was a guillotine. Stalin preferred admissions of counter-revolutionary activities by his rivals after a fair amount of torture, and a single bullet in the back of the head in the dark basement of the Lubyanka jail. It is not that the revolutions begin to eat their children. Rather, the leaders of the revolution begin devouring their child -- the revolution. This is an ugly underbelly of the beast. The permanent revolution requires the permanent struggle against enemy forces and constant elimination of political rivals.
Democratic socialists would not admit that their revolution would follow the same path as any other socialist revolution. That is why they hide their socialist wolf under the skin of a promised people's democracy. They insist that all they want is equal access to education, healthcare, and housing; higher wages and a bigger piece of the economic pie for the workers; and equal rights for various oppressed groups.
This kind of program has always been a standard recipe in a cookbook of any Marxist - socialist movement. This recipe is the surface agenda. The real agenda of the Democratic socialists is to eliminate capitalism and establish a Marxist-- socialist system in the end. But the first priority of the democratic socialists is to seize power. That is why they are promising to take from the rich and to give it to the poor. In a society where the majority of voters are not very rich, but are very envious, this recipe is the recipe for success.
Not enough of the poor people to vote democratically for redistribution of wealth? Let's accept millions of poor refugees from all over the world. There are hundreds of millions of women and children who are eligible to seek political asylum in the United States. The strategy of Democratic socialists is to import as much poverty as possible into the US. Sooner or later, the poor will vote, very democratically, to do the redistribution. The United States is just one step away from the socialist revolution. We are losing this country.
Just take a good look at Sanders supporters who constitute about one half of the Democratic Party. Miseducated in public schools and brainwashed on college campuses by Marxist sociologists, they are demanding economic equality. These "highly educated" people don't even understand what economic equality means and whether it can be achieved. Do they want the burger flippers and sociology professors, most of them communists, to be paid equal wages? We can do it very quickly given that burger flippers are not paid too much. Sanders supporters are complaining about 1% of 1%, and are demanding redistribution. But what is the purpose of redistribution? To improve the living standard of the poor? To give more money for rent? Then landlords will simply increase rent payments, and only the landlords will benefit from redistribution of wealth from the rich to the poor. The only way to reduce poverty is to build much more housing and to keep prices of housing affordable. People do not understand that construction of housing should be financed with loans generated in the financial system, and not with money confiscated from the rich. The problem is that a lot of uninformed people vote, and they can vote us into a downward spiral of revolution, civil war, confiscation of wealth, and then more revolution down the vicious spiral of destruction of American civilization.