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Comment by blizkreeg | Hacker News Reader

As an aside, it both saddens and surprises me that we don't hesitate twice when buying the cheap stuff (made abroad, of course) but also complain that all the jobs have left.

It's certainly not a small town, blue-collar occupation issue but it does affect them disproportionately.

This recent NYTimes piece was an eye-opening read for me in that regard. [https://www.nytimes.com/2017/10/14/us/union-jobs-mexico-rexn.... Not that I didn't know this but to have it be made so vivid, it was hard to digest stuff.

I'm not even sure if there's a good solution in sight. Basic income and all that is fine but people still need to be and feel productive and busy for us to stay a sane society.

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There's been a good solution in sight for years. Barak Obama campaigned in the primaries on a platform of renegotiating NAFTA. Then he dropped that issue during the general. Trump sang that tune all the way to the White House.

Here's the long story about what's wrong with NAFTA and it's mostly about tax structure. In Mexico they have a VAT sales tax. This is a huge chunk of their federal budget. Most of the taxes are on the consumption side (point of sale), not the production side. Goods produced in Mexico but sold abroad avoid the VAT tax. However, goods produced outside Mexico but sold in Mexico get the same VAT tax as every other good sold. Now let's look at the US. We have no federal sales tax, all of our taxes are on the production side. Every good that leaves a factory has its price loaded up with basically all of our tax costs. It's the production side that's taxed, not the consumption. That means a product manufactured in the US already is loaded up with US taxes, and then gets shipped to Mexico where the VAT is added on top. Double-taxation. Goods produced in Mexico have no VAT, come to the US tariff free, and sold to US consumers where no federal tax is collected on the consumption end. No-tax. You don't need a Ph.D. in Economics to understand what the result of this will be over time.

The way I see it there's two potential solutions to this. One is to renegotiate NAFTA just like we elected Obama and Trump to do. Another would be to restructure our taxes to be more like Mexico and load the taxes on consumption rather than production. This was the signature campaign idea by Herman Cain during the 2012 election with his 9-9-9 plan, though he was laughed at at the time. https://en.wikipedia.org/wiki/9%E2%80%939%E2%80%939_Plan. I'm not suggesting that the 9-9-9 plan exactly is good, but only use it to point out that these solutions have been discussed in the mainstream. I remember Ross Perot's entire campaign against Bill Clinton in 1992 was about how much NAFTA would suck all our jobs to Mexico. But we elected Clinton anyways and look what happened.

That's untrue; the exchange rate adjust to completely negate the tax differences. What economists call the "terms of trade" are not impacted by sales tax.

This gets brought up and debunked periodically, the first result Google returns for me is http://www.aei.org/publication/keynes-at-the-border/ which looks as good as any.

> You don't need a Ph.D. in Economics to understand what the result of this will be over time.

True enough, but it can still be a little confusing, as you've discovered. :)

The discussion isn't about boosting GDP, but about where manufacturing labor takes place. The millions of people in the rust belt who are suffering don't care if them being out of work means a wealthy person in Silicon Valley can sell a few more ads overseas because exports eventually matches imports.

Yes, but I don't think you understand my point:

Mexico having a VAT does not do this. The US not having a VAT does not do this. The results of the US adding a VAT would not do this. VATs do not work the way you think they do.

> The discussion isn't about boosting GDP, but about where manufacturing labor takes place.

Where manufacturing labor takes place is not impacted by who does and does not have a VAT.

Jobs eventually wind up where it's economically efficient for those jobs to be. Are you implying that tax and trade policy have no impact on economic efficiency?

That’s not entirely clear. Certainly even in the US it’s more “efficient” if tech were anywhere but SF, but that’s not the case. Trade happens when countries agree to it, according to local taxes imposed, etc. China and Mexico did not have the manufacturing might they do now before trade deals allowed that flow, combined with a cultural trend in management to “outsource” everything and local in China and Mexico strategy to be that source (by doing things like heavily subsidizing energy, shipping, etc.)

