Increased Welfare And Protectionism?

[Tigermike 4,329]

Did you know there’s the “Buy American” clause in the stimulus bill. It would require government to be restricted to goods and services produced by US companies.

When you first hear it, that sounds wonderful. Our government should buy from American firms if it can. But only if they provide the best services/products at the best price.

But that’s not what is being required. And to the rest of the world, that means protectionism. We don’t take very kindly to protectionism when others do it, so we shouldn’t be particularly surprised when they aren’t any more happy about it than we are.

So the obvious reaction by the rest of the world would most likely be to reciprocate in kind. We would see the same sorts of provisions pop up in countries we trade with.

And not as obvious is the fact that it will end up making the American goods the government is required to buy even more expensive than now.

YES WE CAN!! have a global depression if we really continue to work at it…

February 1, 2009

I used to be optimistic about the capacity of our political leaders and central bankers to avoid the policy mistakes that could turn the current global recession into a deep and lasting global depression. Now I’m not so sure.

I used to believe that the unavoidable protectionist and mercantilist rhetoric would not be matched by protectionist and mercantilist deeds. Protectionism was one of the factors that turned a US financial crisis into a global depression in the 1930s. Protectionism imposes large-scale structural sectoral dislocation, as exporters are ejected from their foreign markets and domestic producers that depend on cheap imported imports suddenly find themselves to no longer be competitive, on top of the global effective demand failure we are already suffering from.

I used to believe that our central bankers would overcome their natural conservatism, caution and timidity to do what it takes to bring to bear the full measure of what the central bank can deliver on a disfunctional financial sector and on a depressed economy, at risk of deflation. Now I’m not so sure. While the Fed is turning on most of the taps (albeit in a unnecessary moral hazard-maximising way), the Bank of England and the ECB are falling further and further behind the curve. What the Bank of Japan does, no-one fully understands, and I will observe a mystified, if not respectful silence.

I used to believe that our fiscal policy makers would, when faced with a combination of national and global disaster, manage to come up with a set of national fiscal packages that would be modulated according to national fiscal spare capacity and that would be designed not only to boost domestic and global demand but also to eliminate or at any rate reduce the underlying global imbalances that are an important part of the story of this global crisis. Instead we find the US engaged in fiscal policies that will aggravate the underlying global imbalances.

Protectionism

The odious US House of Representatives has tagged a Buy American clause onto the Obama administration’s $819 bn (or more) fiscal stimulus bill. If this were to become law, US federal spending would, wherever possible, be restricted to goods and services produced by US companies. The main promotor of this act of global economic vandalism was the US steel industry, but other import-competing industries have lobbied also. It is quite likely that the Buy American net will be cast even more widely when the Senate gets its turn at the fiscal stimulus act.

There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly. Because this disastrous US Congressional actions follows so closely on Treasury Secretary Geithner’s declaration that China is manipulating its currency, it is essential that the Obama administration draw a clear line in the sand. If anything like the Buy American clause inserted by the House survives in the bill president Obama gets on his desk, he must veto it. The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.

The US is not alone in moving down the protectionist track. Since the last G20 meeting (with its unanimously endorsed call to avoid protectionism), virtually all the emerging market member nations of the G20 have introduced or announced protectionist measures.

In the UK, prime minister Gordon Brown is reaping the protectionist storm he sowed with his infamous protectionist and xenophobic call for “British jobs for British workers”. What was he thinking? Follow the logic: ‘British jobs for British workers’,'Scottish jobs for Scottish workers’ (along with ‘It’s Scotland’s oil’), ‘Welsh jobs for Welsh workers’ and ‘English jobs for English workers’. Why not London jobs for London Workers, or London jobs for native-born London workers, or even London jobs for white Christian native-born London workers?

How divisive can you get? British workers are demonstrating against workers from elsewhere in the EU - Italian and Portuguese workers are currently at the centre of a rather disgusting series of altercations at UK oil refineries, gas terminals and power stations, following a dispute at Total’s oil refinery at Killinghome in Lincolnshire, where an Italian engineering company was bringing its own staff from Portugal and Italy for a egnineering construction project.

