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Debating the "Buy America" Provisions:

The NYT "Room for Debate" blog has a set of essays on the "Buy America" provisions in the stimulus bill. There's some good stuff in there, including the comments by economists Gary Clyde Hufbauer and Anne Kreuger noting that the provisions will cost more American jobs than they will save. The contribution by my Senator, Sherrod Brown, on the other hand, is embarrassing. He thinks it's a good idea to pay up to 25 percent more for, say, infrastructure projects to comply with a "Buy American" provision. So, in the case of a planned bridge replacement in Cleveland, it could add some $100 million (or more) to the cost of the project, which will mean fewer projects go forward. Yet somehow Senator Brown thinks this is in America's "national interest."

Related Posts (on one page):

  1. Debating the "Buy America" Provisions:
  2. Could the Stimulus Start a Trade War?
jukeboxgrad (mail):
There's some god stuff in there


I'm deeply disappointed to find that Obama is already pandering to the religious right.
2.12.2009 11:36am
MnZ (mail):

The contribution by my Senator, Sherrod Brown, on the other hand, is embarrassing.


And the sun also rose in the east this morning...
2.12.2009 11:38am
Ben P:
Replace "national" with "Sherrod Brown."

How many election quotes that smacked of protectionism were made in Ohio, Pennslyvania and or Michigan?

"Buy America" is precisely pandering to what's left of the Rust Belt, and "free trade" doesn't play so well there. The "Buy America Provision" is in the bill precisely because certain constituencies want it in the bill and it will be a valuable politically for Sherrod Brown if it is in the bill.
2.12.2009 11:41am
Steve:
It seems to me that it might well be in the national interest to have a smaller number of projects, if those projects generate American fabricating and manufacturing jobs as well as construction jobs, as opposed to a larger number of projects that generate only construction jobs because the materials come from outside the U.S. Prof. Adler seems to find "cheaper = better" more self-evident than I do.
2.12.2009 11:46am
Soronel Haetir (mail):
We can always hope that the effect shows up quickly enough for people to be unhappy in Nov '10 or '12.
2.12.2009 11:50am
alkali (mail):
So, in the case of a planned bridge replacement in Cleveland, it could add some $100 million (or more) to the cost of the project, which will mean fewer projects go forward. Yet somehow Senator Brown thinks this is in America's "national interest."

The point here is not to get a bargain on a bridge, but to stimulate the US economy. Undertaking a building project in a fashion that will immediately cause a substantial chunk of the money to be shipped overseas defeats that purpose. Buying a cheaper overseas equivalent, in this circumstance, is sort of like taking a shortcut on your jogging route. (However, it is still reasonable to see if we can spend our money domestically more efficiently: if we're spending X amount of money, it's better if we can get two American-made bridges than one.)

That said, it is reasonable to be concerned about the impact that such provisions would have on our trade relations, and particularly whether they would provoke retaliation in excess of any benefit they provide.
2.12.2009 11:51am
mls (www):
Here is my problem on the question of "Buy American." As I understand it, the primary economic theory behind the stimulus bill is the Keynesian idea that we have to inject a lot of money into the economy, either through spending or tax cuts, in order to spur demand for goods and services and to arrest the economy's downward spiral. Under this theory, it is preferable, but not necessary, that the money be spent on things that are actually worthwhile. Thus, Keynes suggested that in a recession it would be better to bury money in the ground and have people spend their time digging it up than to do nothing (I hope I have that example right).

Personally, I am deeply skeptical of this theory, but if it is correct, it seems that the last thing you would want to do is spend money somewhere outside the US. I suppose that money spent in China might provide some indirect benefit to the US, eg, by stimulating Chinese demand for US goods, but this benefit would be so attenuated as to render the exercise pointless (more pointless than burying the money here in the US). So it seems difficult intellectually to be both supportive of the stimulus bill and to oppose the Buy American provisions thereof.
2.12.2009 11:59am
Randy R. (mail):
In the short run, buy American sometimes makes sense -- it stimulates the economy in many ways. However, even there,as Prof. Adler points out, you are limiting yourself in how much you stimulate the economy because of the higher price.

So you have to do a calculation: Is the higher price going to reduce the number of projects? If so, by how much? And how stimulation do you forego for that? If the higher price isn't quite so high, then you might consider doing it because of the jobs value.

Then, of course, how much will suppliers jack up the price even more, knowing that the competition is limited to US based suppliers?

And if it leads to a trade war, then we have much bigger problems.

On the other hand, we might need a quick injection of funds to get money into people's hands so that they don't foreclose on the mortgage or cut spending any further, thereby making the recession even worse.