There are lots of economic factors that make SF the most efficient place to open an office, cheap land and labor are not those reasons.

Yes, we're in agreement that China and Mexico have benefitted from our trade policies at the expense of millions of Americans losing their high paying union jobs where they had a stake in the value of production. Of course the financiers on Wall Street were happy to send those good jobs to desperate people in poorer countries. But maybe we could find a better balance between benefitting Wall Street and benefitting Main Street.

> Are you implying that tax and trade policy have no impact on economic efficiency?

Quite the reverse. A VAT is an efficient tax, and in particular is more efficient than income or capital taxes with lower deadweight losses. And in fact, if the US reduced capitals gains and corporate tax rates, and introduced a VAT, keeping its total tax take the same, I'd expect the US to become more economically efficient and employment to rise. (...not that I'd expect the US to introduce a VAT in this way of course.)

But that's neither here nor there. Your original comment was about international trade, trade deficits, and NAFTA, and none of it is true. A VAT does not subsidize exports, nor penalize imports, and 0% of the US balance of trade can be explained by its decision to not have a VAT, or the decision of many of its trading partners to have a VAT. If you want to argue that US economic policy is wrong headed and costing jobs then...yeah, it is. And a VAT is probably a key step on the path towards making major improvements. But that's got nothing to do with NAFTA.

What does efficiency in tax mean?

VAT is regressive imho, because poorer people are affected by it more then richer people (in which you'd have to set up exemptions for food etc to balance it back). Capital gains tax ought to be the heaviest, wage tax ought to be the lowest, do that tax burden is held by those most able to hold it with out loss of quality of life.

> What does efficiency in tax mean?

In this context of optimal tax theory, it'd be referring to the "deadweight loss" of the tax (how much economic activity is reduced per dollar of revenue), and to how much it distorts behaviour. (When viewed another way, it's a measure of how easy the tax is to dodge.) Generally speaking, land taxes are the most efficient, followed by consumption taxes, income taxes, and finally taxes on capital are the most distorting.

> VAT is regressive imho

Correct. However as a general rule income redistribution is achieved much more effectively via spending than taxation. The most efficient, effective welfare states have relatively regressive taxes skewed towards consumption taxes (which as above are efficient and hard to dodge), and then use the revenue to fund programs targeted at the poor. By contrast the US uses very progressive taxes to fund programs largely targeted at the middle class. Empirically, this model doesn't work very well. :)

> Capital gains tax ought to be the heaviest

Capital gains is the least effective tax. It distorts behaviour, has high deadweight taxes, is the easiest tax to dodge, the economic burden is seldom felt by the intended targets. It's not good at redistributing income, and it's not good at raising revenue.

I live in a social democratic country with a strong welfare state funded by a fairly high VAT, with no capital gains taxes at all. It works quite well.

The US, in my view, has managed to get itself into a state where it tries to use the tax code to solve all social and economic problems. Instead of universal health care we have tax deductions for employee provided insurance, and subidies and penalties for individual insurance, handed out via the tax code. instead of welfare payments we have EITC. And when it comes time to look at at inequality, the discussion starts (and stops) with an argument about how progressive the US tax system is. At this point almost any reform will make the US tax code more regressive; the trick is to realise that's okay. Social democratic states work best when you use the tax code to raise revenue, not bring about utopia. But that's a rant for another time. :)

The US has a trade imbalance with Mexico of about -$6B per month. It has a trade imbalance with China of about -$35B per month. The trade deficit with Canada is often below $1B and has flicked to a trade surplus a number of times.

The trade deficit with Mexico is a fluctuation amount in the trade deficit with China.

So it's somewhat incredible that people can continue this "just renegotiate NAFTA" farce. Mexico isn't "the problem", if you believe that balanced trade is a problem.

Jobs didn't go to Mexico. They went to China and automation, and when you were lucky the small remainder went to Mexico.