Under British law, conforming to EU Treaty obligations, there are no jobs earmarked for British workers in Britain. With the exception of some transitional arrangements for workers from new member states and a few jobs where nationality still matters for national security or similar reasons, any EU worker can compete freely with any other EU worker in any EU country. So Italian and Portuguese workers can be brought in to complete a contract in the UK if this makes commercial sense to the contractor, just as British workers can compete, individually or as part of team of workers, under the excellent Posted Workers Directive, for jobs and projects in the rest of the EU.

I feel some sympathy for British workers who, because of the poor state of the British educational system, and the lamentable state of foreign language education in particular, are less competitive outside the UK than workers from elsewhere in the EU are in Britain. But that is another argument (if one were needed) for doing something about educational standards in British (and more specifically in English) secondary schools, not an argument for denying workers from elsewhere in the EU the right to compete for work in the UK.

The protectionist tide in Britain is rising. £2.3 bn worth of state aid to the British-based car manufacturers is unlikely to be the last state aid with protectionist consequences. Britain has company, of course, with the US, France, Germany and Sweden among the countries announcing measures to prop up their automobile manufacturers.

Financial protectionism is on the rise everywhere. This is partly the inevitable result of the belated discovery of the truth that cross-border banking must be severely restricted as long as regulation, supervision and tax-payer-financed bail-out support for banks is arranged at the national level. The post-crisis world will no longer have cross-border branch banking, with the foreign branches controlled by the parent, its depositors guaranteed by the parent, home country regulation and supervision and no independent capitalisation. Instead we will have just independently capitalised and financially ring-fenced subsidiaries (no Lehman UK last-minute raid by the failing parent on the local kitty), with host country regulation and supervision, deposit guarantees provided by the host country and with fiscal bail-out support provided by the host country Treasury or by no-one.

Beyond this unavoidable re-nationalisation or repatriation of cross-border banking and cross-border financial intermediation generally, there have been other, quite unnecessary manifestations of financial protectionism, in the UK and elsewhere. In the UK, banks involved in the government’s recapitalisation scheme, or benefiting from the ever-expanding range of liquidity facilities and guarantees provided by the Bank of England and the Treasury, are being pressured to lend to SMEs and to households and to exercise patience and leniency in their dealings with over-extended residential mortgage borrowers. It is clear - not surprisingly as the British tax payer is ultimately underwriting all these schemes - that only lending to British SMEs and British households and forbearance vis-a-vis British residential mortgage borrowers is expected and demanded. And the banks are responding. Foreign lending by British banks is way down. So, of course, are foreign deposits in, loans to and investment in British banks.

The world is engaged is an accelerated form of financial de-globalisation. With banks short of capital and having to retrench, their foreign activities will be the first to suffer and the ones to suffer most. Government pressure and conditionality re-inforce the natural tendency of headquarters to withdraw the legions from the periphery of the empire to defend Rome when the barbarians are at the gate. It doesn’t help, of course, when the barbarians are already inside the gate.

The hypocrisy and chutzpah of politicians knows no bounds. In Davos, UK prime minister Gordon Brown - the same man who launched the ‘British jobs for British workers’ missile and who leads a government that is brow-beating British banks to favour domestic lending over foreign lending - pontificated about the dangers of protectionism in general and the need to stand up to financial protectionism in particular. He is right to be worried about financial protectionism. The coming re-patriation of cross-border banking will affect London more than any other financial centre.

This isn’t progress “as written”. For such a “progressive” administration, it is a return to the 20th century, and in the case of trade, the 19th century.

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(It's long so I left most of the article out, but it's very interesting.)

Conclusion

We can go down in history as the generation that created the Great Depression of the Noughties. Just keep on beating the protectionist drums. Keep on the footdragging that prevents effective qualitative and quantitative monetary policy easing in the Eurozone and the UK. And go ahead with unsustainable fiscal stimuli in the US, the UK and elsewhere that will spook markets, push up long-term interest rates and raise the spectre of sovereign default by countries not belonging to the group of usual suspects. Yes we can! I hope we won’t.

link

This isn’t progress “as written”. For such a “progressive” administration, it is a return to the 20th century, and in the case of trade, the 19th century.

[TigerHeat 9]

Did you know there’s the “Buy American” clause in the stimulus bill. It would require government to be restricted to goods and services produced by US companies.

When you first hear it, that sounds wonderful. Our government should buy from American firms if it can. But only if they provide the best services/products at the best price.

