An Intriguing New Argument In Favour of “Buy American”

In a new article posted on Al Jazeera online, Dean Baker, co-founder of the Center for Economic and Policy Research, a left-leaning and generally trade-skeptic think tank (not to be confused with the London-based Centre for Economic Policy Research network of academic economists) outlines an interesting new way of examining the worth of ‘Buy American’ policies. (I blogged a little about those last week, and drew readers’ attention to the growing use of “Buy American” initiatives at the state level. They are a bad idea.) I may be flattering myself, but I believe that I may be one of the people in “intellectual circles” among whom Dr. Baker believes it is “fashionable… to treat “Buy American” provisions in government spending packages as silly relics that appeal to ill-educated people…” (although I don’t believe I have ever sneered at my intellectual opponents, or seen them as being ill-educated. Misinformed– or simply wrong–maybe, but that has nothing to do with education.)

Anyway, according to Dr. Baker, us “folks in intellectual circles don’t have a clue what [we] are talking about.” But he goes beyond dismissing our arguments, and builds one of his own that I believe is a new one:

We must recognise that most governments seem to have a bias against running large budget deficits, even when large deficits are needed to boost their economies back to full employment. In this context, the political value of including home country preferences in stimulus packages is likely to dwarf whatever losses might be incurred by paying higher prices for goods and services. [emphasis added]

In other words, we needed “Buy American” provisions in the 2009 stimulus plan, or else the plan would have failed. And, insufficient though it may well have been, the stimulus saved us from all sorts of doom.

Two things in Dr. Baker’s article, and in the above quote specifically, jump out at me as novel arguments, or at least novel twists on old arguments. First, Dr. Baker seems to be arguing that “Buy American” policies make sense not in and of themselves, but as political “inducements” (i.e., bribes) to win support for stimulus programs, which seem to be the real goal in Dr. Baker’s eyes. “Buy American” policies are basically a means to an end, an end that American politicians can’t or won’t endorse unless simplistic and nationalistic provisions are attached. Now who’s implying those who support “Buy American” are ill-educated?

And second, there is an explicit acknowledgement that “paying higher prices for goods and services” does indeed involve “losses.” We don’t often hear that admission from protectionists, or if we do, the losses are very much downplayed, or even parenthesized, in the more important context of the importance of “creating or saving jobs.”

I don’t buy this new argument, by the way, no more than I bought the old one. Especially because I remain unconvinced of the benefits of the so-called stimulus. Just thought I would flag it as something new under the sun.