In the long run, Buy American isn't good for the economy. If a supplier cannot compete in the global marketplace, then why keep it limping along? It's a drag on the economy. You *want* those companies to go out of business so that capital is freed up on something that will actually add value. That's the 'creative destruction" theory.

So I guess it comes down to your priorities are right now, and bad the situation is,and whether this spending will lead to money circulating within the economy.

I for one don't believe it's an easy answer, either politically or economically.
2.12.2009 12:06pm
Hannibal Lector:
Let's call this the Snow-Spector Tariff.
2.12.2009 12:06pm
Sarcastro (www):
[I'm not a fan of protectionism in general, but it seems to me that while there are fewer projects, each creates more jobs since the materials demand will now create American jobs in addition to the construction.]
2.12.2009 12:07pm
alkali (mail):
In the short run, buy American sometimes makes sense -- it stimulates the economy in many ways. However, even there,as Prof. Adler points out, you are limiting yourself in how much you stimulate the economy because of the higher price.

The stimulus comes from spending the money, not from the additional productivity generated by the bridge (which is an incidental benefit). So the higher price means more rather than less stimulus, although it's good to get as much bang for the buck as possible in order to maximize the incidental benefit.
2.12.2009 12:18pm
Sarcastro (www):
[not quite, alkali. If spending was all that mattered, paying a small number of people a lot of money would be just as stimulative as paying a lot of people less money.

It's not just GDP growth; jobs matter too.]
2.12.2009 12:23pm
MnZ (mail):
mls,

I am not a macroeconomist. Therefore, this explanation might be slightly off.

Basic Keynesian theory doesn't do so well over the long term. Keynes says that paying the unemployed to do unproductive activities (i.e., dig holes and fill them up again) will stimulate the economy. On the other hand, unproductive activity is - by definition - not productive. The typical answer to this conflict is to accelerate public capital investment projects. The benefit of this strategy is that it generates short-term construction jobs as well as long-term useful capital.

Buy American provisions lead to more short-term domestic job creation, but on the other hand, lead to less long-term useful capital.
2.12.2009 12:24pm
DiverDan (mail):
Why is it that so many people, including several commenters here (like Steve and alkali, for example), continue to believe that sending money overseas means that the money will stay there? Folks, if we send $100 Million to China for Steel to use in our Bridges, that $100 Million is going to come right back here in the form of additional exports for the China Market, or investments in American stocks, bonds, real estate, etc. The "Buy American" provisions do NOT protect American Jobs -- they protect specific American industries (and their related union supporters) at the expense of American Taxpayers, American Consumers (who will get fewer bridges, roads, locks &dams, levees, etc. than they could have gotten for the same money), and all the other, disfavored industries which could have increased export sales (and, consequently, employment) when the money came back here. There are very sound reasons that protectionism is bad policy, even if it is good politics.

How would you who favor the "Buy American" provisions feel if the shoe was on the other foot, and Congress made all American Consumers "Buy American" at the grocery store? No more New Zealand Lamb, no more Chilean fruits and vegetables, no more Mexican produce, no more Venezuelan Bananas or Asian farm-raised shrimp, no European cheeses, to name only a few. Family meals will become much plainer, less nutritious (fresh fruits and vegetables will disappear from your menue for most of the year, unless you buy expensive greenhouse produce), and more expensive. Now extend that to textiles, and watch your budget for clothing quadruple - no more cheap imported cotton socks and underwear, and you can pay at least three to for times as much for Americans to sew your shirts and jeans and knit your sweaters. And if we go the route of protectionism, what is to stop the rest of the World from doing the same? What happens to farmers in Illinois, Iowa, Kansa, Missouri, etc., when the market collapses for the corn, soybeans and wheat they used to export because of retaliatory tarrifs? And employers like Caterpillar and other large machine manufacturers who can no longer export their goods?

There is a reason why each of you learned in high school History that the Smoot-Hawley Tarriff Act was one of the root causes of the Great Depression - it resulted in a drastic shrinkage of international trade and a collapse of American Exports at a time when international trade was a much smaller share of economic activity. When History is written about the Great Collapse of 2009, and the "Buy American" provisions are described as the new Smoot-Hawley, how proud will you be to tell your grandchildren that you supported that little contribution to economic idiocy?
2.12.2009 12:28pm
G.L. Campbell (www):
I've noticed the same in speaking with some social conservatives who, nevertheless, are union members, and it takes a yeoman's effort to help them to see how free market economics really are the best for family and national bottom lines. This is just as important when spending to build infrastructure since foreign contractors will use many American resources, capital, etc. It seems that once we agree on a philosophical level that paying more for the "same" item is better, economics convulse. In any event, the more serious issue is that the spending bill provides only short-term fiscal gains with many months and perhaps years until robust economic activity is realized; there is no long-term solution within, and those truly benefiting are they who desre to strengthen liberalism's socialistic grasp.
2.12.2009 12:36pm
alkali (mail):
Why is it that so many people, including several commenters here (like Steve and alkali, for example), continue to believe that sending money overseas means that the money will stay there? Folks, if we send $100 Million to China for Steel to use in our Bridges, that $100 Million is going to come right back here in the form of additional exports for the China Market, or investments in American stocks, bonds, real estate, etc.