But that’s not what is being required. And to the rest of the world, that means protectionism. We don’t take very kindly to protectionism when others do it, so we shouldn’t be particularly surprised when they aren’t any more happy about it than we are.

So the obvious reaction by the rest of the world would most likely be to reciprocate in kind. We would see the same sorts of provisions pop up in countries we trade with.

And not as obvious is the fact that it will end up making the American goods the government is required to buy even more expensive than now.

YES WE CAN!! have a global depression if we really continue to work at it…

February 1, 2009

I used to be optimistic about the capacity of our political leaders and central bankers to avoid the policy mistakes that could turn the current global recession into a deep and lasting global depression. Now I’m not so sure.

I used to believe that the unavoidable protectionist and mercantilist rhetoric would not be matched by protectionist and mercantilist deeds. Protectionism was one of the factors that turned a US financial crisis into a global depression in the 1930s. Protectionism imposes large-scale structural sectoral dislocation, as exporters are ejected from their foreign markets and domestic producers that depend on cheap imported imports suddenly find themselves to no longer be competitive, on top of the global effective demand failure we are already suffering from.

I used to believe that our central bankers would overcome their natural conservatism, caution and timidity to do what it takes to bring to bear the full measure of what the central bank can deliver on a disfunctional financial sector and on a depressed economy, at risk of deflation. Now I’m not so sure. While the Fed is turning on most of the taps (albeit in a unnecessary moral hazard-maximising way), the Bank of England and the ECB are falling further and further behind the curve. What the Bank of Japan does, no-one fully understands, and I will observe a mystified, if not respectful silence.

I used to believe that our fiscal policy makers would, when faced with a combination of national and global disaster, manage to come up with a set of national fiscal packages that would be modulated according to national fiscal spare capacity and that would be designed not only to boost domestic and global demand but also to eliminate or at any rate reduce the underlying global imbalances that are an important part of the story of this global crisis. Instead we find the US engaged in fiscal policies that will aggravate the underlying global imbalances.

Protectionism

The odious US House of Representatives has tagged a Buy American clause onto the Obama administration’s $819 bn (or more) fiscal stimulus bill. If this were to become law, US federal spending would, wherever possible, be restricted to goods and services produced by US companies. The main promotor of this act of global economic vandalism was the US steel industry, but other import-competing industries have lobbied also. It is quite likely that the Buy American net will be cast even more widely when the Senate gets its turn at the fiscal stimulus act.

There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly. Because this disastrous US Congressional actions follows so closely on Treasury Secretary Geithner’s declaration that China is manipulating its currency, it is essential that the Obama administration draw a clear line in the sand. If anything like the Buy American clause inserted by the House survives in the bill president Obama gets on his desk, he must veto it. The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.

The US is not alone in moving down the protectionist track. Since the last G20 meeting (with its unanimously endorsed call to avoid protectionism), virtually all the emerging market member nations of the G20 have introduced or announced protectionist measures.

In the UK, prime minister Gordon Brown is reaping the protectionist storm he sowed with his infamous protectionist and xenophobic call for “British jobs for British workers”. What was he thinking? Follow the logic: ‘British jobs for British workers’,'Scottish jobs for Scottish workers’ (along with ‘It’s Scotland’s oil’), ‘Welsh jobs for Welsh workers’ and ‘English jobs for English workers’. Why not London jobs for London Workers, or London jobs for native-born London workers, or even London jobs for white Christian native-born London workers?

How divisive can you get? British workers are demonstrating against workers from elsewhere in the EU - Italian and Portuguese workers are currently at the centre of a rather disgusting series of altercations at UK oil refineries, gas terminals and power stations, following a dispute at Total’s oil refinery at Killinghome in Lincolnshire, where an Italian engineering company was bringing its own staff from Portugal and Italy for a egnineering construction project.

Under British law, conforming to EU Treaty obligations, there are no jobs earmarked for British workers in Britain. With the exception of some transitional arrangements for workers from new member states and a few jobs where nationality still matters for national security or similar reasons, any EU worker can compete freely with any other EU worker in any EU country. So Italian and Portuguese workers can be brought in to complete a contract in the UK if this makes commercial sense to the contractor, just as British workers can compete, individually or as part of team of workers, under the excellent Posted Workers Directive, for jobs and projects in the rest of the EU.