The article and post I was responding to was specifically about jobs leaving the US for Mexico. A discussion about tax and trade policy which led to so many jobs going to China is also worthwhile, it just wasn't relevant to the article posted by the GP.

It was entirely relevant. In that case the story was about a bearing manufacturer being squeezed by competitors, and then trying to reduce costs by moving to Mexico. Those competitors are almost universally Chinese manufacturers. China has become dominant in steel and ores (raw and processed) of all sorts, and just about every manufactured good. For this submission -- dollar stores -- Chinese goods are the overwhelming bulk of the products.

To put it another way, manufacturers move to Mexico to compete with China, so enjoy those few remaining sales and white collar jobs because the alternative was the company disappearing. If that isn't enough they automate. And now China is automating to ensure they can't be out-automated.

This is actually a great point. And its something that's not exclusive to the US. Western European companies use low-cost labor provided in Eastern Europe to get many of the same advantages and compete with China (I was very surprised that the Nivea shaving cream I use is actually made in Poland!).

The US should embrace Mexico: the Mexican govt. is a close ally, its a source of low cost labor. US companies can continue their ownership/expertise and control over products manufactured in Mexico, while protecting their IP and such. Whereas with China it is a different story....

This is the whole point of the argument from the people in the rust belt. They don't want low cost labor. They want to be high cost labor. They were told that there would be a temporary adjustment period and that all those jobs would come back and it'd be great for them. Well, they've been waiting 30 years of free trade and globalism and they're still suffering. Everyone seems to be responding with all of these arguments about maximizing GDP or whatever, but that's not the only purpose of economic and trade policy.

> This is the whole point of the argument from the people in the rust belt. They don't want low cost labor. They want to be high cost labor.

I'm sorry, its just not a question of what someone wants. Of course they want to have their low-skilled, highly-paid jobs. But labor doesn't automatically go from low to high skilled: you have to proactively engage in training programs, you have to learn the skills that are relevant to the high skilled jobs. Which most of these people, it turns out, have not. And therefore they are left behind.

Those that have embraced the new reality and economy are flourishing like never before. So the promises were true. The quality of life has increased, cost of commodities has decreased. Its just that these people have not managed to participate. Whose fault is that?

And please don't argue for tariffs and such. Trade must go on if only for the security of the current world order. When trade stops, war begins, as Jack Ma has put so astutely.

That's an awfully generous way of describing what happened. Here's another way of looking at it. Wall Street took Main Street's good union jobs where workers had a stake in the value of production and sent them to desperate people in poorer countries with basically no worker or environmental protections.

>And please don't argue for tariffs and such. Trade must go on if only for the security of the current world order. When trade stops, war begins, as Jack Ma has put so astutely.

I don't support tariffs, but there's no need to extend to the level of ridiculousness. Trade with Mexico was happening before NAFTA and it would have continued without it. But that's irrelevant because that's not what I was proposing. Worker and environmental protections could be added and enforced without ending free trade. And changing our tax structure to be more weighed towards consumption than production couldn't even possibly be twisted to sound like it was referring to a tariff.

> Wall Street took Main Street's good union jobs where workers had a stake in the value of production and sent them to desperate people in poorer countries with basically no worker or environmental protections.

You cannot force other countries to enforce environmental and worker protections against their will. The US didn't have these before it became a developed economy. So its mighty rich of you to expect other countries to do so right away. OTOH, China, long a country without environmental protection, has started enforcing more and more rules now that it has capital and knowhow and is rapidly moving into renewables. Your argument using these points is a weird strawman.

> I don't support tariffs, but there's no need to extend to the level of ridiculousness. Trade with Mexico was happening before NAFTA and it would have continued without it. But that's irrelevant because that's not what I was proposing. Worker and environmental protections could be added and enforced without ending free trade. And changing our tax structure to be more weighed towards consumption than production couldn't even possibly be twisted to sound like it was referring to a tariff.

Your argument for this has already been debunked by Lazare. Please stop spreading your dangerous misinformation.

Of course you can't force another country to enact environmental and worker protections against their will. But our country also has its own free will.

