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

[Jim]

Surprise, surprise!!! The politicians want a stimulus package which will help them get reelected by giving money to constituent special interets but won't help the economy at all. Robert Reich recently testified before Charlie Rangel's committee that infrastructure spending should be directed away from white male construction workers and away from skilled construction workers. Rangel agreed with him. They also agreed that state govenors should not have much control over the monies are spent. Great. I am really looking foreward to driving over bridges built by people who don't know what the hell they are doing. Not to mention that we are only going to help certain politcally favored groups.

[Jack]

What Reich said was quite reasonable to those discussing economics. I heard his testimony, but in googling up the quote I see pages of right-wing bloggers trying to spin it into raw meat for their rabid pack.

"The stimulus plan will create jobs repairing and upgrading the nation’s roads, bridges, ports, levees, water and sewage system, public-transit systems, electricity grid, and schools. And it will kick-start alternative, non-fossil based sources of energy (wind, solar, geothermal, and so on); new health-care information systems; and universal broadband Internet access.
It’s a two-fer: lots of new jobs, and investments in the nation’s future productivity.

But if there aren’t enough skilled professionals to do the jobs involving new technologies, the stimulus will just increase the wages of the professionals who already have the right skills rather than generate many new jobs in these fields. And if construction jobs go mainly to white males who already dominate the construction trades, many people who need jobs the most — women, minorities, and the poor and long-term unemployed — will be shut out.

What to do? There’s no easy solution to either dilemma…
People can be trained relatively quickly for these sorts of jobs, as well as many infrastructure j0bs generated by the stimulus — installing new pipes for water and sewage systems, repairing and upgrading equipment, basic construction — but contractors have to be nudged both to provide the training and to do the hiring.
I’d suggest that all contracts entered into with stimulus funds require contractors to provide at least 20 percent of jobs to the long-term unemployed and to people with incomes at or below 200 percent of the federal poverty level. And at least 2 percent of project funds should be allocated to such training. In addition, advantage should be taken of buildings trades apprenticeships — which must be fully available to women and minorities."

[Jack]

Ahh! so "free trade" offers its benefits only in the good times? I agree with trying to get the best bang for the buck out of the stimulus by encouraging "Buy American" but then logically speaking it would seem a good idea when we're muddling along running large traded deficits as well.

I'm sure Posner just grabbed the broadband example at random for illustration, but some, many of these projects seem to justify themselves as extending broadband to unserved areas on the merits of the finished product with the stim as the two-fer side benefit. Corning a big fiber supply just laid of a lot of workers, so if the task requires imported electronics, US fiber and a LOT of jobs building it out, it would seem to offer plenty of dividends.

[Anonymous]

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[Jim]

So we are going to encourage unionization, print a trillion dollars and push it into the money supply and erect trade barriers. Jimmy Carter, your 20% inflation was nothing. That will really help the lower levels of our society.

[robert]

Judge:
Requiring that foundations, such as the Gates foundation as the most obvious example, be regulated by the U.S. Department of State (on the belief that they implicate the foreign policy of the nation) may lead to the politicization of philanthrophy. However, true charity is intended to help those who most need it without regard to politics.

[PlanetRalph]

I profoundly disagree both that the Gates foundation should focus on U.S. philanthropy in a time of world economic contraction and that private international philanthropy should be more regulated by the State Department.

Gates foundation money comes from Microsoft which derives its profits from worldwide software sales. I don't see the special moral obligation to Americans when people of all nations contributed to the wealth.

Given competence and the resources the state department would need to finely regulate philanthropy, U.S. foreign policy objectives will be better met by unregulated private philanthropists. Particularly the foreign policy objective of giving other nations a favorable impression of Americans.

Existing regulations against contributing to terrorists and enemies of the U.S. are adequate to steer money in a way favorable to U.S. long term interests.

[Jack]

Jim asks: "So we are going to encourage unionization, print a trillion dollars and push it into the money supply and erect trade barriers. Jimmy Carter, your 20% inflation was nothing. That will really help the lower levels of our society."

Yes Jim, that's about right, we ARE lending a trillion or so to those whose corporate credit isn't so hot in an attempt to fill a perhaps bottomless hole, review our trade policies, especially those in which it looks as though the US has been played for a sucker, and not only encourage an increase in union membership but bring back the purchasing power of our greatly eroded min wage too.

BTW, did you get a chance to see this graph illustrating how productivity increases have greatly outpaced wages in recent years?

http://news.bbc.co.uk/2/hi/business/5303590.stm

It's not likely that the inflation rates of Nixon, Ford and Carter will return after the disappearance of so much capital, and our economy continuing to be strangled by flat and falling wages, but I'm sure that Bernanke and others are looking forward to the day when they can try out the FRB's brake pedal.

[Jake]

Posner writes that he is "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."

With such views, Posner discredits the judgment of the Framers that federal judges should be entitled to life tenure.

[Mark]

I'm not sure that an inability to afford this year's vacation, or a new flat-screen, is comparable to dying at 27 from malaria. Maybe Gates' money is doing more good where it's at?

[Tom]

I agree with Judge Posner that charily begins at home. At least from the standpoint of how taxpayer dollars should be distributed during an economic downturn. Some have made the argument that we have little to show for our overseas’ charity in the best or worst of times.
In terms of non-governmental charity, it’s no one’s business but the giver. If Judge Posner believes private charity should be targeted to U.S. based recipients let him lead publically by example. I don’t believe it’s appropriate to publically tell others what they should do with their donations.
Bill, dinner still on at your house Friday?

[Geoffrey]

Mark, I responded to Prof. Posner's comments on the Gates' foundation's focus at this time of economic peril, because it lacked insight into the actual focus of the foundation. In short, Gates strives to provide life, decent quality of life, and health to millions of people who would not otherwise have it - if it were not for the Gates found. The vision should not be to bring jobs and economic security to individuals who would otherwise not have them without the found.'s existence. The US is a developed country, whose citizens are going through tough times, but we have much more than many other people around the world. We have functioning hospitals with bar none care; the Gates found. works in locales where such a health care state may not be seen for 50 more years. Yes, Americans are struggling, but our struggle is not one of primordial survival, instead, it's a fundamentally 21st century, developed world struggle.

[Steve Sailer]

I like the idea of telling the Gates Foundation to spend more in America now, except that the Gates Foundation has probably done more harm than good within America. Bill Gates himself just admitted that the Gates Foundation more or less wasted about $2 billion dollars pushing the "small schools" boondoggle.

The Gates Foundation also got the LA school district to require that students pass Algebra II to graduate from high school, a requirement that will simply condemn more decent kids who just aren't very bright to go through life with High School Dropout stamped all over them.

Let Bill Gates battle mosquitoes in Africa, a task which he's better suited for. In America, his educational reform ideas are horribly infected by political correctness.

[Anonymous]

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[Lukman]

Relevant, but differing to your view regarding the Gates Foundation's philanthropic priorities: http://www.city-journal.com/2009/19_1_philanthropy.html

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