Protectionism in a Depression--Posner

I have little to add to Becker's post, with which I agree. One does understand the support in Congress for adding "Buy American" provisions to the stimulus package now moving through Congress (the "American Recovery and Reinvestment Act of 2009," as it is called). Apart from the usual interest-group pressures, the goal of the Act, or at least the stated goal (for besides the goal of stimulating the economy, there is the goal of advancing President Obama's long-term policy agenda at an opportune time, by grafting the agenda onto the stimulus), is to increase employment, and that means employment in the United States, obviously. If suppliers say of broadband equipment receive a government order and satisfy it by buying the equipment abroad, the increase in employment (if any) will take place in the country in which the equipment is bought. An appropriate solution to this dilemma is to focus the stimulus package on goods and services that are made in the United States. That is one more reason why, as some Republican senators are now urging, more of the stimulus money should go to construction, whether of roads or bridges or schools. True, some inputs into these products, such as steel for bridges, may come from abroad, but most are local, in particular of course labor--and there is a lot of unemployment in the construction industry. Indeed, government-financed construction, especially of transportation facilities, strikes me as the optimal Keynesian anti-depression program: the inputs are local, unemployment in the industry is great, our transportation infrastructure needs investment, improving it will confer external benefits (such as faster commuting and less wear and tear on vehicles), the costs can be eventually recovered, after the depression ends, in tolls and other user fees, and construction projects (especially repairs) can be commenced pretty quickly, especially if emphasis placed on funding state and local road and other infrastruture projects that have been interrupted or deferred by the states' depression-caused revenue shortfalls. On the topic of sending stimulus money abroad, I think the big foundations, such as the Gates foundation (the biggest), should be strongly urged to redirect their extensive foreign charity to the United States at this time of depression. I am not suggesting that his projects should "Buy American," in the sense of buying U.S. products to give to foreign recipients of his charities. The point is rather that charity should begin at home when home is suffering. The bailouts and stimulus and other expenditures, over and above our already huge budget deficits, aimed at getting us out of our economic doldrums as fast as possible, are going to increase the national debt significantly and by doing so impose heavy costs for years to come. The foundations in the aggregate spend many billions of dollars a year, and the substantial portion that goes to fight malaria in the Third World or promote agriculture or family planning there could be redirected--not all of course and not all at once, because the programs induce reliance on the part of the recipients--to the United States to help get us out of our economic predicament without assuming a staggering further burden of debt. I grant that poor countries may be harder hit by what is a global depression than the United States, but I consider Americans' obligations to be primarily to Americans rather than to the inhabitants, however worthy, of foreign countries. I am also inclined to think that charitable giving abroad is so closely entwined with the nation's foreign policy objectives that it should be regulated by the State Department rather than left entirely to private choice.

Comments

[Anonymous]

This brings up two thoughts.

One. It seems that a major concern about the stimulus package is that it would "crowd out" private domestic spending. If the Gates foundation and other private foreign-aid entities are convinced to contribute more to domestic (rather than foreign) aid, is the US prepared to dedicate more to foreign assistance? Or more specifically, would the US be willing to offset the private aid that had once been directed towards developing countries and is now spent domestically, and direct more funds towards international charitable giving (even if such giving were used to advance foreign policy goals)? Does the political will currently exist on either side of the aisle? Can any congressman get away with voting to send more money abroad while their constituents are unemployed?

Two. When are "undocumented workers" going to be discussed as part of the recession- equation? If the pro-immigration argument has been that immigrants are working in jobs that no Americans would take, how can it persist now that a greater number of Americans are willing to do any job that might be available? Next. The purpose of Keynesian spending is essentially to get money flowing through the economy. But, immigrant workers in the US send a relatively large percentage of their paycheck back to their home country, depriving the US economy of those dollars. What if there was a way to end cash remittances, and instead require immigrants to send US-made goods back to their home country? Or, even better, require that any remittance payments sent from the US be directed towards community- based development projects, thus solving the problem posed by the first part of my comment (private foreign aid being redirected towards domestic aid)...

[Horrified]

The Gates Foundation's efforts in developing improved treatments of 3rd world diseases and Africa-suitable improvements to agricultural plants plausibly provide benefits of 20-100 quality-adjusted-life-years per $1000 spent. The recent economic downturn has not significantly changed the gross disproportion between the marginal welfare benefits of such spending and the marginal welfare benefits of mundane charity in the U.S.

This post implicitly condemns Americans who, like Bill Gates, would rather use their hard-earned charitable dollars to save twenty African children from needless deaths than provide a modest benefit to an American youth, such as paying for 1-2% of the total cost (including government subsidies) of a college education.

If you were in a position to wholly redirect the efforts of the Gates Foundation wholly to efforts to relieve current economic troubles in the U.S. and did so, you would likely be responsible for millions of deaths. This exchange rate between the welfare of Americans and foreigners could be used to justify the pre-emptive nuclear genocide of the population of threatening countries, or the people of countries with abundant valuable natural resources.