>Your argument for this has already been debunked by Lazare.

No, Lazare did the same thing you did which is to play a game of bait and switch by arguing against a point I didn't make. I don't support tariffs, which you falsely accused me of, nor do I believe that putting economic pressure on Mexico to enforce worker and environmental protections would increase US GDP or other silly notions.

I doubt facts have much to do with the rhetoric. It is about having a tiny kernel of truth with lots of veiled racism.

Do you believe that Hillary Clinton and Barak Obama were being racist when they campaigned on a platform to renegotiate NAFTA?

https://www.youtube.com/watch?v=AsO_hL73fEM

No, because they werent simultaneously vilifing Mexicans. Context matters.

I don't really see many factory goods made in Mexico on my day-to-day. Mostly, it's Chinese goods. Sure, Mexico produces machinery, etc. but remember that there is no VAT in Mexico when it's a firm buying the good, so the entire VAT thing becomes moot for most goods.

And the difference in costs wrt China is so large that even adding the 12% difference won't change things (12% = 17% VAT in China - 5.5% VAT where I live in the US).

The post I was responding to had an article specifically about a set of jobs going to Mexico. It's also worth talking about China, but that's not what this particular discussion was about.

Immigrants are taking our jobs, China is taking our jobs & manufacturing, Mexico is doing it, Canada is doing it. Every other country is trying to take our jobs away.

C'mon stop whining and start competing. This is what you signed up for, the thing called global economy.

Any discussion of VAT, or just raising sales taxes, is met with the argument that VAT or sales taxes are regressive.

It's hard to buy better stuff when you can't find work that pays enough for it. The problem is bigger than the purchasing decisions individuals make.

People can't buy better stuff because they don't have jobs or jobs that pay well enough. Those jobs leaving are what helps them buy the cheaper stuff. Quite the roundabout, isn't it?

It’s more like a spigot that is draining into corporate coffers, and out of the communities. There’s not much money left and what does move around all doesn’t stay in or anywhere near town.

To be fair, even local mom and pop stores still purchased the majority of the supplies they sold from out of town. Few cities could produce all of the goods, or even the majority of the goods needed on their own. So yes, DG takes some of the profits, but there are local employees making money to then spend in the local economy.

There is lots of reasons to not buy better stuff.

I own mostly cheap furniture because good stuff is a very expensive commitment, for example.

Yup, this is a problem of money draining from rural america. There are many symptoms.

Outsourcing benefits the consumers by keeping prices and inflation down. This helps the poor and elderly on fixed income the most. The reason so many people want Wal Marts in their town is because elderly people demand it, and they're a strong voting bloc.

And there are far more consumers than there are factory workers, so outsourcing is more of a benefit than a negative in an economy.

Give manufacturing to the cheapest foreign labor. It's a good thing. This is why things like NAFTA are a net benefit to the US economy.

The obvious solution for the secondary problems this creates is to increase local industries for local jobs. What can someone do here that absolutely must be done here, instead of by a person in China?

Things like construction works well, where you need someone local to build something since it can't be outsourced - you need to be here. Other traditionally conservative jobs like farming and mining would also be included, but also things like teaching and retail and other service jobs.

The long-term solution is higher-skill jobs, pushing the state-of-the art since US has the top universities.

Freedom of capital movement without freedom of labour movement privileges the capital class over the labour class.

The only equitable free trade agreements include the right to follow the jobs, such as the EU.

The neoliberal position also includes freedom-of-labor-movement.

It's why you had people like Hillary pushing for open borders in her speeches to Goldman Sachs.

The irrelevancy of the nation state is something neoliberals and socialists agree on, yes.

These towns are too small to support the higher skill jobs with state of the art universities. They have no means of self-support.

There is at least one very good solution.

Significantly increasing the earned income tax credit.

