Smoot Hawley It Isn't

Wonks Anonymous supports the buy American provisions in the current stimulus package although he understands that it will probably result in his permanent expulsion from the economics profession.

Free trade is nice, helps others, increases business profits and maybe even adds a few percentage points to potential GDP. Wonks Anonymous in no way advocates the passage of prohibitive tariffs or import quotas. He does, however, see a significant problem in the international response to the current economic crisis.

Economic stimulus is costly. National governments needs to take on debt in order to demand goods and services. To a greater or lesser extent this debt limits future choices. Even if sensible people see this as trivial - and they may have a good case - it is a political problem. Just wait until the economy recovers. Conservatives will be back in there urging us to cut Social Security and health care spending in the name of getting rid of the national debt. Hell, they already are.

Like individuals, national governments will try to have someone else incur the costs. It would be perfectly satisfactory for China India and Germany to have a massive US stimulus program that concentrated on the purchase of imports.

Now it would be nice to have a coordinated international policy to stimulate everyone's economy and Wonks Anonymous expects this at about the time that the Vulcans make first contact. In the meantime we do need to take care of ourselves first.

And the buy American provisions in the stimulus package are really very small. Projects will need to buy American steel and other materials which means that the initial round of stimulus will all go to domestic industry. But remember that US producers will buy imported inputs and workers employed in US industry will continue to buy imported consumer goods.

 

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