Spending American
Freshman Congressman Larry Kissell, D-N.C., gets credit today for inserting a "buy American" provision into the stimulus bill. It applies to textiles purchased by the Department of Homeland Security and Coast Guard.
That promises a huge benefit for North Carolina manufacturers.
Obviously, this approach could be taken across the board. The federal government is going to massively ramp up its spending, and it could have a huge impact if it required every dollar to stay in the country.
In fact, there are other "buy American" provisions in the stimulus package.
This could be a very popular policy. Protectionism always carries a big emotional appeal.
The question is whether it's ultimately detrimental rather than beneficial to the country and the American people.
Here's a BusinessWeek report.
It notes that some "buy American" requirements have been in place for years. There are limitations, the article states. For example, the rules don't apply "if they'll increase the cost of the overall project by more than 25%."
When you're talking about projects costing hundreds of billions of dollars, potentially overpaying by up to 25 percent adds up to a huge penalty for taxpayers. Not many of us could manage our household budgets that way, no matter how much we might want to limit our personal spending to the immediate neighborhood.
On the other hand, there's a boost for the economy if all the extra money stays in the country.
Maybe it depends on whether you're in line to get some of it, or if you're just one of those stuck with paying.
One interesting side note is that you really can't find even advocates of "buy American" policies who contend it's somehow in our best interest to cut off trade. Is that a disconnect?
Last question: In spending its portion of stimulus money, should North Carolina impose a "buy North Carolinian" rule?
Comments (4)
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The economy is in such unusual circumstances that economic policies that would be very bad in normal times can be very good right now. The stimulus package is a good example, in my opinion. The question is whether this applies to protectionism as well.
On one level, the normal argument holds here. A protectionist policy like this buy-American requirement would provide short-run benefit but would backfire in the longer run, as our trading partners retaliate as they are sure to do. However, the prospect of large-scale buying of import goods would amount to a leakage of the stimulus outside our borders. Could the short-run benefit of avoiding those leakages be worth the long-run cost?
My guess is not. For the most part, the stimulus is designed to put Americans to work, and the leakage of some of the stimulus money to imports is bound to be small compared to the employment benefits. The degree to which American jobs have been outsourced has been overstated by the media, and the infrastructure spending in the bill is most likely to go toward projects that employ American workers.
Paul Krugman, normally a free-trader, argues that the protectionist approach might work if we coordinate temporary protectionism with our trading allies. In this way, no one would benefit from someone else's anti-recession policy, and each country's policy would have the maximum effect within it borders. That sounds good, but it takes forever to negotiate trade agreements, and it's bound to be the same for a mutual-protectionism agreement. Besides, what guarantees would there be that the protectionist measures would indeed be temporary?
On balance, even though we're employing bizarro-world economic policies out of sheer necessity, I'd say that buy-American restrictions are most likely a bad idea.
Posted on February 18, 2009 9:18 PM
It's even less of a good idea for North Carolina. For one thing, the leakage problem is less pronounced. The stimulus package is federal in nature, and its benefits will be felt in Virginia as well as North Carolina.
Therefore, buying Virginia products isn't bad for the North Carolina economy because Virginians will be buying North Carolinia products as well... as long as we don't do something silly like put in place a buy-NC policy.
Posted on February 18, 2009 9:24 PM
So much for Krugman's idea of coordinating policies with other countries: Europe doesn't appear to have the stomach for it, or for much of anything when it comes to fighting this recession.
If we can't coordinate temporary protectionism, then we should stick to our usual commitment to free trade.
Posted on February 19, 2009 5:55 PM
Not to delve too deeply into the socialism argument, Andy, but would it be fair to assume that EU government spending has already accounted for a greater share of GNP than here in the U.S.? How much higher can they go?
Posted on February 19, 2009 6:06 PM