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.
and 
. You can also watch it on 
I’m the opposite of frankenduf here – and with the skeptics, not sure what he was reading.
And the colony thing is way wide of the mark, as is the Republican comment. Yeah, the GDP of the colonies was what? Lets use that model….lol then Sigh…
I’m not an economist, but I’m very good with my history, so I’m thinking Hamermesh isn’t just referring to Smoot-Hawley (which came later), but the general attitude towards tariffs in general in the 1920s and 1930s.
At the time, America got large amounts of money via tariffs, and Republicans (of a very different variety than today’s) supported tariffs as a means of protecting American workers. Thus, seeing a potentially increased budget deficit, Smoot-Hawley was passed to keep with another major Republican goal- a balanced budget.
Not only that, but Hamermesh’s comment is that the protectionist road “helped” produce the Great Depression, not caused it. Many other factors were involved, including some that will sound quite familiar: too much leverage, a housing crash, failing banks, etc.
Our bowing and scraping to the god of “efficiency” has put millions of people out of work and more into junk jobs where they can’t make anything resembling a decent living. Efficiency is not the be-all and end-all, and never should be. If a little inefficiency translates into more jobs and a higher standard of living overall – and I suspect it does – I’ll take it.
Everything in any of these analyses s a function of excess capacity and price elasticity.
Saying that a community of taxpayers should hire outside people because it is “better for the economy” is so stupid as to defy belief. There is no community to community Smoot-Hawley—come on, get a grip.
Your point is not wrong, but your piece is only half an analysis – you do not even attempt to recognize that there may be some benefits to a protectionist policy. To me, this is intellectually dishonest because policy decisions are almost always about balancing pros and cons.
By the way, you meant to say “forgo” (to do without) not “forego” (to precede), in both instances.
Susan: How could _less_ overall efficiency possibly create an increase in standard of living? More efficiency is is the sole thing increasing overall standard of living.
Is the end of local small business a good thing?
Has the retail experience of the community benefited from having Walmart?
Would I rather my tax dollars be used to pay companies from far away, while the children of my local construction and service workers go hungry and on food stamps, welfare and unemployment?
We have a local government project worth over $500m in capital spending. The contractor is from Sweden and most of the workers are from Central and South America. I suspect that money would make a big difference in our local economy, rather than awaiting some global trickle-effect from Central American, South American, and Swedish executives’/stockholders’ spending.
Keeping the world employed while social costs of unemployment, poor health care, minimum wage jobs, destroyed pensions, etc. continue to mount seems a poor policy. If the object is to have the American standard of living reduced to match that of the impoverished, while building the wealth of the already wealthy, then let the global open competition continue until we are all impoverished vassals of the giant corporations. For the individual worker, making a “profit” translates as home ownership, financial security, buying a car, paying for children’s future education and health care, etc. For the Freakonomics columnist it apparently translates as “waste” because the rock bottom price was not paid.
The apochryphal story of Henry Ford’s threat to the autoworkers’ union that he would automate the production lines, thus throwing them all out of work, was appropriately answered by Walter Reuther of AFL-CIO fame: “Then who’s going to buy your @#%$* cars?” Could there be a more appropriate comment for today?
As a small business owner, I do not want preferences or protectionist policies. I just want to be asked. I have found that I am just as able to compete locally with the national big box companies and the out of town professionals. But many times local government gets into a rut and locks out the local guy. Just ask, you might be surprised.