I realize that the revealed preferences of most Americans and patterns of government spending indicate strong hostility and indifference to foreigners and outgroups, but similar ingroup-moralities in the form of ethnocentrism and regionalism conflict with nationalistic concern. Do you reject the idea that Americans of different ethnicities and religious or political affiliations should support policies based on the overall welfare of Americans instead of the narrow interests of their own subgroups?

The idea of going beyond indifference to active effort to stop Gates from spending his own money to save millions of the global poor from painful early death, in order to provide minor benefits to comparatively wealthy Americans with access to government safety nets, is simply hard for me to view as anything but hideous evil.

[jonm]

I am appalled by your suggestion that the Gates foundation cut back its spending on causes such as fighting malaria.

Other things being equal, there is some logic to saying that "charity should begin at home when home is suffering," but other things most definitely are not equal; the Gates foundation dollars are vastly more effective and more urgently needed in the poorest countries, even in the current recession.

As to whether Americans' obligations are primarily to Americans, I certainly feel you are taking this much too strongly, but that is essentially irrelevant: Where Bill and Melinda Gates choose to spend their dollars is their prerogative as citizens in a free country, without heavy-handed pressure from the government (and no, your concern regarding State Department policy does not deserve to be taken seriously).

[Raghav]

Anonymous at 9:09 wrote: "But, immigrant workers in the US send a relatively large percentage of their paycheck back to their home country, depriving the US economy of those dollars."

How does this make sense? Think about it this way: imagine that the immigrant, instead of sending the dollars back in the form of remittances, instead burns them. Does this deprive the US economy of those dollars? Should we crack down on this? No, because it simply increases the value of other dollars in the economy.

To show that remittances hurt the American economy, you need a more complicated story.

[fischer]

"The point is rather that charity should begin at home when home is suffering"

But the whole world is home, if you identify yourself first as a homo sapien, and only afterward as a nationalist.

[Anonymous]

دردشة صوتية

[Anonymous]

Raghav--

Perhaps your analogy could be somewhat accurate if we were operating at full employment, but we're not. When there are a limited number of jobs available, we need every worker earning a paycheck to get those funds flowing back into the US economy-- thus allowing the businesses where the worker spends his/her income to continue operating and keep their workers employed. This "multiplier effect" is precisely the purpose of the stimulus package-- pumping government money into the economy to create jobs, and income and spending, which will pay greater dividends for the economy as a whole.
When a limited number of jobs exist, every job staffed by an immigrant directly sending a large proportion of their income OUTSIDE of the US reduces the "multiplier effect"... if the immigrant's job was instead staffed by an individual spending 100% of their income domestically, the economy would be much better off. This is a real concern when jobs are scarce-- Americans will be far more willing to do the jobs that had previously been only desirable to immigrants... and every job held by a remittance-sending immigrant is less beneficial to the economy than if it were held by a domestic-spending individual.

I think a good argument could be made for the fact that immigrants work for lower wages than most Americans (although this could be changing as the economy continues to decline), and without immigrant labor, all prices would rise and we'd be worse off. I'm not saying that we build a wall and kick out all immigrants. What I'm really advocating is either (1) finding a way to direct remittance money into the US economy, or (2) channeling remittances into development projects in the immigrants' home countries (rather than sending it to individuals who use the funds for personal consumption).

[Beal]

Good article, thanks

[Anonymous]

I am shocked at your suggestion that the government regulate charitable donations abroad...I hope it was a joke. Of course the regulation of purportedly charitable donations that are, in fact, funds used to supply rogue organizations that undermine the security of the US (i.e. Al Queda) is understandable. Anything beyond this is absurd, and is extremely hypocritical, given your economic views.

I am still shocked.

[Jorgen]

Judge Posner, you are absolutely right that private individuals in the United States should care more about whether Americans can afford as many consumer goods than they do about people on the other side of a line starving to death and dying of easily preventable illnesses. What we Americans are experiencing now is much worse than anything happening in Malawi. No doubt about it.

[fords]

Stanfords Bank von raivo pommer ist krisis.Diese dreht auf Mittelamerica

[chin]

CHINA KRIZE
von Raivo Pommer

Wer in der Krise Geld verdienen wollte, der musste das, was ihm noch geblieben ist, nach China tragen. Ausgerechnet China, dessen Export dramatisch schrumpft und dessen Wachstum so schwach ist wie seit Dekaden nicht mehr, hat derzeit den erfolgreichsten Aktienmarkt der Welt.

Denn seit Jahresbeginn sind die Kurse an den beiden Börsen in Schanghai und Shenzhen um rund ein Viertel gestiegen. Es ist eine Wiedergeburt - denn noch im vergangenen Jahr zählte China zu den schlechtesten Märkten der Welt. Während die gesamtwirtschaftliche Leistung auch in China rapide abnimmt, hat die gesamte Marktkapitalisierung Chinas seit November um knapp 40 Prozent zugelegt.

