A New Solution to the Trade Deficit ‘Problem’

I'll be honest with you folks — in Australia we have an expression, "Only in America!" It is used whenever outlandish, seemingly crazy, or especially unusual ideas or events occur over here. It is frequently used by news-readers. Please don't be offended.

Anyway, I am proposing a new expression, "Only from Congress." It could be used to describe, well, whenever an outlandish, seemingly crazy, or especially unusual idea is announced by members of Congress. And to kick things off, I would like to introduce the first item for your consideration.

Two Democratic senators, Byron Dorgan of North Dakota and Russ Feingold of Wisconsin, have proposed that any company wishing to import goods into America would need a government-issued certificate. The senators, according to this New York Times article (link requires subscription), view this as a "market-based system to cut the trade deficit to zero within 10 years."

It would work thus: Any company that exports goods would be issued an import certificate that would allow it to import goods. The "exchange rate" would fall from $1.40 in the first year (i.e., $1 worth of exports would earn $1.40 worth of imports), to $1.30 in the second year, and so on until we achieve "balance." If a company does not wish to import anything, it can sell the import certificate to someone who does. I guess that's the "market-based" part.

Sherman Katz of the Carnegie Endowment for International Peace was quoted in the article as saying that “'it looks on the face of it to represent an enormous intrusion of government activity into business totaling trillions of dollars each year."

"Enormous" doesn't seem to quite capture it though, does it? How about "insane"?

Can you imagine the type of federal oversight this would require? And how would our trade partners react to the U.S. market being restricted in this way?

And what about oil? Ah, the wise senators have already thought of that. Oil would be given a 10-year phase-in, to allow the economy "time to find and develop alternative energy supplies."

Imports of goods keep inflation in check and imports of capital keep interest rates down and help finance economic growth. Restricting imports would necessarily restrict capital flows into the economy because of the necessary balance between the current and capital accounts. To bring investment in line with savings, domestic interest rates would need to rise, reducing investment and economic growth. (More here.)

Question for the senators: What sort of certificate would you issue to cope with those sorts of macroeconomic effects?

I'm guessing we can expect lots of "Only from Congress" ideas in the coming campaign season. I'm excited.