I agree that if dollars go overseas they eventually have to come back here. The question is when they will come back. If they go overseas and someone sticks them in a virtual mattress for a few years that's not good for us.

I don't disagree that in general we ought to be in a free trade mode, and even in these unusual circumstances I'm not at all sure that the "Buy American" provisions of this stimulus package are on balance justified. I'm just trying to explain why the "Buy American" provisions are consistent with the stimulus purpose.
2.12.2009 12:46pm
Bryan C (mail):
Aside from the real possibility of a trade war, I can think of a plenty reasons why this is a bad idea.

Some projects that actually need to be built will not be built because of the higher costs. Other projects that are still built will be designed less robustly and with less thought toward future needs. A new bridge with fewer lanes, for example, that will become obsolete sooner than a larger bridge. The least useful projects will have the least difficulty in continuing even with higher costs, as they do not require realistic cost/benefit goals to justify their existence.

Construction jobs and materials jobs are different animals and can't be thought of as interchangeable. Manufacturing jobs are always going to be limited by manufacturing capacity. You can't make more steel, for example, simply by employing more steelworkers. You're unlikely to expand capacity quickly enough to meet the artificially elevated demand, and you can't maintain the excess capacity indefinitely once the immediate "stimulation" is exhausted.

Many American companies, which employ many Americans, also manufacture overseas. There's nothing wrong with that, but suddenly they're being punished for being fiscally prudent.
2.12.2009 12:46pm
Lior:
It is sad to see that an electronics technician can write coherently and persuasively while a US Senator cannot do better than play to prejudices ("Ivy league professors") and make irrelevant attacks on his critics. Well, the voters deserve what they got [says the Israeli who did no travel back to vote and thus deserves what he got]
2.12.2009 12:47pm
Steve:
Why is it that so many people, including several commenters here (like Steve and alkali, for example), continue to believe that sending money overseas means that the money will stay there? Folks, if we send $100 Million to China for Steel to use in our Bridges, that $100 Million is going to come right back here in the form of additional exports for the China Market, or investments in American stocks, bonds, real estate, etc.

My purpose in commenting was to understand Prof. Adler's argument, not to get into an ideological debate about free trade. But since you brought it up, it seems to me that given our present trade situation with China, the only respect in which the money "comes back" is that China spends money to buy U.S. debt. While this provides us with a valuable service, I don't think the most effective way to stimulate our economy is by funneling cash to China so they can fund the stimulus.

Moreover, the free-trade ideologues don't seem to grasp that we are debating fiscal policy, not trade policy. Even assuming that unfettered trade policies are always best in the long run, and not merely a means by which we fund a worldwide race to the bottom in terms of environmental policies and working conditions, that does not necessarily mean they are the best policies to stimulate the economy in the short term.

By the way, a good test of whether you're an ideologue is that if you react to a policy proposal that would do nothing more than make it slightly harder for government contractors to use imported materials than it is under current law by going off on a lengthy rant about what would happen if we totally closed our markets to all foreign agriculture, you just might be an ideologue. Try to lift your head out of that first-year econ textbook.

The stimulus comes from spending the money, not from the additional productivity generated by the bridge (which is an incidental benefit).

The stimulus comes not just from the direct effects of spending the money, but by the subsequent circulation of the money in the economy. That's why some forms of spending have a higher multiplier than others, and why our economy tends to get the most bang for the buck when we put money in the hands of those who will immediately spend it on further consumption.
2.12.2009 12:48pm
RPT (mail):
G.L. Campbell:

I've noticed the same in speaking with some social conservatives who, nevertheless, are union members, and it takes a yeoman's effort to help them to see how free market economics really are the best for family and national bottom lines."

