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As to those who are frightening us with the public deficit, USA federal budget deficit can be easily solved: put consumption tax on the same level as it is in Europe (100% tax on fuel consumption and a 15-20% VAT). That would immediately reduce to minimum the federal deficit and increase savings. The reduced consumption would balance the current account as well, and lots of surplus will be left to invest to infrastructure.

And it is also environmentally friendly.

Yes, the private consumption would drop, but is it not the right thing to happen?
To transfer some resources from private consumption to investments?
And if the US citizens don’t want saving, force it on them?
Isn’t it the right way to export some of unemployment to Net Exporting Countries?
Wouldn’t it be nice to come to Chinese negotiators of commercial terms and say, SURPRISE?!?

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Economics One

A blog by John B. Taylor

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