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February 01, 2009 05:24 PM UTC

Battling Over "Buy American"

  • by: Colorado Pols

A key point of debate is emerging in the U.S. Senate as it prepares to take up the federal economic stimulus package, over a proposed requirement that U.S.-made raw materials be used on infrastructure projects paid for with stimulus funds. As the Pueblo Chieftain reports:

Last week, House Democrats approved an $819 billion package of federal spending that included a special clause for the U.S. steel industry – all the road and public building projects paid for by the legislation would have to use steel made in U.S. mills. That “Buy American” amendment came from Rep. Pete Visclosky, D-Ind., but it got near unanimous support in the House Appropriations Committee and drew almost no criticism in the House debate as Republicans and Democrats argued over other issues.

That won’t be the case in the Senate, where Democrats have put an even bigger “Buy American” requirement in their preliminary version of the bill. As it currently stands, the Senate bill would require that all materials used in the infrastructure projects be U.S.-made.

For steelmakers, such as Evraz Rocky Mountain Steel Mills in Pueblo, the legislation could be a boon from Congress. U.S. mills are only operating at roughly 45 percent capacity and thousands of steelworkers have been furloughed across the nation in the past six months, including in Pueblo…

From the point of view of a furloughed Pueblo steelworker, it’s a no-brainer. Nevertheless,

…a list of U.S. manufacturers are lining up against the “Buy American” requirement. They include the heavy-equipment maker Caterpillar, as well as General Electric and aerospace firms. Those companies are lobbying Congress to block the steel clause and other domestic-only requirements, claiming foreign nations will retaliate against U.S. companies selling products overseas. More than half of Caterpillar’s sales last year were overseas, according to company officials.

For Colorado’s freshman senators, the debate will put them in the middle of a fight over trade policy.

Sen. Michael Bennet, a Democrat, is only days into his first elected office. He was favoring the Buy American provision as of last week.

“Senator Bennet supports this provision in the context of this recovery plan, which is designed to create American jobs and jump start the American economy,” a spokesman said.

Sen. Mark Udall is a little more cautious (per usual, get used to it) according to the Chieftain, declining to specifically use the word “support” in reference to the “Buy American” provision in the stimulus package but clearly sympathetic to its aims: “the people of Pueblo know firsthand what can happen when we send our money and our work overseas.”

We don’t see the “Buy American” provision in the stimulus bill as particularly controversial, or even incompatible with the general shift toward liberalized global trade that has prevailed for the last few decades. After all, the point of the stimulus package is to benefit the American economy, isn’t it? And it’s not like they want to slap restrictions on all such imported goods, just things purchased with federal stimulus dollars for taxpayer-funded stimulus projects. That being the case, certainly a requirement that this special emergency burst of money buy U.S.-made materials makes sense, and should make sense even to those who wouldn’t tolerate the same restrictions on the rest of the economy.

We’d also point out that politically, especially in the present climate, a little protection(ism) of American jobs is a pretty tough issue to agit-prop voters against somebody with. It won’t, to paraphrase Dick Wadhams, make for very compelling 30-second suppositories.


99 thoughts on “Battling Over “Buy American”

  1. My first inclination, before arriving Caterpiller’s objection, was that a little protectionism in a stimulus package is probably both reasonable and wise. But the ultimate question is, does it do more harm than good? To what extent could it induce a multilateral protectionist spiral? I think it requires an analysis before a conclusion.

    1. Out your country first. Creating and protecting the American worker should be first on everyone’s list. If it’s not, you better have one hell of a good reason, and political posturing for campaign ads ain’t one.

      1. what best protects the American worker? This is that ol’ troublesome non-linearity forcing us to think past the obvious but inaccurate conclusion, and to the more accurate but less obvious one. If a protectionist policy leads to more American job losses than it creates, as a result of retaliation against our exports from other countries, then the protectionist measure will have destroyed rather than created American jobs.

        A simple analogy is trying to turn West while driving North on the interstate. You could pursue the most obvious and direct solution, and end up driving across the meridian and into oncoming traffic. Most drivers, fortunately, are so aware of the need to turn East first, the opposite direction from the intended one, to get onto the exit ramp taking you to the westbound lanes of the east-west interstate, that few even consider doing otherwise. Your argument is akin to saying that if the goal is to go west, the driver and should just turn west and go in that direction. But isn’t it relevant that it accomplishes none of what you want to accomplish, and a lot of what you don’t?

        The statistical fact is that a far greater percentage of American job growth is due to our export markets than to our domestic consumption (see link below).


        The question that needs answering is whether retaliatory protectionism will cost more American jobs than the protectionism itself will preserve or create. An analysis is something that addresses that question, with a combination of data and an informed understanding of the economic dynamics involved (usually in the form of a mathematical model). An analysis is not the repetition of a hollow plattitude that simply ignores the fundamental question to be answered.

    2. This is an interesting thread. It focuses on the economic rationales for and against protectionism.

      The assumption that protectionism helps workers, and no one has asked how it would hurt consumers and taxpayers.

      Nor has anyone asked how the end of U.S. leadership in the fight for free trade would affect our standing in the world, our political and economic alliances, our closes neighbors, Mexico and Canada or employment in the U.S.

      There seems to be an assumption by the protectionists that American jobs would be created by protectionism. But if the difference between prosperity and insolvency for many major U.S. employers is exports, protectionism not only won’t create jobs, it will destroy jobs.