If you are choosing Thain Street over Main Street, how do explain to the social conservative union members why it would be better for their families to earn less, so as to require more two incomes/working spouses, and fewer job-related benefits, and be at home less, et al, so that they could enjoy the ideological and purported practical benefits of the union-free "free market" economy? How should I explain to my mother why it would have been better for my father, an Air Line Pilots Association member until his retirement, to earn less to put me and my four siblings through Catholic school and college? How should I explain to her that it would have been better not to have the "burdensome regulations" that protected my father's Eastern Air Lines pension from the characters who ran the airline into the ground? What arguments do you present to show them that "you know best"?
2.12.2009 1:09pm
A. Zarkov (mail):
The argument over Free Trade provisions in the Stimulus bill is yet another demonstration of why this approach is likely to fail. If the whole idea is to put Americans to work then we should spend the money in a manner that does just that. We want Americans to go to work to produce the steel not Chinese. If we don't have enough productive capacity to produce the steel then we should be building steel mills with American (not Mexican) labor. On the other hand, if we want real investment and not a jobs program, it might be wise to buy foreign steel if that's what it takes to provide a net positive present value for the project.
2.12.2009 1:13pm
DiverDan (mail):
Steve says:


Moreover, the free-trade ideologues don't seem to grasp that we are debating fiscal policy, not trade policy.


Well, Steve, when Congress puts restrictions on spending bills that have a direct and material impact on foreign trade, like the "Buy American" provisions at issue, then we ARE debating trade policy, whether you like it or not. You can't just avoid the issue by attaching your own label to it.

Steve also says:


By the way, a good test of whether you're an ideologue is that if you react to a policy proposal that would do nothing more than make it slightly harder for government contractors to use imported materials than it is under current law by going off on a lengthy rant about what would happen if we totally closed our markets to all foreign agriculture, you just might be an ideologue. Try to lift your head out of that first-year econ textbook.


I can only take this as a personal shot at me. FYI, Steve, it's been more than 30 years since I've had my head in a "first year econ textbook", as you put it. My B.A. is in Econ, and I scored a 780 on the GRE for Economics; I chose to go to Law School instead of Grad School in Economics, but I'll bet my ass that I've forgotten more economics in the last 30 years than you ever bothered to learn. By the way, if you have to resort to ad hominem arguments rather than addressing the merits of this argument, you just might be economically illiterate.
2.12.2009 1:26pm
guest:
RPT:

1) tell them "I won."

2) tell them "It's not government policy to make sure you have enough money to get everything you want. And also the rest of America don't see a need to send part of their paychecks to them or to pay for their kids' college education."

3) As for "why it would be better for their families to earn less, so as to require more two incomes/working spouses..."

Ask them for an explanation on what gov't failure led to the near-universal requirement of two-income households; why it's a failure on the gov't's part; how did they ever fall into the belief that half the household should be exempted from bringing in revenue; why it should be reversed; and what the gov't can do to so reverse it.

4) ask them "Why do you think it's better for America that it should send you money?"
2.12.2009 1:32pm
David Welker (www):

The contribution by my Senator, Sherrod Brown, on the other hand, is embarrassing. He thinks it's a good idea to pay up to 25 percent more for, say, infrastructure projects to comply with a "Buy American" provision.


Wow. What is embarrassing is you. You choose to use strong language against your senator, but you are apparently just plain ignorant. I for one do not think it is embarrassing to think that these provisions are not automatically a bad idea, especially when you have an economist who won a Nobel prize in International Trade Theory who explains the economic case for protectionism during an economic crisis here.

It should be noted that despite the economic case for protectionism, Krugman is against it for because he thinks that politics will have a tendency to extend protectionism even when it is very inefficient. He explains that here.

Note that there are other cases for protectionism. Note the arguments of Ha-Joon Chang (who explains the infant-industry argument) and Robert E. Scott on the debate you link to.

So, I don't get it. There is an economic case to be made for protectionism, especially if you think that the politics can work itself out.

So, why would you say someone who has a different point of view from yourself is not only wrong, but embarrassingly wrong?

Answer: You are the one that is embarrassingly ignorant.

I personally think you can handle your disagreements with others in a more civil and respectful way.
2.12.2009 1:52pm
Steve:
My B.A. is in Econ, and I scored a 780 on the GRE for Economics...

That's awesome, but you offered nothing more in this thread than the standard lecture about why free trade is always, always, always better for everyone in the end. That may even be true, but considering that in the real world "free trade" is simply the label we slap on the set of corporate subsidies that we are okay with, as opposed to the set of corporate subsidies that are disfavored, it strikes me as rather beside the point.

