'Buy American' provision in stimulus bill makes no economic sense
"Americans want to see American taxpayer funds supporting a stimulus package that will generate American jobs using high-quality, American-made products," he added.
It doesn't get much more protectionist than that. Now I might be wrong on this, but didn't we move much of our manufacturing to China? Do we no longer wish to buy inexpensive socks?
I say that somewhat tongue-in-cheek. I've already hoarded plenty of socks. I consider them to be savings that no longer earn interest but at least have the potential to keep up with long-term inflation. Some would argue that socks are cheap and plentiful. That makes them a lousy investment. Others would argue that it is better to buy socks when they are cheap and plentiful than it is to buy them when they are expensive and hard to find. I tend to be in that latter group. Go figure.
Here's another thought. When are we going to start pumping out more high-quality, American-made oil? We'll probably want some in reserve once we've shut down global trade with protectionist policies.
You don't have to be a Nobel Prize-winning economist to see how this will play out.
I would argue that your odds of seeing it may actually be higher if you are not Nobel Prize-winning economist (as seen here).
Canada increasingly hopeful of U.S. climbdown from protectionism: Day
Day compared the provisions in the stimulus bill to the U.S. Smoot-Hawley Act of 1930, a tariff law which many economists believe fuelled the Great Depression.
That bill set record-high tariffs on more than 20,000 goods imported to the U.S. Over 1,000 American economists warned against it in a petition, but then-president Herbert Hoover signed the bill.
Countries retaliated swiftly, with Canada slapping tariffs on 16 American products that accounted for about one-third of imports from the U.S., and America's global imports and exports both plunged more than 60 per cent.
You'd think that would turn me deflationary long-term, wouldn't you? It doesn't. It makes me more stagflationary. We are not the world's manufacturer like we were heading into the Great Depression though. In sharp contrast, we now import far more goods than we export.
Our government helped get us into this crisis. We are now counting on our government to get us out of it. Here's a brief history of how well they did during the last crisis. There was a dotcom bubble collapsing. The government stepped in with cheap credit to solve all our problems. This left us with a bigger and more dangerous credit bubble.
The government is aware of the problems with this credit bubble though. They tried throwing even more credit at it in hopes that they could replace this credit bubble with another similar bubble (credit bubble #2). That hasn't worked out very well so far. Our government is always thinking though. They've come up with an additional solution. They wish to shut down global trade.
The more the government does the more unintended consequences appear. We've had a bull market in unintended consequences for the past few years. The government is really stepping up to the plate now though. Therefore, I predict a worm market in unintended consequences heading forward. A bull market just wouldn't do it justice.
From Dune (1984)...
Paul: Stilgar, do we have wormsign?
Stilgar: Usul, we have wormsign the likes of which even God has never seen.
Update: The Inland Empire Bust and Recovery - Way back in 2006 I disagreed with some analysts on the outlook for the Inland Empire in California. I wrote: As the housing bubble unwinds, housing relate...
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