      Clearly, the views of economists will not determine the outcome of the fight over protectionism in the stimulus bill.

      Political power and ambition will win over economic common sense. Unions have tremendous power in Congress and the White House. They will use their power because they think they can create jobs for their members, the rest of the workforce, country and world be damned.

      What protectionists ignore is the fact that in every foreign factory supplying the U.S., there are positive feelings about America. Free trade protects our national security. As long as China, India, Russia and other countries are dependent on the U.S. for jobs, they’re less likely to start wars against us or ally with those who do.

      We have a lot of enemies in the world, and they’re eagerly awaiting the day that they can turn our allies against us. Sending our allies who sell stuff to us into deep and long depressions will help our enemies.

      But, then, that may lead to another world war and full employment for all.

      1. and turning it into a point of contention.

        This thread is strewn with posts in which I and some others on the left have argued that protectionism would (probably) cost more American jobs than it protects. Barney Frank announced his agreement with this anti-protectionist position this morning on “This Week.”

        Other than your assertion about the positive feelings toward america in foreign factories supplying our import demands, and your assumption that protectionism has already won due to the nepharious forces allied against free trade, everything you said in this post is correct.

        Of course, if you’re really serious about protecting America from protectionist folly, you will consider what Congressman Frank says about the need to alleviate the “localized pain” that accompanies the “diffuse benefits” of free trade. But, alas, that would be too rational and productive a stance.

  2. Wait a minute. This means that David Sirota’s “Unknown Aristocrat” who we’re all supposed to be terrified of because Skull and Bones and the Queen made Ritter pick him or whatever supports such a clearly populist anticorporate liberal and union pleasing measure? Would Ken Salazar have been so unequivocal right out of the gate?

    I have to check with Lyndon LaRouche and see what the hell this shit means. It has to be a trap.

    And I bet Bennet hates the Devil Horse, too! Probably scares his little girls! Suck on that!

      1. They can think. If, after applying the best analysis to the best information, the conclusion is what is most popular with their constituents, then they should follow. If the conclusion is unpopular, then they should lead.

  3. Sorry, but a “Buy America” clause is HORRIBLE policy. Any legislator who supports it is either stupid or spineless.

    Read Matt Yglesias on the topic here.

    Putting this clause in may artificially keep more money in the US from this bill, but it will reduce the amount of money we get from other country’s own stimulus efforts as they move to enact similar clauses. In the end, everyone loses from protectionism. As the primary global superpower, sometimes doing a little to help the rest of the world in tough times is a reasonable secondary objective. Thus the growth that leaves the country is not bad per se.

      1. Yglesias’s argument is one of a strawman.

        Can you be more specific, other than just saying “Nonsense!”?

        In a time of economic hardship worldwide, returning to a Smoot-Hawley style of dealing with our neighbors would be a disaster.

        Free trade is the key to most of the good parts of international relations, IMO.

        1. which has propelled the notion that only free trade can stabilize the world economy, one that hasn’t come to fruition since it’s inception. Free trade without some limited protectionist rules has ruined smaller countries, created thousands of sweatshops and slave laborers, as well as contributing to the unemployment increase in our country through corporate outsourcing.

          Yglesias’s argument over “mad cow” policies is a strawman, neglectnig the realities of free trade; we need fair trade, IMO.

          1. That you read Nicholas Kristoff’s recent op-ed on sweatshops in the NYT. Hundreds of millions of people are no longer in dire poverty because of free trade and “sweatshops.”

      2. Free trade isn’t what has hurt the American worker. If we had enacted policy to better distribute the benefits of free trade, they would be much better off. Rather than fighting free trade, how about we focus on solving the real problem.

        1. Free trade is to blame for the loss of millions of American jobs and to deny that is dishonest. We need better trade laws, with some safeguards to protect American and foreign workers.

          Or, do you agree with Bob Schaffer on the Marianna Islands model?

          1. I don’t deny that free trade has resulted in millions of Americans losing their current job. Automation and robotics has also cost millions of Americans their jobs as well. But you aren’t going to convince me that this is a bad thing. If one worker at a grocery store or post office, combined with a self-checkout computer, can effectively do the same job as four workers used to do, that is a change worth making, even if we have to find new jobs for three people. Employment for the sake of employment is no great virtue.

            Right now our unemployment is high because we are in the middle of a recession, but our unemployment the past 20 years has been remarkably low, at the same time that free trade and automation have been hitting their stride. So clearly other jobs are being created to replace the ones that are lost.

            1. Employment for the sake of employment is no great virtue.

              I often use the metaphor of tack shops or saddle makers.  What if they’d had a union as powerful as the UAW?

              1. From the AP, Banks sought for foreign workers

                Banks collecting billions of dollars in federal bailout money sought government permission to bring thousands of foreign workers to the U.S. for high-paying jobs, according to an Associated Press review of visa applications.

                The dozen banks receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers over the past six years for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721, nearly twice the median income for all American households.

                The figures are significant because they show that the bailed-out banks, being kept afloat with U.S. taxpayer money, actively sought to hire foreign workers instead of American workers. As the economic collapse worsened last year – with huge numbers of bank employees laid off – the numbers of visas sought by the dozen banks in AP’s analysis increased by nearly one-third, from 3,258 in fiscal 2007 to 4,163 in fiscal 2008.