If I can look past your amazing credentials to return to my actual point, it is that there are more ways to evaluate the stimulus bill than through the single prism of trade policy. As I already said above, even assuming for the sake of argument that you're right in everything you say about trade policy, the bill may still be a good idea because it has salutary short-term effects when judged by other measures. The reason I speak so dismissively about free-trade ideologues is that they don't seem to be able to analyze any question other than in this one narrow way. Reminds me of an old joke: "Mama, mama, they landed a man on the moon!" "So nu, is it good for the Jews?" Maybe in your neighborhood they told different jokes.
2.12.2009 2:00pm
Tony Tutins (mail):
if we send $100 Million to China for Steel to use in our Bridges, that $100 Million is going to come right back here in the form of financing our National Debt. And eventually China is going to get good and sick of financing our spending sprees.

"Buy American" provisions will help our current account balances. The steel worker will continue to buy foreign-made goods, because, basically, he has no alternatives. China can hardly complain that they're not getting the steel business that would not exist without the stimulus. And they should be happy that Americans would retain the ability to keep their tchotchke and apparel industries humming along.

The leverage effect comes from the steelworker paying his rent, stopping for a shot of Early Times after his shift, and taking his family to McDonald's and a movie.
2.12.2009 2:02pm
Houston Lawyer:
Interesting that the Buy American crowd doesn't believe that we should hire Americans locally to work on these projects. Wouldn't want anyone to actually verify that the recipients of these funds are in the country legally.
2.12.2009 2:04pm
Allan L. (mail):
Burying money to be dug up produces a 3x multiplier: (1) labor to bury it; (2) labor to dig it up; and (3) spending the recovered cash. Who can do better than that?
2.12.2009 2:14pm
Steve:
Interesting that the Buy American crowd doesn't believe that we should hire Americans locally to work on these projects. Wouldn't want anyone to actually verify that the recipients of these funds are in the country legally.

This is another good example of the "is it good for the Jews?" mode of analysis. Although usually it's that lonewacko guy who manages to bring everything back to immigration.
2.12.2009 2:17pm
Jonathan H. Adler (mail) (www):
Mr. Welker --

There is a far cry from the limited, theoretical case for protectionism made by Krugman and Senator Brown's know-nothing nationalism ("all [the American people] want is that the work be done by Americans and that the materials they use are made in America"]. There's a reason I identified his piece as embarrassing, and did not say the same about the other pro-protectionism pieces.

JHA
2.12.2009 2:25pm
RPT (mail):
Guest:

What in the world are you talking about in your reply to me? Please clarify how any of your comment relates to the alleged benefits of prohibiting unions. For example, what "govt failure"?
2.12.2009 2:34pm
Angus:
A politician is playing politics. Goddamn it, now I'm just disillusioned...
2.12.2009 2:40pm
Tony Tutins (mail):
This Burton Folsom guy is out of touch with current reality:


Second, if we refuse to buy China's imports, China will refuse to buy our exports, including our first-rate computers and iPods. Our export market collapses.


Our "first-rate" computers are assembled in China with motherboards from Taiwan and disk drives from Singapore, Malaysia, etc. Most of what the US exports is intellectual property.
2.12.2009 2:46pm
Tony Tutins (mail):
And iPods are made in China, of course.
2.12.2009 2:47pm
GuestTroll1234 (mail):
A quick review of the comments makes me think most are in the legal services. I'd like to see what their opinions would be when the legal community starts being outsourced in massive amounts to work done in India and China, and those workers who are willing to work for half of your salary come to this country to replace your jobs.

Just saying. It's nice to sit on a high horse while your own profession protects itself.
2.12.2009 2:47pm
Lior:
RPT: It would obviously be worse for the union members to earn less. But if that came at the "price" of everyone else having more, I don't see that as a bad thing. If the union members made less, perhaps someone else who is now out of a job would be hired too. I agree with you that if the government is propping up some someone, then it is very difficult to explain not propping up everyone, which is of course impossible.

Regarding "Buy American", there is no doubt that American steel mills and steel workers will benefit from those provisions. That is given. There is also no doubt, that the American taxpayer will lose something: they could have had the steel for less had they bought abroad, which would have freed money for other purposes (say to buy fruit and vegetables though "stimulating" the agricultural industry).

Most of us (including most of the opinion-piece writers from the NYT) lack the expertise to predict the net cost/benefit of this tradeoff. Actually, it is not clear that humanity's knowledge of economics is advanced enough that anyone at all can make a reasonable prediction. Moreover, the various policies have international relations implications on the political level, beyond the pure economics.

Thus, having given up on the possibility of a quantitative discussion, we have several options. We can make plausibility arguments based on what economics has discovered so far and our ability to predict the reactions of various countries. We can also can make emotional arguments designed to appeal to the prejudices of the listener and encourage irrational responses.

