I don't think anybody knows exactly what the final version of the often talked about stimulus bill will look like - after all, the House and Senate have to hammer out their differences, but there is one thing about it that troubles me.
From an article on CNN.com:
A debate is brewing at home and abroad over an economic stimulus measure that would require materials used in the program's infrastructure projects to be purchased from American companies.
In the $819 billion House bill passed Wednesday, the so-called "Buy American" provision would, with some notable exceptions, ensure that only U.S.-produced iron and steel be used for construction.
This, in my opinion, is a huge mistake. While I understand the desire to try to protect American jobs, this kind of economic protectionism is almost always counterproductive and ultimately costs the American economy more jobs than it preserves or creates.
A good article on this, entitled The return of economic nationalism, points out, in part, that “...Buy American” provisions in the stimulus bill are alarmingly nationalistic. They would not even boost American employment in the short run, because—just as with Smoot-Hawley—the inevitable retaliation would destroy more jobs at exporting firms.
While retaliation is certainly a risk, the problem with economic protectionism is much, much bigger.
Actually, the problem has a lot to do with my economic refrigerator.
As you may recall, I pointed out that taxes (and the subsequent spending) and refrigerators have something in common. They both move something from where one doesn't want it (money or heat) to where one does - but the processes have built-in ineffeciencies. Protectionist economic policies are no different.
Imagine, purely for the sake of argument, that instead of the iron and steel in the economic stimulus bill the U.S. government decided it wanted to protect the largely long-gone U.S. textile industry. You know, charge a tarriff on all those cheap Chinese imports showing up in places like Wal-mart (and just about everywhere else, for that matter).
Granted, U.S. textile companies, and their employees, would benefit. Jobs in the textile industry would be protected, or perhaps even expand. More Americans working is a good thing, right?
Sure... until you consider what else would happen. Clothing would be more expensive. That means consumers of clothing (which is everybody I know) will have less money to spend on other things... which of course leads to job losses in those other areas/industries.
Okay... so under protectionist policies, the protected producers win, the consumers lose, and it all comes out pretty even in the end, right?
Well... no... time to roll-in the 'economic refrigerator'. The fact of that matter is that the losers in this situation lose more than the winners win. It isn't a zero-sum game. Overall, such a policy would result in a net job loss because of the inherent ineffeciency of the system (forcing the less effecient producers to produce means fewer economic resources in the system to go around for everyone). I'm not suggesting that encouraging or requiring domestic production of certain things is always a bad idea... but only when doing so makes sense despite the cost to our overall economy (national security reasons could be one example). Enacting protectionist policies in the hope of bolstering the domestic economy is not only futile, it is entirely counterproductive.
And this happens even if other nations don't retaliate!
Now imagine how big the problem becomes if in response to the U.S. passing an economy damaging protectionist policy, other countries around the world follow suit and pass similar policies of their own. President Obama likes to talk about keeping the current crisis from turning into a catastrophy - it's hard to imagine anything that could more quickly and easily bring about the very thing that the President is trying to avoid.
Also from The return of economic nationalism:
Barack Obama says that he doesn’t like “Buy American” (and the provisions have been softened in the Senate’s version of the stimulus plan). That’s good—but not enough. Mr Obama should veto the entire package unless they are removed.
I couldn't agree more wholeheartedly. The last thing our fragile economy needs is the enacting of well-intentioned yet completely misguided polices that cost our economy more jobs than they preserve or create.
Russell (a.k.a. TMFEldrehad)