                This is fucking wrong. Our taxpayer dollars are being used to fire American workers.  

            2. even if we have to find new jobs for three people

              We haven’t been finding jobs for those left behind. Granted their are opportunities for some to go back to school, to learn new trades in new industries (green jobs baby!) but that doesn’t help everyone. What about the 62 year-old auto worker who has no other skill, lost his job, his retirement, and has a family to take care which doesn’t allow him to start over?

              You call it short sighted. I call it putting America first.

              I’m not blocking innovation through asking for a little protect, again that’s a dishonest argument. In fact I’m all for investing in innovation, to create more America jobs.

              Clearly, you haven’t been to the Midwest to see it first  hand and you haven’t the slightest clue as to how bad Americans really are hurting.  

              1. You mean places like Ohio and especially Michigan, which is a disaster that’s nearly a complete creation of Dems and labor unions?

                What about the 62 year-old auto worker who has no other skill, lost his job, his retirement, and has a family to take care which doesn’t allow him to start over?

                At what point does personal responsibility play into this?

              2. How about we stop talking about free trade and start talking about the need for a “socialist” safety net with heavy redistribution.

                The seminal work on social spending is “Growing Public” by Peter Lindert. He talks about how (public) health and education spending tends to more than pay for itself and pension/welfare costs less than we think because they subsidize the least productive workers.

                If we take your example, a 62 year old who apparently has only one skill in the world (I don’t really buy that argument but we’ll run with it), then it is relatively effective for the country to just put up a sufficient pension benefit for that individual to retire (or rather, hang out on welfare for a couple years until he hits retirement age).

                Plus, in his early retirement, he might be free to take on a low-paying/volunteer position with a non-profit or a charity doing something very beneficial for society, even if it is not rewarded as such through salary. Or perhaps he has grandkids and can be of value to the economy by providing child care services and allowing his children to more effectively utilize their own abilities. At worst, he can be a greeter at Wal-Mart.

                At the end of the day, I don’t disagree with you that people are struggling, hell, I was unemployed half of last year. It is just that your proposed solution won’t solve this while mine will…mine being a substantial, universal basket of social benefits providing a minimum level of food/shelter/education/health/pension.

                1. I always prefer direct over indirect action; if we want this particular guy to have an income, why not just give it to him? Rather than subsidizing an industry that with luck may keep him on a few more years.

  4. This isn’t a subject that is really even debated in other countries. Elsewhere around the world the concept of engaging in a little protectionism isn’t all that controversial and govts erect tariffs to protect domestic industries and workers.

    Here though we seem to be climbing all over each other to undermine U.S. workers and U.S. industry.

    1. It wasn’t always that way. Ever since Reagan, the political business model has been to undermine Americans workers to benefit the wealthiest.

      While this is a small first step, the White House is making this one in the right direction. Vice President Biden is leading Middle Class Working Families Task Force.

      And from Vice President Biden’s USA Today Op-Ed:

      For the backbone of America, it’s insult on top of injury. Over the course of America’s last economic expansion, the middle class participated in very few of the benefits. But now in the midst of this historic economic downturn, the middle class sure is participating in all of the pain. Something is seriously wrong when the economic engine of this nation – the great middle class – is treated this way.

      Finally someone in the White House is thinking about how the middle and lower class can help rebuild America instead of relying on the failed ideology of outsourcing and tax cuts for the wealthiest.  

    2. I disagree we undermine U.S. workers and U.S. industry. We undermine U.S. workers in order to support U.S. industry, because we actively hate workers and only love the people in charge. It’s a sick, broken system, but it’s the way we’ve done things for 50 years.

      1. How’s that?  We have more protection for our workers than any working system in the world.

        I think that you’re just twisting the fact that excellence is (or at least, has been) valued in U.S. culture and rewarded by our system, rather than mediocrity being protected to the point that the whole system is a mess.

        1. Not so much. It sounds like you’re defining “working system” to mean “the U.S.” since Europe and Japan among others have more worker protections.

          I’ve seen enough examples of excellence being punished and mediocrity or even failure rewarded that the system already seems like a mess to me.

          In no general sense is “excellence” rewarded. The ability to make a buck is rewarded. That often doesn’t involve being “excellent” at anything.

          And you suck because you never come to Boulder, so what do you know about excellence anyway? 🙂

          1. How about Monday’s Avs/Flames game? The Flames are displaying excellence right now.  Shoot me an email.  I can pick you up at the bus if you want to ride down.

  5. in many of these posts. Let’s accept it as a given, for the purposes of this conversation, that the United States Government exists and should exist to serve the interests of United States citizens, and to do so in a balanced manner that does not favor some subsection of citizens over others. The question is, what accomplishes that goal? Frankly, I’m not sure.

    To oversimplify slightly, given the above assumption, which both sides in this debate seem to think makes their position irrefutable, if the benefits of protectionism in the stimulus package will not be off-set by the detriments of protectionist retaliation against our exports, then protectionism is the answer. If, on the other hand, the benefits to American workers of protectionism in the stimulus package will be more than off-set by detriment to American workers from retaliatory protectionism elsewhere, then protectionism in the stimulus package is bad policy.

    There are, of course, various complexities and subtleties to be added in to that calculation, and there is the issue of the reliability of predictions and reliability of those who are making them, but the underlying task is clear: Do the analysis.

