“Buy America” sounds great. But it’s costly and about to rise steeply.
‘Buy American’ Policies Don’t Help Americans
Bloomberg columnist Tyler Cowen says ‘Buy American’ Policies Don’t Help Americans
“Buy American” sounds like such a good idea. The phrase itself evokes the benefits of commerce, and of America selling things, while renewed interest in industrial policy from both Republicans and Democrats increases the concept’s political appeal.
When assessing economic ideas, however, the focus should be not on vibes but on data. And a new study from the National Bureau of Economic Research indicates that Buy America provisions are costly and at best only modestly effective in creating jobs.
The concept may seem contemporary, but the Buy American Act actually dates to the Depression and was signed by President Herbert Hoover in 1933. It stipulates that, unless appropriate waivers are in place, the federal government should buy American-made goods, and at least half of the cost of production of those goods should be spent in America. More recently, the provisions of the act have been applied to the Inflation Reduction Act and the Infrastructure Investment and Jobs Act.
For obvious reasons, this has not been a controversial piece of legislation. Since US taxpayers are footing the bill, the argument goes, the money should stay in the country. US businesses are hardly going to complain. Supporters also cite national security reasons for such restrictions. But this policy comes with real costs, monetary and otherwise. The US is losing out on expertise, for one thing. Spain, for example, is a remarkably cost-efficient producer of mass transit. Would it be so terrible to bring more of that know-how directly to US infrastructure contracts? Time is another cost: Buy America provisions are holding back a high-speed rail project that has been in development in California for nearly two decades
Overall, the researchers estimate that Buy American provisions cost about $125,000 per job created, a relatively expensive investment. Depending on your politics, you may think that money would be better spent on tax cuts, or on more discretionary government spending.
Under current law, as has been supported by the administrations of both Donald Trump and Joe Biden, the domestic-content requirement is slated to rise to 75% in 2029. That is likely to raise the cost of Buy American provisions even more, especially in a world where more countries are entering the market as cost-effective producers. Furthermore, the higher that percentage, the more likely it is that the US is protecting sectors that spend their money on capital goods, rather than on US labor. Job creation or job protection is likely to dwindle accordingly. In the future, use of the program may cost between $154,000 and $237,000 per job.
The simple truth is that the standard economic case for free trade stands largely unscathed, so long as the US is willing to make appropriate national security exceptions. Reports of the death of neoliberalism are exaggerated, as is the need to throw out conventional economic wisdom. A sober look at the numbers reveals that common sense still reigns, protectionism is overrated, and an additional dose of freer trade would do us all some good.
When it comes to spending taxpayer dollars, I want government to spend as little as possible. That means competitive bidding, not high cost subsidies at taxpayer expense.
I don’t propose letting Russia, China or foreign adversaries bid on projects, especially sensitive ones. But if we insist on mass transit or high speed trains, why shouldn’t taxpayers get the most rather than the least for their money.
The screwiest thing about overpaying is that it allegedly adds to GDP. Spend $100 million on a bridge and it adds $100 million in GDP. Spend $100 billion on the exact same bridge and supposedly it adds $100 billion in GDP.
Those numbers are in nominal, not real GDP terms, but that gives you an idea of the waste.
Another $100 Billion Needed to Complete California’s Bullet Train Project
Cowen mentioned California’s high speed trains so let’s take a closer look.
ABC reports Another $100 Billion Needed to Complete California’s Bullet Train Project
When California’s “bullet train” was pitched to voters back in 2008, the cost of linking Los Angeles to San Francisco via high-speed rail was said to be about $40 billion.
But now, more than 15 years later, state officials say it’s going to cost as much as $35 billion just to complete the 171-mile stretch between Bakersfield and Merced. Completing the entire line will require an additional $100 billion.
“It’s never going to get built,” Republican State Senate Minority Leader Brian Jones said. “It’s never going to come to San Diego. It’s never going to come to L.A., and it’s always going to be $100 billion away.”
“When you put projects like this in a private enterprise… you get efficiency and you get proper planning,” he said.
The Bright Side
Some of us prefer to look on the bright side. You might be asking, “What the heck is that?”
We bought American silly, and we let government plan the whole thing. And best of all, the train will take another decade to build, at least.
That means thousands of more US jobs ongoing at $200,000 per year.
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September 26: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
October 1: Trump vs Frederic Bastiat: Who Is Right About Tariffs?
Previously, I discussed tariffs and the trade deficit. This post is about Trump’s proposal to use tariffs to fund projects.
The Biden-Harris Administration Buried America in 1,000 Costly Regulations
In case you missed it, please see my related post The Biden-Harris Administration Buried America in 1,000 Costly Regulations
The House Committee on Oversight estimates Biden-Harris regulations will cost consumers and businesses a whopping $1.5 trillion dollars.
We need new slogans to celebrate. The lead chart is one possibility. But how about “You can get better, but you can’t pay more!”