Say What? “Protectionism is like…”

I opened my local free paper they hand out at the bus stations this morning and was delighted with a story the forwarded from Reuters.(another source here)
Dallas federal Reserve president Richard Fisher says
“Protectionism is the crack cocaine of economics” …
“It provides an immediate high that leads to economic death. we cannot afford to go down that route”

He says this in a warning against the “Buy American” provision in the Obama stimulus package. Which do to widespread critisism is being debated in Washington.
This comes after less colourful but just as slighting criticism filed this weekend by the Cato Institute.  They found a whole bunch of economists that don’t agree with Barack and other knee-jerk bureaucrats , and posted a one page ad in the NYT and Washington post as well as others.

I’m sure there are other complaints the past week or so, but these are my favorite.

Buy American.. In America!

Let’s talk about the brilliant idea of the week.

The Dems in the US of A, along with 43rd man to be POTUS (Cleveland was president twice) Mr Rabadt deLama…

ahem…

Sorry, as I was saying, Barack Obama and friends are trying to add a “Buy American” string to the US$ Bajillion (= 8.19×10^11) bailout. I mean…clusterf@ck….wait I mean stimulus package.  Starting with Iron and Steel specifically, this clause, which will inevitably lead to restrictions for more manufacturing inputs(see shovels and cranes), will force US manufacturers bailed out and all projects paid for by the stimulus to use only American produced Iron and Steel.

Let me think. To “Joe American six-pack”, especially those ones shouting. “Go Steelers” this weekend, this would seem like a good thing, a great thing. I mean these people wish they could buy American TVs, or probably have a 40 year one jerry rigged in the basement for prosperity. Ahh such an aside must be put to rest.

My point. They think “Buy American” will create jobs (pronounced Jerbs)

Let me use barnyard animals economic knowledge we all learned in grade 1 to explain why this is a thing that will kill jobs.

Step 1: forcing manufacturers to buy only American inputs, means that even if they could save money buying those inputs abroad (i.e. Canada or Europe) they cannot. End result? Costs go up.

Step 2: If the cost to build a radio tower, or a power grid tower, or a car or a Boeing 747 go up, because the builders must use expensive above market price steel, then they will cut costs where they can, most easily Labour. aka jerbs.

Step 3: on top of the job loss inflicted by cost cutting, the price of goods will likely increase anyway as cutting labour  for profitability can only go so far.  With the price of exported goods increased, American manufacturers will sell less, both domestically and abroad. End result, firms lose money = jerb loss.

Step 4. Alienating the world.  The rest of the world will see impacts, both directly and indirectly and will respond in kind. If Americans can’t buy Canadian steel, 30thousand people in the steel industry and 140 thousand in related industries could face the threat of job loss (jerbs eh?) With similar situations unfolding in the rest of the world, the world cannot buy as many American goods.  End result = even less jerbs

Step 5: I said something about responding in kind.  It’s possible other countries would respond with similar policies, not allowing Americans to purchase cheep goods and services without a price attached (tariffs) another alternative.  The USA gets most of its natural gas and oil from Canada. its cheep to transport (pipes n tubes are cool) and pissed off Canadians governments and firms might say. “You don’t like our steel? Well I guess you don’t like our oil either. Take care, oh… and dont worry about us, we have a few hungry buyers you might have heard of them, Europe and China?”

how yummy a proposition? Actually that is a joke that would Not be a good idea for either country. As we would have to incur greater transportation costs for our oil, but I think Americans would feel most of the pain in this scenario.

Ok so what should I summarize? let’s just say that if you are looking to save jobs, creating temporary jobs for 3 months, only to lose 100 times more in the resulting recession is not a viable Pro American strategy.

Let’s hope that cooler minds prevail. No GOP member has voted for this bailout in congress; and economic minds are meeting in Davos at the world economic forum, discussing the need to avoid using protectionist policy to face this current downturn.

In closing protectionism does not work. It is a tried and failed policy that did not do good things in the 1930’s, in fact it is believed to have extended and worsened the great depression. and caused a 50% drop of foreign trade.  We CAN NOT afford such policies. Let’s hope we can worth things out and get along.

– take care, goodnight and good luck. (for more thoughts on the subject: clancop)

this message was paid for by the steel industry of Canada… (I WISH)