    1. I’m not sure this is really a point of great debate among economists. It is like climate change among environmental scientists. Just because there is a political debate, doesn’t mean the reality is in doubt. I don’t know if Paul Krugman has weighed in on this topic, I would be interested to hear what he has to say. I do think it is dangerous for people to condemn free trade supporters (myself or Matt Yglesias certainly) as being anti-worker. Yglesias is very liberal and cares a lot about fighting inequality in America. That he doesn’t see protectionism as helping is clearly indicative of something.

      That said, I think it is easy to underestimate the negative effect of our protectionism in particular. As the global superpower, even when we aren’t very popular, we set an example. If we put up protectionist barriers, it does a lot to encourage similar actions elsewhere, not just a retaliation, but also because we are indicating that it is good policy. Thus “other people use protectionism without it being controversial” isn’t a very good response, because we must be held to a different standard due to our influential position.

      1. Thus sometimes he’s just wrong, no matter how liberal he may look sometimes. Maybe he’s right in this instance, but I don’t think “Yglesias said so” is yet considered a very persuasive argument to most liberals.

        1. The point isn’t that Yglesias is always right, just that pro-free trade does not equal anti-worker.

          And to avoid an extra post, in response to Steve H’s response below, I didn’t mean to imply that quote was yours, I was referencing a comment by another Steve earlier in the thread. Sorry for that confusion.

          1. I was clarifying, not grumbling. Since I’m posting under my real name, I just want to be careful that no statements or positions are implicitly attributed to me that aren’t mine, even if such attribution wasn’t the poster’s intention.

            1. There are only a few words in certain sequences that you have yet to cover, given the verbosity of your posts – it’s just a matter of time.


              1. I’m just trying to prove the old theorem that if you put a monkey in front of a typewriter clacking away for all eternity, he will eventually (re-)produce all of the most brilliant literature ever written or ever yet to be written. Playing the odds, you know. 🙂

      2. Given my current state of knowledge, I think that protectionist measures are almost always against the long-term, global interests of American workers (by “global,” I mean across sectors, which explains particular cases of workers from given sectors clammoring for protectionism: It’s a bit of prisoner’s dilemma. Protectionism for me now is good, but when all workers fight for it, it hurts all workers in the long run). The quote you included in your response to my post isn’t anything I have ever said or would ever say, for various reasons. But I do believe that doing or citing a sound analysis is preferable to making an unsupported claim.

    2. The problem is, people don’t always agree. That taints their analysis, even if (as almost never happens) the analysis itself is free of intentional flaws.

      There’s a certain liberal tradition of believing that if we only put some disinterested technocrats in charge to force all these bickering representatives to do the right thing, all our problems would be solved. It doesn’t necessarily sound like an authoritarian attitude, but it almost always ends up leading to that sort of system. That’s why I find these sort of “swooping in to save the debate” posts annoying.

      1. I will add to it: Expert disagreement on complex issues makes simplifying ideologies somewhat rational for an electorate with limited time and training, trying to support those policies that are either in their own interests or advance their goals.

        Disagreement isn’t always over the analysis, but over the division of wealth or other goodies. when that’s the case, no analysis can resolve it completely (or even substantially), but we can try to force transparency on that debate, and look for guiding principles through which to find agreement (a favorite being maximizing GDP, though I would add in that some redistributive justice is in order when such a policy hurts some sector absolutely: It not only is fair, it also potentially greases the political gears by making everyone a winner.).

        I am completely in agreement that wide-spread self-interested behavior is a fundamental component of human affairs at all levels. I would never subscribe to the liberal tradition that you describe above, because it disregards this fact. Yet I remain a staunch advocate of the value of analysis, and of promoting that value tirelessly. There is no magic pill, no solution to all problems, no end to the challenges we face. But there are better and worse moves, more useful and less useful strategies, potential progressions that would have net benefits for humanity and potential progressions that would have net detriments for humanity. Those are the guiding principles we should keep in mind.

        1. This is the relevant economic principle here. One man, Mr. Industry, benefits from free trade. However, in doing so, he hurts Mr. Worker. We can resolve this two ways. We can forbid Mr. Industry from taking this action because he is violating the rights of Mr. Worker. Or, we can allow Mr. Industry to take this action, but compensate Mr. Worker for the damages.

          If the benefit to Mr. Industry of the action exceeds what he owes in compensation to Mr. Worker, it is beneficial for both. If the benefit is not greater then the damages, then on the whole, it is not beneficial and Mr. Industry should be prevented his action.

          So the question is, is the benefit of free trade great enough that Mr. Industry can compensate Mr. Worker and still be better off. I think the answer is yes. The problem is, the government has not, to this point, done a good job making sure Mr. Worker is compensated, thus violating the ideal market principles.

          1. is the friction of transaction costs. Often, when there is a net gain resulting from some policy, the costs of redistributing some of the gain from the winners to the losers is greater than the gain itself. That’s a big problem.

            As a soon-to-be lawyer, I can tell you, I belong to the profession to which the bulk of transaction costs are paid. That’s why we’re held in such low esteem.

            1. I knew there was something sketchy about you  ;-).

              But yes, the theorem assumes no transaction costs, so the benefit has to actually be great enough (or the transaction costs low enough) to maintain the benefit. Which of course comes around to making a better tax system and social benefit system, but that is the topic of another post probably.