Warren Buffett has been pushing this for a long time as a superior alternative to increasing the minimum wage. We can push to $15 / hour equivalent without punishing businesses that can't afford the minimum wage at that level. Few people on either side are listening to him however; Democrats in Congress are mindlessly latched onto the minimum wage as the only solution, and Republicans dislike expanding such benefits in general. It can be done without changing much about how the system works and it would immediately begin boosting the standard of living for the bottom 1/2 of workers. The EITC is superior to the universal basic income, as it doesn't needlessly give money to the well-off (ie it isn't inherently regressive) and the US could actually implement a higher and broader EITC system immediately.

https://www.wsj.com/articles/better-than-raising-the-minimum...

I think the issue with this is that the average voter won't understand what it is.

There's nothing inherently regressive about a universal income. Taxing everybody the same percentage is considered regressive because of the diminishing marginal value of each dollar. Rich people are taxed a lower percentage when measured by utility. By the same argument, giving everybody the same basic income is progressive.

There's nothing inherently regressive about a universal income

Except that universal incomes are basically adult allowances provided by Daddy Government. So they are regressive in the sense that they're an idealistic childhood notion that immature adults keep trying to carry forward into adulthood.

That's not how the word is commonly used. By your definition all taxation is regressive.

Read up on what the word regressive means in this context before going off on your anti gub'ment rant

Why is that notion immature? Or idealistic?

"Because that's the way it has always been" doesn't satisfy. The same was true for a whole lot of things throughout history that suddenly . . . weren't.

If you earn $2k, $2000 is 100% of your income. If you earn $20k, $2000 is 10% of your income. If you earn $200K, $2000 1% of your income.

This is why [head taxes](https://en.wikipedia.org/wiki/Poll_tax) are the textbook example of regressive taxation.

And it's why giving out a UBI [a head rebate?] is inherently & unambiguously progressive.

EITC is more complicated.

By nature of being a tax credit, any EITC must phase in as taxable income increases. In the current system, you get more money from the EITC if you earn $16K than if you earn $10K. The more you expand it, the larger the phase-in section needs to be.

The current system also phases out with higher income levels, so if you earn $200K, you're won't get anything from the EITC. This makes it 'more progressive' than UBI, when considered in isolation for the appropriate income range.

But this aspect of the EITC is already in the machinery for income tax. The phase out window roughly corresponds to moving the 25% tax threshold half-way into the 15% one.

A UBI wouldn't be implemented without a change to income tax, and most advocates would largely pay for UBI with additional income taxes.

At the lowest income levels, a system with a UBI is by definition more progressive than one with an EITC. Everything else is up to the implementation.

>we don't hesitate twice when buying the cheap stuff

When things like gas and international trade are heavily subsidized (either directly or indirectly using preferential trade agreements) we create a world where this is the norm. When this is the local maxima of capital growth in these areas, this is where capital will invest.

hmm..but stores that make 'cheap stuff' (walmart, mcdonalds, target, etc.) employ a lot of people. The jobs may not pay much but it's employment nonetheless.

They don't employ as many people per dollar of goods sold as the businesses they replaced. It's why those businesses got replaced.

I haven't read the article, but just clicked on it -- she was featured on today's NYTimes podcast The Daily.

That was an incredibly good read, thank you.

To what extent can you fool someone into thinking they're doing a productive job? Social welfare for unemployed factory workers feels like not being productive, but what if you raise tariffs on imports to support local industry and give them jobs. Wouldn't it still feel useless? If you know that your job only exists because other Americans are paying you to make you feel productive because they realise you'll enjoy that more than just getting the money directly, wouldn't that be a hollow satisfaction?

Wouldn't it depend on what you were doing? Pushing paper probably feels pretty shitty. Actually cleaning up a forest in California to prevent another fire probably feels pretty good. We don't make people work hard any more because that's degrading? Not really sure why that is. We had work programs for those unemployed. They paid ok. They provided real benefit for the country. For some reason we don't go back this.

I don't mean jobs that provide real benefit. I mean making cars or consumer products in cases where the local industry is dependent on import tariffs to survive because the same thing is made cheaper overseas.

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