Thus if your listeners have negative opinions of "Ivy league economics" or "newspaper publishers with shrinking subscriptions", you can paint your critics as such rather than engage in actual argument. Similarly, you can point out that the choice you oppose will have negative consequence for someone while ignoring the fact that any choice has costs and benefits.
2.12.2009 2:55pm
SeaDrive:
I'm a skeptic in face of just about all these arguments. I have very little faith that the classroom theories of economics hold true is specific cases in special circumstances. Or, to put it differently, argument from ideology leaves me cold.

The situation has similarities to the overhead ratio of charities. Every $1 given to the charity yields $x benefit to the intended beneficiary. What's prudent? The point being made by Keynes was that the cheapest and easiest way to increase a man's income by a dollar is to give him a dollar. Well, we can't do that in fairness to the next man who does not get a dollar, so we hire the first man to do something, and call it wages. Which, in turn, requires planning and supervision, so it takes maybe $2 to give out $1.

So the question in the free trade argument is whether the cost of, e.g. steel, is going to be counted as productive stimulus (jobs to US steelworkers) or as overhead (jobs to Chinese steelworkers). If we use Chinese steel, we can save money for some other project, but at the cost of work for US steelworkers.

I suppose that economic theory says that more work can get done using cheaper steel, but that ignores questions of timeliness, locality, etc. It's not only the money, it's the velocity of money.

I suggest that the US steel companies supply the steel at Chinese steel company prices.
2.12.2009 2:59pm
Ben P:

A politician is playing politics. Goddamn it, now I'm just disillusioned...


win
2.12.2009 3:05pm
Lior:
SeaDrive: that is an absurd proposal. If US steel companies could supply steel at Chinese prices they would already be doing so and there wouldn't be an issue. Presumably the problem is that they cannot profitably do so, giving us a choice between propping them up and leaving them to collapse. It would then make more sense to prop up those industries that are at a competitive advantage wrt the Chinese ones.

If the problem is that the steel mills recognize that they could profitably sell steel at Chinese prices, but could more be profitable by getting the government to overpay for steel, we have a different kind of problem.

Relating to the other discussion, we can wonder under which of the two headings the unions who demand high wages should go.
2.12.2009 3:06pm
MnZ (mail):
David Welker, here are some choice sentences from Brown's piece:


Who could be against that? Well, some Ivy League economists don't like it — something about Smoot-Hawley and the Great Depression. And newspaper publishers pontificate about free trade theory, as they see their advertisers flee and their papers shrink. And the corporate executives of some of America's largest corporations tell us it will cause a trade war, as they collect million-dollar bonuses while laying off American workers and outsourcing jobs to China and India.

These are not people who are about to lose their jobs to bad trade policy. Other than this small, shall we say elite group, you could search far and wide and find almost no one who thinks "Made in America" is a bad idea.


Odd...I am suddenly reminded of Sarah Palin.
2.12.2009 3:09pm
MnZ (mail):
David Welker, here are some choice sentences from Brown's piece:


Who could be against that? Well, some Ivy League economists don't like it — something about Smoot-Hawley and the Great Depression. And newspaper publishers pontificate about free trade theory, as they see their advertisers flee and their papers shrink. And the corporate executives of some of America's largest corporations tell us it will cause a trade war, as they collect million-dollar bonuses while laying off American workers and outsourcing jobs to China and India.

These are not people who are about to lose their jobs to bad trade policy. Other than this small, shall we say elite group, you could search far and wide and find almost no one who thinks "Made in America" is a bad idea.


Odd...I am suddenly reminded of Sarah Palin.
2.12.2009 3:09pm
JoeSixpack (mail):
Excellent post by GuestTroll1234, touched on by Houston Lawyer above. Where is the provision in the bill that prohibits workers who are willing to work for half from coming into the US to replace the jobs that should go to Americans? When this is added to the bill the whole "Buy American" idea will seem a little less hypocritical.
2.12.2009 3:15pm
Elliot123 (mail):
"But since you brought it up, it seems to me that given our present trade situation with China, the only respect in which the money "comes back" is that China spends money to buy U.S. debt."

China is the third largest market for US goods exports. Canada is number 1, Mexico number 2.
2.12.2009 3:21pm
Kirk:
I suggest that the US steel companies supply the steel at Chinese steel company prices.
Oh, great--you wish to bankrupt them and cost their shareholders a big loss.
2.12.2009 3:30pm
ChrisIowa (mail):
If we can only buy American steel for our projects, then the number of projects that can be done will be limited by the capacity of the domestic steel industry, and the amount of "stimulus" that can be spent will be limited by the the amount of steel the domestic steel industry can produce. It will be the same for every industry involved. The amount of stimulus spent will be limited by the industry that is now working closest to capacity.

