Alan Grayson explains the trade issue in the video, No to ‘Fast Track,’ No to Trade Treachery, that he has put on YouTube.

Grayson really sells the explanation of the problem.

The article on Hullabaloo, Grayson Launches New Trade Offensive, provides a commentary and a quote about something that caught my attention, and not necessarily in a good way.

Note the pivot, at 7:01, to his counter-proposal. It’s a fascinating, workable idea.
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Warren Buffett, the greatest investor of our lifetime, has offered a plan for liberating us from the trade deficit. He would require importers to obtain certificates for the goods and services they sell us. The charges for those certificates could be used to increase Social Security and Medicare benefits, rebuild our roads and schools, and cut our taxes.

I support that plan, and I will be offering legislation to implement it. It is the light at the end of the tunnel for our economy.

Here is where I really started to get the feeling of the presentation going into demagoguery. This moment went by so fast in the video, that I could hardly think very deeply about the proposal. I am happy that there is the transcript to read at our leisure and think about carefully.

As I think about it, I see that there are attractive features to the proposal, but the consequences of any legislation based on this proposal are not easy to predict. Especially when we have not even seen the legislation.

Let me list a number of consequences that are easily foreseen.

1. The cost of imported goods will rise to cover the cost of the certificates.
2. The level of imports will decrease.
3. Prices for what we do buy will rise because the cost of imported goods will rise, and because the cost of American made replacements for those goods will be higher.
4. The goods being made in America to replace the imports will mean higher wages and additional jobs for residents here.

What we don’t know, and cannot predict is the net result from these changes as far as who will benefit and who will lose.  The ultimate question is whether or not the net benefit will be positive for the USA and for the rest of the world. Even that ultimate question is not that simple.  It will take years for this country and the rest of the world to digest these massive changes.  The trajectory of benefits will have upswings and downswings which will be painful on the downswings and perhaps feel good on the upswings.  We don’t know for sure whether the long term trend,  if we keep these new policies in place, will be up or down.

See my previous post Constructing Models of the Economy to get some idea of why there is so much uncertainty in making sudden large shifts in the rules.  That post tries to make it easier for you to picture that there are large number of very large forces that are in some kind of balance at any moment in history.  The economy can be quite sensitive to small changes in the balances, let alone large  changes in the balances.

I am not saying we should not make any changes because we will never be able to accurately predict the consequences.  I am saying that when we make changes, there is very little likelihood that they will turn out exactly as we had hoped.  We need to make plans that anticipate that we will have to be constantly measuring the impact of what we have done and be prepared to make corrections.

The larger  the changes and the more quickly they are done, the more difficult it will be to control what happens.  The irony is, that the way we got into our fix of needing to make large changes quickly, is that we weren’t monitoring the situation closely enough to make the small, gradual changes that we have needed to make as soon as we saw that deregulation and trickle down economics was not working at all as predicted.

This lack of foresight is the reason why there are large and catastrophic events in history as we swing wildly between one extreme and another.

It is not easy to figure out how quickly or how slowly we need to go.  That is why we need to be wise as citizens, and we need to choose wise people to put in charge of implementing the desire of the citizens.  A large part of the wisdom we need to have is to have the humility to imagine how little we can predict the future.