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Article by ben    (02-21-09 03:47 PM)

Protectionism Will Lead to Higher Inflation

I just finished reading the Recovery Bill (all 500 pages!) There are so many things to focus on, but here's one:
  • Quote:
GOODS. (a) 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, steel, and manufactured goods used
in the project are produced in the United States.
(b) Subsection (a) shall not apply in any case or category
of cases in which the head of the Federal department or agency
involved finds that—
(1) applying subsection (a) would be inconsistent with the
public interest;
(2) iron, steel, and the relevant manufactured goods are
not produced in the United States in sufficient and reasonably
available quantities and of a satisfactory quality; or
(3) inclusion of iron, steel, and manufactured goods produced
in the United States will increase the cost of the overall
project by more than 25 percent.
(c) If the head of a Federal department or agency determines
that it is necessary to waive the application of subsection (a) based
on a finding under subsection (b), the head of the department
or agency shall publish in the Federal Register a detailed written
justification as to why the provision is being waived.
(d) This section shall be applied in a manner consistent with
United States obligations under international agreements.

This basically means our infrastructure projects will be overpriced by 25% or lower. This protectionism is going the same way as the Smoot-Hawley Tarriff Act implemented in the 1930s under President Herbert Hoover, which prolonged the depression.

There should be a law that requires congressmen and senators to study economic history of the United States first before they can run for political positions. One of the biggest myths caused by liberal economists was that Herbert Hoover used laissez faire policies which caused the economy to go into a depression. This is absolutely and categorically false.

America was run on Laissez Faire policies until 1929. Even the Panic of 1873 did not receive any interventionist help from the government. In 1930s, Herbert Hoover put in place the most interventionish policies by keeping wheat prices artificially high, passing the protectionist Smoot-Hawley Tarriff act, and forcing the businessmen like Henry Ford to raise wages during the economic crisis. The result of all these interventionary acts was a turning a recession into a depression. Franklin Roosevelt prolonged the depression further with this New Deal. It was not until 1941, when World War II began, that depression finally came to end.

The best reference on the history of the American Great Depression of the 1930s is Murray Rothbard's classic, Link to America's Great Depression.

Let me just quote some of the passages from that book:
  • Quote:

As Hoover recalls:
the primary question at once arose as to whether the
President and the Federal government should undertake
to investigate and remedy the evils. . . . No President
before had ever believed that there was a governmental
responsibility in such cases. No matter what the urging
on previous occasions, Presidents steadfastly had maintained
that the Federal government was apart from such
eruptions . . . therefore, we had to pioneer a new field.1
As his admiring biographers, Myers and Newton, declared, “President
Hoover was the first President in our history to offer Federal
leadership in mobilizing the economic resources of the people.

Good luck to us, Americans

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