I feel some sympathy for British workers who, because of the poor state of the British educational system, and the lamentable state of foreign language education in particular, are less competitive outside the UK than workers from elsewhere in the EU are in Britain. But that is another argument (if one were needed) for doing something about educational standards in British (and more specifically in English) secondary schools, not an argument for denying workers from elsewhere in the EU the right to compete for work in the UK.

The protectionist tide in Britain is rising. £2.3 bn worth of state aid to the British-based car manufacturers is unlikely to be the last state aid with protectionist consequences. Britain has company, of course, with the US, France, Germany and Sweden among the countries announcing measures to prop up their automobile manufacturers.

Financial protectionism is on the rise everywhere. This is partly the inevitable result of the belated discovery of the truth that cross-border banking must be severely restricted as long as regulation, supervision and tax-payer-financed bail-out support for banks is arranged at the national level. The post-crisis world will no longer have cross-border branch banking, with the foreign branches controlled by the parent, its depositors guaranteed by the parent, home country regulation and supervision and no independent capitalisation. Instead we will have just independently capitalised and financially ring-fenced subsidiaries (no Lehman UK last-minute raid by the failing parent on the local kitty), with host country regulation and supervision, deposit guarantees provided by the host country and with fiscal bail-out support provided by the host country Treasury or by no-one.

Beyond this unavoidable re-nationalisation or repatriation of cross-border banking and cross-border financial intermediation generally, there have been other, quite unnecessary manifestations of financial protectionism, in the UK and elsewhere. In the UK, banks involved in the government’s recapitalisation scheme, or benefiting from the ever-expanding range of liquidity facilities and guarantees provided by the Bank of England and the Treasury, are being pressured to lend to SMEs and to households and to exercise patience and leniency in their dealings with over-extended residential mortgage borrowers. It is clear - not surprisingly as the British tax payer is ultimately underwriting all these schemes - that only lending to British SMEs and British households and forbearance vis-a-vis British residential mortgage borrowers is expected and demanded. And the banks are responding. Foreign lending by British banks is way down. So, of course, are foreign deposits in, loans to and investment in British banks.

The world is engaged is an accelerated form of financial de-globalisation. With banks short of capital and having to retrench, their foreign activities will be the first to suffer and the ones to suffer most. Government pressure and conditionality re-inforce the natural tendency of headquarters to withdraw the legions from the periphery of the empire to defend Rome when the barbarians are at the gate. It doesn’t help, of course, when the barbarians are already inside the gate.

The hypocrisy and chutzpah of politicians knows no bounds. In Davos, UK prime minister Gordon Brown - the same man who launched the ‘British jobs for British workers’ missile and who leads a government that is brow-beating British banks to favour domestic lending over foreign lending - pontificated about the dangers of protectionism in general and the need to stand up to financial protectionism in particular. He is right to be worried about financial protectionism. The coming re-patriation of cross-border banking will affect London more than any other financial centre.

This isn’t progress “as written”. For such a “progressive” administration, it is a return to the 20th century, and in the case of trade, the 19th century.

,,,,,,,,,,,,,

,,,,,,,,,,,,,,,

,,,,,,,,,,,,,,,,,,

(It's long so I left most of the article out, but it's very interesting.)

Conclusion

We can go down in history as the generation that created the Great Depression of the Noughties. Just keep on beating the protectionist drums. Keep on the footdragging that prevents effective qualitative and quantitative monetary policy easing in the Eurozone and the UK. And go ahead with unsustainable fiscal stimuli in the US, the UK and elsewhere that will spook markets, push up long-term interest rates and raise the spectre of sovereign default by countries not belonging to the group of usual suspects. Yes we can! I hope we won’t.

link

This isn’t progress “as written”. For such a “progressive” administration, it is a return to the 20th century, and in the case of trade, the 19th century.

The One can't even get his adoring fans in Eurabia to get on the team:

OOOOOOOObama

[arnaldoabru 11]

If he were to rename them "Freedom Fries" you guys would be loving it.

[Tigermike 4,329]

If he were to rename them "Freedom Fries" you guys would be loving it.

Yeah but you guys really like it that Obama is trying to out socialist the French.