A story on NPR’s All Things Considered this week dealt with St. Lucie County, Florida, whose government is trying to counter high local unemployment by requiring that 75 percent of government contracts be reserved for local firms and that the firms employ local workers. This is true for both local tax revenues and federal stimulus package funds.
Even ignoring the legality of restrictions on the federal money, this is the kind of autarky behavior that leads to a reduction in production possibilities. In the name of job protection, local taxpayers forego efficiency — forego using the principle of comparative advantage — and waste tax dollars. Worse still, this can lead other localities to do the same. Even worse, if it were to spread so that national governments helped to “protect” local companies and employees even more than they now do, we would be headed rapidly down the protectionist road that helped produce the Great Depression. I hope this truly stupid idea is localized and does not spread.
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Isn’t this much like the restriction of foreign visas for companies who received the TARP funds? And like the restrictions on using only American suppliers for various projects? It seems to be happening in full swing already…
Disclaimer: I am a Canadian who is going to pursue my MBA in the US and very worried about job prospects on graduating.
Such practices have been prevalent in NM for a long time. Preference on government contracts for local minority owned businesses. Also “Little Davis Bacon” laws so that taxpayers overpay for government construction projects.
Protectionism caused the great depression? I might be wrong, but I thought it was the stock market crash.
can someone explain how protectionism caused the great depression?
The stock market crash didn’t cause the great depression. The depression would have happened anyway as the great influx of rural folks flooded the cities due to dustbowl conditions. This coupled with changes due to the industrial age caused the depression.
I am also interested on how protectionism caused the depression.
Google “Smoot-Hawley Act” for a good primer as to how protectionism caused the great depression. It’s not a lead-pipe cinch (nothing in something as complex as economics is) but it’s close.
In short, it threw a wet-blanket on international trade, stifling growth and productivity. Our exports became as equally prohibitively taxed as their imports, and pretty soon everybody is just buying- and thus producing- less stuff, and we’re twisting down the toilet bowl.
Read “Why Globalization Works” by Wolf or “The Power of Productivity” (Lewis?) for a good readable explantion.
This is, of course, putting the Babylonian idol “God the Economy” ahead of the Ghandhian concept of “The People First” (as in disallowing industrial equipment into India after the Brits left, slowing the national economy but protecting the livelihoods of the citizenry). What is a nation, state, or city if not the people it is comprised of.
If, perhaps, all nations, states, and cities first moved to protect their own citizenry they could then, informed by that priority, move to rebuild city, state, national, and international economies where people, not money, come first.
yeah, i’m with the skeptics here- not only is that line “protectionist road helped produce Great Depression” right out of the republican propaganda’s greatest hits, but would question if Hamermesh even realizes our country was founded on protectionism- the early colonies’ economies absolutely needed protection from London’s- via tariffs- else we would not have survived independently (until we attained leverage in the cotton market)
As in nearly everything, there needs to be a balance.
Extensive out-sourcing/off-shoring/etc. can eventually hurt the local population as well as have hidden costs (transport, tax implications, etc.)
Conversely, keeping everything local can result in higher costs, less efficiencies, etc. even if does provide some short-term gain (and even vindication).
True compromise seems to be a lost art in America. You’re either R or D, left or right, etc. and there is no room for in between.