  6. Are they going to require all software either purchased with these funds and/or used to account for these funds come from U.S. companies? Because if they do, they just took our largest competitor (SAP) out of the game.

    If so that is a giant boost for my company and around 10 other U.S. companies including Microsoft & Oracle. If not, why is steel special but software not? Are my employees less worthy of this assistance?

    And with all that said, this is a terrible idea. First off, it will require untold additional tracking for all companies involved as they determine which tractors have 100% American steel in them.

    Second, trade pretectionism is understood by 100% of economists to have been the worst thing to occur during the depression and it made everything worse.

    Third, companies like mine sell world-wide. Over half our business is outside the U.S. If you start doing this crap, and other countries will retaliate – you’re screwing companies like mine.

    This isn’t help the U.S. worker – this is help workers & companies in a few select industries at the expense of the rest of us.

    Kudos to Udall for wanting to understand this. And Michael Bennet – why do you want to hurt my Colorado company?

    1. Just to reply to this portion of your post, steel production involves a number of domestic natural resources, the use of various machinery, an output that results in actual goods being made, and hires a lot of low-education workers whose earnings in turn sustain other portions of the economy.

      Software design involves buying computers, often manufactured elsewhere, no other machinery, little labor, output that’s mainly useful in a secondary way (software is more commonly used for management than for manufacturing), and a small labor force whose earnings only really stimulate the indie music and microbrewery industries.

      Seriously, they really are different in a lot of important ways. Not saying American steel is worth subsidizing, but there are better arguments for it than for software companies.

      1. In economic models, any investment is analyzed in terms of “backward linkages” which multiply the value of the initial investment. The short-term multiplier effect for most social welfare spending (such as public education, health care, unemployment relief, and so on) is very small, whereas it is large for industries that place large demands on other sectors of the economy.

        Unfortunately, as valuable as information-intensive sectors of the economy are, investments in them do not have large short-term multipliers.

          1. It’s true that putting money in the hands of those who are most desperate puts it into circulation rather than into savings, thus increasing the multiplier over what it would be to give the same money to a wealthier recipient, but I’m not sure these multipliers compare favorably with those of investments to industries with lots of backward linkages. And I do mean that I’m not sure.

            First, a disclaimer: I’m not an economist. I just play one on the internet. So please, educate me, and recognize the tentativeness of everything that follows in this post.

            Wouldn’t it be the case that the multiplier is larger for investments that keep on moving? So, if we invest in a big construction project, the contractors have to pay all sorts of subcontractors, who have to pay all sorts of suppliers, and so on, thus that the same money passes through many hands, leaving a little in each as it goes by? Whereas with social welfare spending, it does move quickly through the first hands (that is, for spending that puts money into the hands of the poor), but just sort of slows down after that?

            Someone (not me, not at the moment anyway) needs to look up the multipliers for other kinds of investments, for comparison.

            But thanks for stirring this up for me. I’d love for it to be true!

            1. and the point you make reminds me of something else I remember debating: double taxation. (For a summary, see this excellent Tom the Dancing Bug cartoon, which I’d copy here except I don’t want it to mess up the page format.)

              You’re saying a dollar spent on construction gets split up and passed around to various people. True. A dollar used for food stamps does the same sort of thing though. Person spends it at the store, some money goes to employees of that store, where it then gets spent on other goods, and spreads around that way; other amounts get sent to the manufacturer/processor, and then to the farmer, who then spends some of it. Seems to me you get the same magnitude of economic stimulus: the point is not so much who you give the initial dollar to, it’s that you make sure the dollar gets spent, and that the people it gets given to will also keep spending it. That’s why giving money to poor or working people is much more effective for the economy than giving it to the rich, who will tend to save it.

              Of course, you may say infrastructure has benefits beyond its stimulus effect: you get nice buildings and safe roads and such. And I agree, but I’d say the same thing about food stamps: you’re requiring people to buy healthier food, so their medical costs will be less, and you’re saving money that way. Plus people don’t starve to death, which is always a nice side benefit.

              1. where is it more likely to be spent than saved, when you are trying to stimulate the economy in the short run, and which investments also grease the gears of economic activity in the shorter run?

                I had your contention in mind when I posted above: Sure, the shop-keeper (or Walmart) gets the money, and pays employees with it, who then spend some of it. But which investment is more likely to keep it from ending up too quickly in the hands of those who will save it rather than spend it? And which investment reduces transaction costs for other productive activities?

                I’m not arguing against social welfare spending, but I’m an honest advocate: If it has a sufficient stimulative effect, then it belongs in the stimulus package. If not, then it’s political subterfuge to put it there (which I’m not necessarily opposed to). I’m still an agnostic on this question, but I’m not convinced by your analysis above.

                1. which is why I gave the link. But certainly I’m not arguing for food stamps instead of infrastructure spending. God knows we need infrastructure in this country. (And by God, I mean Barack.)

                  But in terms of the moral obligation to pay for people’s basic services when they’re unemployed or impoverished, in addition to the indirect stimulus to the rest of the economy, giving money to poor people seems to do pretty well. So I think it should be part of a larger package.

                  What this subthread has to do with “Buy American” anymore is beyond me, though.

