02 February 2009

Stimulated by protectionism

There's a bumper-sticker which has it that if you can read the sticker you should thank a teacher. (My child has, frequently. But I digress.)

Protectionist interventionist political-market economics is alive and well in the bill Rush Limbaugh has kick-named Porculus.

Earlier this month...the U.S. iron and steel industry was lobbying for a "Buy America" provision in the stimulus package. Now everybody's getting into the act.

On Tuesday [27 January] the Senate Appropriations Committee added "manufactured goods" to the list of items that must be American-made in order to qualify for stimulus dollars under the American Recovery and Reinvestment Act. Congress is signaling to the rest of the world that U.S. protectionists are in charge. Forcing U.S. contractors to buy domestic goods instead of shopping for the best price available world-wide means that taxpayers risk overpaying for their roads and bridges. And that means capital will be misallocated, fewer projects will be built and the bill will go ever-higher.

It's the easiest thing in the world to believe: the way to improve economic conditions here at home, is to encourage, inspire, motivate, cajole, require or just down-right force the purchase of domestic goods. If only it really were that easy.

There is also the little matter of retaliation by our trading partners. The European steel industry has said that it will urge the EU to challenge the provision at the World Trade Organization. That's the high road. Another course would be for other countries to lock American companies out of the bidding on their projects. China's stimulus is estimated at $600 billion. Caterpillar Tractor says that it has a "major initiative to compete in infrastructure projects around the world -- particularly in China -- and this would seriously undermine it." Congress must want more Caterpillar layoffs.

Only if Congress knew as much about economics as His Beatitudes ministers pretend to do could they know that this protectionism will, among other things, result in more Caterpillar layoffs.

On the other hand, maybe it won't. If Congress can require American-made in order to qualify for stimulus dollars under the American Recovery and Reinvestment Act, then it can also require no layoffs in order to qualify for stimulus dollars under the American Recovery and Reinvestment Act.

And, according to, David A. Patten, Newsmax, "Economists have warned that over-stimulating the economy could lead to runaway inflation, once the immediate crisis has passed." He doesn't say which economists, regrettably. But it doesn't matter: it stands to reason.

If you don't know why, thank a teacher, but only if (1) your school offered economics, (2) you signed up for the class, and (3) received a passing grade.

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James Frank SolĂ­s
Former soldier (USA). Graduate-level educated. Married 26 years. Texas ex-patriate. Ruling elder in the Presbyterian Church in America.
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