Trade Lessons Unheeded

Leaving aside the many other disastrous implications of the pork-laden “stimulus” bill, here are some thoughts about its impact on international trade. For all practical purposes there is no difference between the Smoot-Hawley tariff bill of 1930 and the “Buy American” provisions in the $819 billion spending bill that passed the House Wednesday.

Smoot-Hawley was the catalyst for a pandemic of tit-for-tat protectionism around the world, which helped deepen and prolong the global depression in the 1930s.  “Buy American” provisions will no doubt inspire similar trade barriers abroad and will have the same effect of reducing global trade—and therefore prospects for economic recovery.  It is not unreasonable to say that U.S. policymakers are on the verge of taking us down that same disastrous path.

The bill that passed the House includes the following language:

None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron and steel used in the project is produced in the United States.

The version currently before the Senate contains the same language, which would seem to indicate that scrapping the provision won’t be necessary to reconcile the two versions in conference.  So, unless the “Buy American” clause is dropped in the final Senate bill or is somehow defused during conference, the U.S. will have fired the first shot in what could evolve into a much wider trade war.

It’s usually better to be circumspect and to issue such dire warnings sparingly, but I see little room for alternative conclusions here.

Barton: Good Cause, Awful Rhetoric

Arguing against a delay of the transition to digital television, Rep. Joe Barton (R-TX) argued that spectrum destined for public safety uses would be held up. Well and good. But he did so this way:

Osama bin Laden isn’t fictional, and he isn’t waiting. That should be reason enough to go full speed ahead with the DTV transition.

People around the world read and discuss what U.S. leaders say about terrorists. By invoking the specter of bin Laden, Barton has given free publicity to a leading terrorist among people who might join him or any group loosely affiliated with Al Qaeda. If they want to be a part of something powerful, Representative Barton has signaled to them what they should do.

The digital television transition should go forward, but exalting terrorists is not the way to argue for that.

Atul Gawande Is Right

Path dependence plays a huge role in shaping nations’ health care sectors.  Path dependence is also why we want health care reform to nudge America toward freer markets.

Government exacerbates path dependence.  Government gives the old order the power to block the new.  The larger the role government plays in health care (or anything else), the harder it is to make incremental changes that would yield greater benefits than existing arrangements. 

That’s why, as Gawande observes, Medicare does a lousy job of improving quality.  (Or containing costs, for that matter.)  Medicare and other government interventions are also why we don’t see enough innovation in the private sector, either.

So if you want tomorrow’s health care sector to have the same problems with cost, quality, and access as today’s, then by all means expand Medicare.  Or create a government-run “exchange” like the Federal Employees Health Benefits Program.  Or expand the Veterans’ Health Administration.  Or expand Medicaid and SCHIP

But if you’d rather a health care sector that constantly makes improvements in cost and quality, you need to let seniors and non-seniors alike control their health care dollars and choose their own health plan.

“Fair Pay Act” Will Only Further Damage Economy

When President Obama signs the Lilly Ledbetter Fair Pay Act, he will be fulfilling a campaign promise but undermining the American economy.  This bill is not about sex discrimination — paying men and women different wages for the same job has been illegal for nearly half a century — but rather about statutes of limitations.  How long after an incident of discrimination should someone be allowed to sue?  The Supreme Court ruled that an employee has six months after a company’s initial pay decision to file a discrimination claim.  While this was a fair reading of existing law, critics legitimately questioned whether the law itself unfairly foreclosed redress for a decision made long before an employee discovered the pay discrimination.  They correctly went to Congress to fix the law, instead of demanding that courts rewrite it themselves. 

But the solution is not to eliminate statutes of limitations altogether, which is essentially what the Fair Pay Act does when it restarts the litigation clock with every new paycheck.  No, the proper solution is simply to codify the common law “discovery rule” for these types of cases, making clear that the statute of limitations begins to run only when the employee discovers the wrong that had been committed against her way back when — a compromise that was proposed by Senator Kay Bailey Hutchison but rejected by the Senate.  Instead, the new law introduces major uncertainty into business operations and gives every employee a Sword of Damocles to dangle over her employer’s balance sheet.  Companies will all of a sudden be subject to decades-old discrimination claims they have no ability to defend.

At bottom, the Lilly Ledbetter Fair Pay Act takes a bludgeon to an already reeling economy, acting as a stimulus only for the lawyers bringing and defending the coming avalanche of lawsuits.

Investing Abroad, Investing at Home

On the campaign trail, then-candidate Obama spoke against policies that give companies tax breaks after shipping jobs overseas.

“I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America,” Obama said.

Now as president, there’s little doubt he will put those promises into action.

In today’s Cato Daily Podcast, Dan Griswold, director of Cato’s Center for Trade Policy Studies, explains why singling out those companies now for tax hikes can have a particularly painful negative side effect.

“When they talk about shipping jobs overseas what do they mean exactly? Well, if they mean U.S. companies investing in operations abroad then you’re indicting pretty much all of corporate America,” Griswold says.


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Whatever Happened to the Blue Dog Democrats?

Remember the Blue Dog Democrats? They were the fiscally conservative Democrats from Southern and Western and rural districts who weren’t going to go along with the big-spending leadership of their party. They’ve gotten a lot of attention, especially after a lot of new Blue Dogs were elected in 2006, helping to give the Democrats a majority in the House.

But where are they now? After eight years of unprecedented profligacy, with a trillion-dollar increase in federal spending, and in the face of both trillion-dollar deficits and unimaginably large long-term fiscal imbalances, the House is just about to vote to spend $825 billion that the government doesn’t have. Will any Blue Dogs vote no? Will any Blue Dogs live up to their campaign rhetoric about fiscal conservatism?

Don’t bet on it.

Their record isn’t as good as they’d like you to believe. John Fund pointed out back in 2005 that they were not supporting any Republican efforts to limit spending. But maybe that was just because the Republicans didn’t try to work with them. Fair enough. Now they’re part of the Democratic majority. And apparently they’re satisfied with vague promises from the Obama administration that after we spend all this money, we’ll get back to fiscal responsibility. (Lord, make me chaste, but not just yet.)

Blue Dogs supported fiscal responsibility at some vague point in the misty past, and they will strongly support fiscal responsibility at some vague point in the future, but right now they’re going to vote to put their constituents another $825 billion in debt.

Their members range from Rep. Mike Arcuri of New York to Rep. Charlie Wilson of Ohio, and include the newly promoted Kirsten Gillibrand. If you seek their monument, look around you.

UPDATE: By my colleague Tad DeHaven’s count, 37 out of 43 “Blue Dogs” voted for the spending bill that will probably end up costing about $900 billion. Congratulations to actual Blue Dogs Allen Boyd, Jim Cooper, Brad Ellsworth, Collin Peterson, Heath Shuler, and Gene Taylor.