                  As for you not being convinced by my analysis, it would help if you say what you think is wrong with it. Otherwise there’s a big obstacle to convincing you.

                  1. that, on balance, the combination of having a significant stimulus effect, and having a significant benefit to human welfare, recommends social welfare spending, than I am with the argument that it is just as stimulative as heavy construction infrastructure spending.

                    My doubt with the argument that it doesn’t matter who spends it as long as it is spent is that it does matter who the second and third order recipients are. So, it is not the same to give the money to someone who will spend it in a place where the majority goes to someone who will put it in a savings account, as to give it to someone who will spend it in a place where the recipient will spend it in a place where the recipient will spend it in a place…and so on, not ending up in a savings account any time soon. That’s why I’m not convinced by your argument that the welfare recipient spending it at the grocers is equivalent to the contractor spending it with the subcontractor. In the latter, there seems to be more likelihood of the stimulus money remaining in circulation for a longer time, through more hands, than in the former.

                    Your link was informative, but it didn’t provide the numbers for comparison, so it didn’t answer this question. While there is a significant multiplier for certain kinds of social welfare spending, the multiplier may be much larger for other kinds of stimulus spending, and that would be relevant.

                    It wouldn’t necessarily preclude making a balanced choice of accepting a lower multiplier in exchange of a needed social benefit, but it would ensure that, from a synoptic and theoretical point of view at least, that it would be a fully informed choice.

                  2. Both social welfare support for low-income individuals and infrastructure investments are fairly good stimulus investments. If we were looking for a fairly small stimulus, it might be worth asking which is better.

                    However, given the vast size of the stimulus we need here, and the diminishing returns (just because 100 Billion for Medicaid is good doesn’t mean 800 Billion for Medicaid is good), we can basically fully fund useful stimulus along Medicaid, food stamps, infrastructure, education, Health IT, etc. What shouldn’t be included is ineffective stimulus measures, because that would just be a waste of money.

                    1. But my preference is to take all information into account, do some kind of cost-benefit analysis (giving various weight to weigh various considerations), and arriving at the conclusion by that means.

                      It is the phrase “fairly good stimulus incentives” that gives me pause. There is considerable reason to select the absolute best stimulus returns for investment, rather than to settle for “fairly good” on the basis that there are other benefits to that investment. The first, second, and third order or priority right now is effectively to stimulate the economy. As strong an advocate as I am for social welfare and human capital spending, in this particular instance, I’m willing to give everything a back seat to the priority of maximizing the stimulus return on investment, simply because all the rest will, in short order, crumble without maximizing success on that dimension.

                      My approach would be to model it as precisely as possible, even knowing that such models are far from perfect. We shouldn’t just strive to include effective stimulus measures, but rather the most effective stimulus measures.

                      But there are advantages to compromising that principle as well. I’m not saying “I’m right, you’re wrong;” but rather that we need to be upfront, at least with ourselves, about the kind of calculation we’re making. If we’re going to assume that “good enough” is good enough for the stimulus spending, then it’s a good time to increase some vital social welfare investment. If we’re concerned that there is too much uncertainty, that too much is at stake, and that the only package that is “good enough” is the one that maximizes the economic stimulus effect of the spending, and that all other considerations lose to that one, then the social welfare spending might not make the cut.

                      I will offer this as a general principle: Many less developed nations stimy their own development by putting the cart before the horse, and focusing on distributive justice before they have a sufficiently robust economy in place, constantly dragging economic growth down in order to pander to the (very reasonable) demand for increased distributive justice. This might be an occasion when the lessons of those experiences are relevant to our policy choices.

                      Or, maybe not.

                    2. We are probably decades away from any decent model of human behavior that would tell us exactly how to spend the stimulus money, even if we all agreed on the priorities to begin with. The models just aren’t that good, and there are things that just can’t be known until you open the box.

                      It’s kind of like your “transaction costs” issue; if we wait until there’s agreement on the effect of any possible spending plan, the damage will be much harder to reverse. It’s making the perfect the enemy of the good.

                      Besides, I can’t imagine you really believe stimulating the economy through construction jobs is SO IMPORTANT that it outweighs any kind of social welfare at all. There are more people who are unemployed today than last year. Benefits need to be expanded to pay for those people as well. As a moral society, we just don’t have a choice.

                    3. Moral imperative, not necessarily. It goes back to my off-ramp analogy at the top of the thread: If we destroy the long-term welfare of those we are trying to assist by giving them assistance at a cost to economic growth that will decimate such assistance for many years to come, then the preferable choice would be to withhold assistance in favor of economic growth.

                      But I agree that it’s more of a theoretical consideration than a practical one, that the uncertainty involved does not permit any such conclusion, and that accepting effective stimulus that includes human welfare expenditures is probably the best choice in that context.

                      Okay, you’ve worn me out! Enjoy the game.

      2. Apple Computers. Sure, the MacBook I intend to buy soon will be made abroad, but the vast majority of the profit/revenue will go to Apple, employing Americans and putting money into the American economy. This is why outsourcing isn’t a huge deal. We outsource that which makes up the least value-added portion of the product cycle. Those invention/branding aspects that ultimately add the value, are still done largely in America.

        1. Every day a cargo 747 jet lands at Austin to disgorge all the foreign made computers that Dell will sell.  What is good about that?

          I have two daughters, engineers, at Dell in the server division.  They fully understand they may or may not have a job in a few years.  They already have teams in India and elsewhere.

