Thursday, January 29, 2009


In one of those odd juxtapositions that occurs all too rarely, I just looked at my My Yahoo page. In the Top Stories from Reuters section, two of the three stories were:
  1. New bank bailout could cost up to $2 trillion: report
  2. Policymakers sound alarm over protectionism
The first tells us that the Obama administration is discussing ways that we can pump up U.S. banks. TARP hasn't worked at all, so now we may have to use public money to buy common shares or convertible bonds or whatever the economic team comes up with.

The second talks about the concerns of leaders who are currently attending the World Economic Forum in Switzerland. World trade is slowing down, so these august people are worried that countries will enact measures to "protect their non-competitive production facilities." India's trade minister hinted that India may be forced to impose such measures if other countries start first.

Do we see the link here? We're going to spend trillions on banks that happen to have their headquarters in New York or San Francisco, even though they are perfectly willing to tout their "global reach." More obviously, we are helping out one set of automakers who sell cars in this country and have proven to be inefficient in preference to another set, based solely on where their ultimate corporate headquarters is situated (and companies from the first set aren't spending our money in this country, as GM is gearing up facilities in Brazil - h/t to Job Destruction Newsletter).

In fairness, the second Reuters article does mention the new "Buy American" program, passed by the US House "requiring public works projects funded by an $825 billion stimulus package to use only U.S.-made iron and steel." Other steel manufacturers around the world are upset by this. And the Egyptian Trade Minister is concerned about bailouts, though this is almost a throwaway at the end of the article.

Look, I'm not a doctrinaire on the subject of free trade. I understand the theory better than most, so I see why economists are in love with the efficiency gains we get from it.

But free trade is not an unalloyed good to every single person in both of the countries doing the trading, and it is not wrong to recognize that. Yet we have economists all across the spectrum saying we need to stimulate this, and goose that, and spend massive amounts of public funds that we don't have on "getting the economy going."

It is intellectual bankruptcy to ignore that every bailout, every loan guarantee, every small step in the direction of nationalization, is protectionism, pure and simple. It may be necessary in these times, it may not be, but the same folks who will tell you that nothing should get in the way of free trade, ever, are now glossing over that in the rush to prop up every crummy American company (many of which would lay off every American worker in a heartbeat if it would save them a few bucks).

I wish, fervently wish, that someone would come clean and admit that, eminent economists that they are, they're throwing out all the rules, changing their world view. But that would create massive cognitive dissonance; it's a lot easier just to pretend that domestic stimulus is not the same thing as rank protectionism.

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