[pumpe]

Raivo Pommer
raimo1@hot.ee

EZB krise

"Zu spät, zu zögerlich"

Der DGB ging die EZB dagegen scharf an. "Sie reagiert zu spät und zu zögerlich auf die historische Wirtschaftskrise", sagte der Chefvolkswirt der Deutschen Gewerkschaftsbundes (DGB), Dierk Hirschel.

"Sie hätte sich ein Beispiel an den angelsächsischen Banken nehmen und die Zinsen schnell und drastisch senken sollen." In den USA liegt der Leitzins nahe null Prozent.

Vor der EZB hatte am Mittag bereits die Bank von England ihren Leitzins auf das historische Tief von 0,5 Prozent gekappt und den Ankauf von Staatsanleihen angekündigt um zusätzlich Milliarden in die Wirtschaft zu pumpen.

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شات حبي

[arnold stein]

Raivo Pommer
raimo1@hot.ee

Österreich Krise

Österreichs Ruf als Schuldner steht auf dem Prüfstand. Die Alpenrepublik will in dieser Woche ihre bis 2014 laufende und 2 Milliarden Euro schwere Staatsanleihe um eine halbe Milliarde Euro aufstocken. Dieser Betrag sollte leicht auf dem Anleihemarkt einzusammeln sein. Allerdings ist Österreich ins Gerede gekommen. Das liegt an der tiefen Rezession in weiten Teilen Osteuropas. Dort haben österreichische Banken Forderungen von 280 Milliarden Dollar - eine Zahl, die dem österreichischen Bruttoinlandsprodukts nahekommt. Wegen der wachsenden Schwierigkeiten osteuropäischer Schuldner, ihre Kredite zurückzuzahlen, sind die Bedenken der Anleger mit Blick auf die Kreditwürdigkeit Österreichs und seiner Banken in den vergangenen Tagen gewachsen.

Ein Indiz für die Skepsis ist die Renditedifferenz zwischen österreichischen Staatsanleihen und deutschen Bundesanleihen. Noch nie war sie so groß wie derzeit. Für zehnjährige Laufzeiten zum Beispiel beträgt die Differenz fast 1,4 Prozentpunkte. Bundesanleihen rentieren mit 2,9 Prozent, österreichische mit immerhin 4,3 Prozent. Auf dem zu Übertreibungen neigenden Markt für Kreditausfallversicherungen (CDS) ist die Diskrepanz zwischen Österreich und Deutschland sogar noch größer. Die Aufstockung der österreichischen Staatsanleihe ist daher keinesfalls Routine.

[leva ruma]

Raivo Pommer
raimo1@hot.ee

Rumenien ja Lettlands geld

Die Reaktion fiel gelassen aus. Obgleich nach Ungarn und Lettland mit Rumänien nun der dritte osteuropäische EU-Mitgliedstaat die Europäische Kommission in Zahlungsschwierigkeiten geraten ist und um Hilfe gebeten hat, zeigen die Finanzmärkte nur verhaltene Reaktionen.

Die Landeswährung Leu wertet zwar um 0,8 Prozent auf 4,3077 Leu je Euro ab, doch ist sie damit immer noch unter dem Tief von Anfang Februar bei 4,3614 Leu. Die Kurse der rumänischen Staatsanleihen gaben immerhin leicht nach.

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raivo pommer-www.google.ee
raimo1@hot.ee

Das Volumen an toxischen Wertpapieren

in den Bilanzen von Banken und Versicherungen könnte einem Zeitungsbericht zufolge auf 4 Billionen Dollar gewachsen sein. Diese Schätzung werde der Internationale Währungsfonds (IWF) bei seinem nächsten Bericht zur Lage der Weltwirtschaft am 21. April voraussichtlich nennen, berichtet die britische Zeitung „The Times“ (Dienstagausgabe) ohne Angabe von Quellen. Im Januar hatte der IWF den Umfang der „vergifteten“ Papiere in den Vereinigten Staaten auf 2,2 Billionen Dollar veranschlagt.

Diese Schätzung für die Vereinigten Staaten dürfte nun auf 3,1 Billionen Dollar angehoben werden, schreibt die Zeitung. Hinzu komme ein Volumen von rund 900 Milliarden Dollar für inzwischen toxische Wertpapiere, die in Europa und Asien emittiert wurden.

Die Schätzung des IWF zu den toxischen Wertpapieren verheißt nichts Gutes

Derweil gehen die von der amerikanischen Regierung angekündigten „Stresstests“ für die größten amerikanischen Banken laut Medienberichten in ihre heiße Phase. Die Tests sollen die Stabilität der 19 führenden amerikanischen Finanzhäuser für den Fall einer weiteren Verschlechterung der Konjunktur untersuchen. Bankenaufseher wollten sich in dieser Woche treffen, um die Auswertung der Ergebnisse zu diskutieren, berichtete unter anderem das „Wall Street Journal“ unter Berufung auf Insider.

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