If the stimulus will benefit the economy, why would you want to limit the capacity of the program to our weakest industry, whatever that may be?
2.12.2009 3:32pm
Elliot123 (mail):
I hesitate to ask, but does the stimulus have a set aside for contractors and suppliers owned by minorities or women? Do projects have quotas for minority hire? Does Davis Bacon apply? Do Asians qualify as minorities?
2.12.2009 3:42pm
Steve:
If we can only buy American steel for our projects, then the number of projects that can be done will be limited by the capacity of the domestic steel industry, and the amount of "stimulus" that can be spent will be limited by the the amount of steel the domestic steel industry can produce.

But no one is proposing a hard-and-fast requirement that we can only buy American steel for our projects. This entire debate over the proposed "Buy American" provision seems to take place in a fantasy world where federal contractors are currently 100% free to use materials of foreign origin, and someone is proposing that henceforth they can only use American products. Neither is true.

In fact, in both our present world and the theoretical post-stimulus world, federal contractors are obligated to prefer American products, but they can get a waiver to use foreign products if American products are either unavailable or significantly more expensive. The difference is that the stimulus bill would make it somewhat more difficult to get a waiver. But in no case do we find ourselves in a situation where we cannot build any more bridges this year, because domestic sources are all tapped out and we're not allowed to buy foreign steel.
2.12.2009 3:46pm
SeaDrive:

... that is an absurd proposal. If US steel companies could supply steel at Chinese prices they would already be doing so and there wouldn't be an issue.


I didn't mean it seriously, but is it really absurd? If the steel industry wants the marginal (meaning "additional", not "small") business, they might like the opportunity leverage the power of Congress and get price breaks from their suppliers and unions. I won't hold my breath.


ChrisIowa: That's an excellent point about capacity.
2.12.2009 3:52pm
Eli Rabett (www):
Free trade preference relies on the idea of comparative advantage. However comparative advantage only makes sense for government policy when there is full employment and flexible exchange rates and labor is free to move, to follow the job. Note that that includes free immigration.

Absent these conditions and oh boy are they missing, Buy American makes sense.
2.12.2009 3:57pm
ChrisIowa (mail):

I hesitate to ask, but does the stimulus have a set aside for contractors and suppliers owned by minorities or women? Do projects have quotas for minority hire? Does Davis Bacon apply? Do Asians qualify as minorities?


On all Federal projects, there are "goals" for MBE and WBE participation. These are not necessarily rigid numerical limits, but that varies depending on the location and state rules.

Davis Bacon does apply to all projects with a hint of federal funds. I have not heard that its been suspended and doubt that a provision suspending D-B would get by this Congress.

I have no idea about Asians being included as minorities.
2.12.2009 4:05pm
Anonymous Engineer:
There already is a "Buy America" labor law, in a sense. Public works projects that receive federal funding must pay prevailing wages under the Davis-Bacon act, which also requires extensive documentation by both the owner and contractor to ensure the law is complied with, so it's unlikely that cheap immigrant labor will swamp the market. Also, highway construction today requires a lot of skilled trades, not just hordes of unskilled laborers.
2.12.2009 4:10pm
MnZ (mail):

Free trade preference relies on the idea of comparative advantage. However comparative advantage only makes sense for government policy when there is full employment and flexible exchange rates and labor is free to move, to follow the job.


By itself, comparative advantage has nothing to do with full employment, flexible exchange rates, and labor mobility. Certainly, economists have cooked up models where complexities indicate that free trade might lead to a loss. However, most of those models end up being rather ad hoc special cases of more general models in which trade is beneficial.

The fundamental concept behind comparative advantages is proven each day you wake up go to work and purchase anything.
2.12.2009 4:15pm
ChrisIowa (mail):

There already is a "Buy America" labor law, in a sense. Public works projects that receive federal funding must pay prevailing wages under the Davis-Bacon act, which also requires extensive documentation by both the owner and contractor to ensure the law is complied with, so it's unlikely that cheap immigrant labor will swamp the market. Also, highway construction today requires a lot of skilled trades, not just hordes of unskilled laborers.

A good share of the workers on some of the best paving crews I know are Spanish-speaking immigrants. Legal or illegal, I have no way to know. Someone's immigrant status has nothing to do with the skills they can learn. Many of the skills needed on a paving crew, and heavy construction crews in general, are not that difficult to learn.

This comment applies to paving, water, or sewer type work. Buildings are a different matter.
2.12.2009 4:36pm
Elliot123 (mail):

"Free trade preference relies on the idea of comparative advantage. However comparative advantage only makes sense for government policy when there is full employment and flexible exchange rates and labor is free to move, to follow the job. Note that that includes free immigration."