          Why is this good for America?  

          1. This is why I am always pusing for us to improve education – that is where this will be decided.

            And as of now, I don’t think your daughters need to worry about overseas. We work with a ton of people who are overseas and I know a number of people where at their companies they work with people overseas.

            They’re still a generation or two behind us on the hardest part of the job on software – things like the basic architecture, determining what needs to be in and what can be left out, and managing the process.

            It’s not random chance that virtually all software products come out of the U.S. And Amercian companies are finding that development overseas is just as expensive due to rising salaries and additional management effort required.

            In fact, one of the main drivers for overseas development is not reduced costs, but just to get additional engineers because we are running out of people here. I’m on a high-tech CEO email list and one of the biggest topics right now is how difficult it is to find qualified people.

            1. Perhaps only SW exceeds manufacturing as a value added, wealth creation.

              Wouldn’t it be good for America if those computers were made here?  They once were.

                  1. There’s been times I’ve hated my job, but most of the time I like it. And the same holds for most people I know. We don’t put in 50 – 60 hour weeks because we have to, we do it because we want to.

                    Reminds me of a researcher at NIST up here (I know his son) who told his wife the federal employees didn’t get Columbus day off so he could go work that day. Boy was she pissed when she found out after 15 years of this…

      3. We buy less “stuff” but we spend a lot more on services, and most of that is other American companies with their employees. A steel mill keeps a coal mine in business, we keep an SEO company in business?

        And our labot costs are gigantic compared to a steel mill. For a steel mill the costs are raw materials the steel plant, and people. For software it’s people.

        I think if you dive in you may find that software pays out more for people in $$$ of income than a steel mill.

        I think the true difference is that the politicians are used to skewing the market for heavy industry in this country while for I.T. they tend to leave us alone.

        1. since you’re not spending much of anything on raw materials, but in terms of how much labor you’d need to generate a certain revenue, it seems to me like it’s smaller in absolute terms. I don’t know for sure though, just a guess.

          Another contrast is that there tend to be a few highly paid people working for a software company, while in manufacturing there may be more employees all of whom earn less. It’s obvious why that’s so, but I think it’s fair to ask which situation is overall better for workers. Most would rather have a job that pays less than be unemployed.

          Your last paragraph is certainly true, though it’s changing now that software companies are starting to lobby like manufacturers historically have. And of course the lack of unionization among software employees means they have no real means to advocate for such things (even if they wanted them).

          1. We do pay fewer people more money. So in terms of getting some dollars to the most people directly, steel may be better. But on the flip side, we’re a lot heavier labor costs, so maybe it’s not that uneven.

            My vote remains – don’t do it – for anyone. It makes us worse off and feeds into the actions that keep the recession continuing.

  7. Sen. Mark Udall is a little more cautious (per usual, get used to it) according to the Chieftain, declining to specifically use the word “support” in reference to the “Buy American” provision in the stimulus package but clearly sympathetic to its aims: “the people of Pueblo know firsthand what can happen when we send our money and our work overseas.”

    As most know here, I am not Mark Udall’s #1 fan. But what is wrong with this answer – especially when the idea is first being discussed?  

  8. Unions and Wall Street/Banks have made it to expensive to Buy American.  

    Unions have cost the Auto Workers their jobs and they want to do this for all Americans now. Unions need to go the way of the dinosaur.

    Wall Street/Banks gave loans to people who should not have gotten them.  They have made this recession deep and long.

    We have paid wages far and above the rest of the world especially China and Mexico so our products are too expensive.  Who wants to purchase an iron for $75.00 made in America to one for $25.00 made in China?  Especially in a time of recession.

    Unions killed the jobs, Wall Street/Banks killed our economy!

    1. of the dinosaurs!

      But who does that leave to run the economy, if unions, bankers and Wall Street all cease to exist? Farmers and civil servants? It’s the Jeffersonian ideal, finally brought to life.

      One point though — I believe the stimulus bill wants to protect iron, the metal, not irons, the haberdashery devices. You are free to spend $25 on an iron made in China with your tax rebate. In fact, you are encouraged!  

    2. That’s why Microsoft and Google are going out of business. Oh wait, they still dominate in their markets.

      That’s why Boeing is going out of business. Of wait, it’s still the market leader in large planes.

      Manufacturing has been pushed overseas just as earlier textile work was. The idea behind advancing is that the easier jobs go elsewhere and we move up to the jobs that require more brainpower.

      1. Manufacturing has been pushed overseas just as earlier textile work was. The idea behind advancing is that the easier jobs go elsewhere and we move up to the jobs that require more brainpower.

        People that have high intelligence and a good education are the minority. That’s why the average IQ of 100 is, well, average. Everyone can’t write code.  What do we do with people of average IQ, to say nothing of low?  In fact, high levels of low skill immigration have already taken most of the jobs of the low IQ and less educated workers.

        1. The trick is not to have everyone with a Phd doing advanced engineering. The trick is to get everyone to make maximum use of their abilities (in a job they like).

          And we still need people in the trades, semi-skilled etc. Simplest example, we still need people to cut hair. We will always have jobs that run the gamut in terms of skill level.

          But if we had just 10% more of the workforce at the college level, then, aside from the present recession, we would then have shortages of workers in those jobs requiring less education, and therefore the wages for them would rise.

