Why is that every time Congress starts talking stimulus, I start feeling more stabby? (stabbier?) This time it’s the inclusion of the “Buy American” clause for infrastructure projects. You’ve probably heard pundits discuss it on the news. Here’s the scoop on why “Buy American” is bad for America and bad for the world.

Buy American Has Been Tried – and Failed
In fact, not only has it failed, but it’s credited with worsening the Great Depression. It’s called “protectionism,” and often has the reverse of the intended effect, especially in a bad economy. When we insist on buying American goods during bad economic times, the countries we stop buying from refuse to buy our goods. Depressed trade only serves to worsen the economic situation. It also weakens international goodwill, which is something we’re desperately in need of.

I think all Congresspeople should be required to read a history book right now. Specifically, a history of the Great Depression. More specifically than that, the chapter on the Smoot-Hawley Act of 1930. Although it wasn’t a specific mandate to “buy American,” it had the same effect. You’ll note that the Depression didn’t end in 1930, or even 1931.

Buy American Will Increase Infrastructure Costs
A commentator on NPR pointed out that U.S. steel costs more than foreign steel, often more than 20% more. If we have to spend more on materials, then we’ll be able to complete fewer infrastructure projects. That could mean the creation of fewer jobs, which would produce less income tax revenue. Some would argue that it would require increased production of U.S. steel, which would require hiring more steelworkers, but the total number of jobs created may be lower.

We’ll Have to Give the Money to Foreign Entities Anyway
As most people know, these stimulus packages are being paid for with borrowed money. Most of that money is borrowed from foreign entities. So would you rather spend $3 billion on Chinese steel now, or pay $4 billion for US steel, which would result in an additional $1 billion in borrowed money that we’d have to pay interest on (most likely to China). Basic math tells me that $3 billion plus interest is cheaper in both the short term and the long run.

Buy American May Be Illegal
According to the Washington Post, the provision may actually violate various trade deals we’ve made through the WTO, the G20, and other treaties and agreements. Given our current image around the globe, do we really want to start violating trade deals?

Now I’m not saying that we shouldn’t buy anything from US companies and manufacturers. We have a massive trade deficit, and it’s only getting worse. We certainly should buy from US companies when there will be a net savings. We just shouldn’t codify it in US law at a time when the rest of the world is struggling as well. We need to maintain all of the foreign goodwill that we possibly can. Buy American will only make the situation worse in the long-run. If we want to put the country on a better long-term footing, short-term, crowd-pleasing measures aren’t the way to go.

Do you disagree? Do you think I’m full of it? Do you think I’m unpatriotic? Do you agree? Do you think Congress is being reactionary, again? Whatever your opinion, share it in the comments. That’s what stabby posts are for.

Comments

Leave a Reply




Current Accounts



My blog is worth $16,371.66.
How much is your blog worth?


Finance Blogs - BlogCatalog Blog Directory