Sunday, February 1, 2009

Getting more bang for the buck

Following up on the "Buy American" provisions in the stimulus package, Douglas Irwin points out of the pitfalls of lacing stimulus with protectionism:
"In rebuilding the San Francisco-Oakland Bay Bridge in the 1990s, the California transit authority complied with state rules mandating the use of domestic steel unless it was at least 25 percent more expensive than imported steel. A domestic bid came in at 23 percent above the foreign bid, and so the more expensive American steel had to be used. Because of the large amount of steel used in the project, California taxpayers had to pay a whopping $400 million more for the bridge. While this is a windfall for a lucky steel company, steel production is capital intensive, and the rule makes less money available for other construction projects that can employ many more workers."
The more money we pay for inputs, the less money we have for infrastructure projects that will hopefully create jobs, and lay the foundation for future growth, to steal a phrase from the President. We can't do that if the steel industry (or any other industry for that matter) uses the stimulus bill to buffer their profits to the detriment of American welfare. 

A lot of Americans are employed using steel. But if the price of steel goes up, fewer of these people will keep their jobs. It's that simple.

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