          We’re better off with the textile jobs shipped out and higher skill level jobs created here. If we don’t do that China and India definitely will and then our standard of living starts dropping.

          1. …there’s almost a job glut for those with 4 year degrees, especially now.  What about all those 50, 60 something computer engineers that say they can’t find work?  Sure, maybe they need to move past COBOL, but I’m sure there is more to it than that.  Such as expecting decent wages like our parents had.

            The Great Middle Class was built on manufacturing.  Nothing can take it’s place.  

            No need to drag everyone up, so to speak.  Cut off the labor source at the bottom, cheap immigrant labor.  That is one reason we prospered from !926 to 1965.  

            1. and so yes, there are more people looking than there are jobs. That’s why it’s called a recession.

              But speaking as a 53 year old computer engineer – there is a lot of need for those of us that have stayed up to date on our skills. Yes that means learning a totally new set of technology every 5 years or so – but that’s just part of the job.

              If you try to keep us a manufacturing economy you will fail. Just as we moved from a farming to a manufacturing economy, we’re now moving from a manufacturing to a service economy.

              And just as the move to manufacturing meant the minimum education for most jobs went from not much to High School degree, it’s now moved on to College degree.

              But I think this is all a good thing. Sitting at a desk beats working on an assembly line for most people.

              1. …with an IQ of 100, willing to work hard?

                With good pay, like he would have made in the manufacturing segment?

                The service economy means lots of burger flippers of the information age type.  Inherently there is no decent income there because most of the work adds no value and is a labor commodity. Your company takes labor and adds value.  An insurance or banking company doesn’t.  

                As you yourself have said, college isn’t for everyone.  Half of America is blue collar (that’s a number I pulled out of my butt, yes.) They can’t all work for Microsoft or you.  

                1. When did working on a production line become such a sweet gig that we all aspire to? As far as I can tell, it isn’t all that much better a job as “flipping burgers,” with the exception of union-propped benefits (which have largely destroyed those industries).

                  This is in many ways a problem of policy. One one hand, we need better universal benefits, so that flipping burgers can be a living wage. On the other hand, we need better universal benefits so that corporations are not rendered uncompetitive by taking on those burdens directly.

                  If we, as I would propose, set up a basket of social benefits that provide a baseline quality of life for all Americans (would demand a fairly high tax rate, but would use largely market mechanisms and would have very little administrative cost or bureaucracy), then suddenly low end jobs are manageable.

                  What I wonder is if you have vastly overstated expectations of what an average IQ, high school grad should earn. Sorry, but if you are that unskilled, you aren’t going to be earning a sweet living, but you also shouldn’t be in poverty. If you are not able to achieve or provide in demand skills, you really should be prepared to live on $20-30,000 a year. It seems the boom years and living on credit has distorted our expectations. We simply can’t all be wealthy.

                    1. Ok, companies use sneaky tactics to bring foreign laborers in to the US. What does that have to do with my comment, which has nothing to do with immigration?

                    2. I think it was my belief that relief dollars need to go to Americans, for one.  But it mostly built off of David’s insistence that America should shed it’s manufacturing past and everyone become a computer genius.  My point of this, in particular, is that one does that, then the government subverts the efforts of Americans to get American jobs.

                      It’s worse than sneaky, it’s treason.  Off with their heads!

  9. The American taxpayer is going to spend money to stimulate the American economy.  (Sure, sure, they’ll borrow it from China, but that’s another topic.) Now we have trading partners saying, “Whoa! You have to spend some of your money with us!  It’s unfair!  We want your money! Waaaaa!”

    I understand the complexities and ramifications well discussed above.  (I don’t mean I understand them, but that they are there.)  But to just keep buying foreign products with American dollars seems counterproductive.  

    I don’t care if the steel costs more, the money stays here, not Ontario.  (I couldn’t spell Saskatachewan or whatever it is!) And isn’t that the point of a recovery package?

    My two cents on the above multiplier of welfare recipients vs. steel makers is this: At the end of the day the worker is building something that may be used for hundreds of years and hopefully  will grease the skids of commerce.  For the welfare recipient, not so much. The Section 8 landlord gets a cut.  Food production isn’t a great multiplier, it seems to me.  The worker pays taxes, the welfare recipient, not so much.  

  10. I mentioned wondering what Krugman would say. Well, I posted a comment on his blog requesting his take on the buy American aspect. I’m not sure if that is what led him to write this but alas, he claims that normally protectionism is not particularly helpful, but in this case (lacking coordinated international action and having a liquidity trap) it is a reasonable policy.

    While Matthew Yglesias might not always be right, I generally assume that Krugman is. I certainly won’t put my almost minor in Economics against his Nobel prize. Anyway, with his point taken, I’m willing to accept the buy American clause as reasonable, but I do worry that it will be sold as “in this case it makes sense” but rather a typical populist, anti-trade sentiment that isn’t limited to this particular situation.

    1. Like I said, you have to do the analysis, or defer to someone you trust to do it better. I was leaning the other way, but I wasn’t sure. I’m still not sure, but one weighty piece of evidence just tipped the scales the other way.

      1. I should point out that Krugman made further posts making it ever so clear he wasn’t advocating protectionism, not even necessarily as the right thing in this instance, just that in this instance it is less bad an idea as it might normally be…or something.

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