Comparative advantage is based on differences between different countries. These may be natural or man made. The advantages exist in any environment. It's the task of government to encourage exploitation of the advantages, while decreasing the effects of the disadvantages, and avoiding the creation of new disadvantages.

Employment, exchange rates, and immigration are simply factors in the environment which will effect the comparative advantage of a given country. Any government policy that ignore or denies its comparaive advantages and disadvantages will probably fail.
2.12.2009 4:41pm
David Welker (www):
JHA:

I clearly misinterpreted you. I am no fan of the more certain parts of Brown's argument, especially this:


Other than this small, shall we say elite group, you could search far and wide and find almost no one who thinks "Made in America" is a bad idea.


Obviously, complicated policy issues like this probably should not be decided by uninformed popularity contests. Still, I interpreted Brown more charitably than you did. I took this as an exercise in rhetoric, rather than a serious suggestion that we should decide this issue based on uninformed popularity contests. I think that simplified rhetoric is, unfortunately, something that politicians from both parties resort to. So, if it is embarrassing for Brown to assert this, the simplistic slogans of Republicans is also embarrassing. And political rhetoric in general is embarrassing. I would buy that. I wish that politicians would raise the level of debate (something that I would say that President Obama does), rather than constantly lowering it to the lowest common denominator.

That said, when criticizing Brown, the point you made didn't seem to be about his political rhetoric, but rather the policy consequence of steel being more expensive. But that consequence is a policy consequence of the more narrowly justified protectionism cases as well. Thus, it did not sound to me that you were merely disagreeing with Brown's (unfortunately typical) political rhetoric, but rather seemed to be suggesting that it is embarrassing (not merely mistaken) to advocate for protectionist policies that would raise the price of steel even in the relatively narrow set of contexts in which such protectionist policies may be economically rational.
2.12.2009 6:38pm
lpcowboy:
I'm predicting Betchel &co. will buy Chineese steel, say it's American, and charge 25% more.

No idea if they'll get caught of course, but there certainly won't be any consequences if they do.
2.12.2009 7:14pm
David Schwartz (mail):
I agree that if dollars go overseas they eventually have to come back here. The question is when they will come back. If they go overseas and someone sticks them in a virtual mattress for a few years that's not good for us.
Why is that not good for us? For every dollar the Chinese stuff in a virtual mattress, we can spend another short term with no inflationary effect.
2.12.2009 10:15pm
ChrisIowa (mail):
Was pondering as I was filling my gas tank tonight, whether "buy American" applies to oil?
2.13.2009 12:05am
Elmer:

China is the third largest market for US goods exports. Canada is number 1, Mexico number 2.


US exports to China, 2007: $65 billion.
US imports from China, 2007: $ 321 billion.

I won't stay up long enough to find a cite, but in recent months US exports to China have fallen faster than imports from same.
2.13.2009 2:10am
mls (www):
The Joint Explanatory Statement for the Stimulus Bill "explains":

"Section 1605 provides for the use of American iron, steel and manufactured goods, except in certain instances. Section 1605(d) is not intended to repeal by implication the President's authority under Title III of the Trade Agreements Act of 1979. The conferees anticipate that the Administration will rely on the authority under 19 U.S.C. 2511(b) to the extent necessary to comply with U.S. obligations under the WTO Agreement on Government Procurement and under U.S. free trade agreements and so that section 1605 will not apply to least developed countries to the same extent that it does not apply to the parties to those international agreements. The conferees also note that waiver authority under section 2511(b)(2) has not been used."

If I may translate.

Use American iron, steel and manufactured goods because we like America.

Don't rely on this provision to violate free trade agreements because we like free trade.

Don't rely on this provision to disadvantage poor countries because we like poor countries.

If anything bad happens, it is your fault for failing to understand our instructions correctly.
2.13.2009 9:18am
David Warner:
This depressing thread certainly sheds light on this subject, which it should be clear is dear to my heart.

Brown is embarrassing because his view is at once illiberal (bad economics, choice-restricting, coercive) and regressive (favoring the rich over the poor, privilege over powerlessness, white over brown, first world over third, old industry over new).

In any other context, such an argument would be denounced by the likely suspects on this thread as the jingoistic chauvinism it is. The rest of the world is doing worse than we are - by what progressive principle do we stack the deck against them here?

I can understand prostituting oneself to a political party, rather than, say, a set of principles, as I do, or one's family, as millions are forced to do. What I don't understand is those who get so into the act that they sacrifice their intellectual integrity thereby. It's fine to just say "this is lousy policy, but logs need rolling - suck it!" Spare us the pathetic rationalizations.
2.14.2009 11:09am

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