On McGuinty and Buy American

I am quite concerned with the legislation that is working its way through the US Senate which would require all companies receiving U.S. bailout or stimulus monies to use U.S. suppliers.  This could throw a number of Canadian industries from auto to even forestry a serious curve ball.  On a broader philosophical level, many economists believe that U.S. isolationism during the Great Depression significantly worsened and lengthened that downturn. Obama’s own economic advisors have said as much but he has a huge Democratic Senate to deal with.

On one hand, I sympathize with the Buy American thinking.  You have thousands of manufacturing firms and suppliers in the industrial heartland cutting back and even closing their doors – why allow Canadian, Mexican and Chinese goods to be brought in with U.S. taxpayer funds (bailout or stimulus monies)?

But on the other hand, the USA has been the big winner in the globalization trend.  For every one job lost in a manufacturing or service industry, there have been five created in high tech and specialized service industries.  America has harvested millions of lower value added jobs and added tens of millions of higher value jobs. 

That does nothing to stop the fuming by Lou Dobbs and his hordes.  They either don’t by the argument (lose one, gain five) or they ignore it altogther.

I was thinking tonight it is a lot like Ontario Premier Daulton McGuinty.  The ‘system’ in Canada for the past 20 years (far more than that but let’s stop at 20 here) has led to unbelieveable economic growth in Ontario (particularly in the Ottawa to Windor Corridor) and the quid pro quo for that has been some scraps sent down east in the form of increased EI, Equalization and CHT transfers.  McGuintly, again the Dobbs parallel, doesn’t see the “give us all the jobs and you take the scraps” argument.  He just sees the scraps going to Atlantic Canada and thinks that is unfair.

The parallel between Dobbs and McGuinty is not as threadbare as you might think.  If they spent less time fulminating over the unfairness of the system and more time studying it, they might just understand that little 80/20 rule.

13 thoughts on “On McGuinty and Buy American

  1. Computers Woodstock-based Barrett Xplore will have the contract to bring the Net to the final 10 per cent of the province
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  2. That’s actually not true at all, link those ‘economists’ that believe the depression was worsened by US isolationism. That’s ridiculous and is a media fantasy that was thrown around by Fox and some die hard right wing pundits. It was based on a VERY bad paper by one guy, can’t remember his name but he gave a talk at the Carnegie Council and it was absolutely insane-and his audience quickly poked a million holes in it. It’s been thrown around so much in the media that many (like here) have picked it up to help make a point, but false data doesn’t make a valid point.

    It’s completely crazy to claim that our economy hasn’t suffered from being able to import cheap crap from the rest of the world. Canada is the largest ‘foreign owned’ economy in the world, no other country has sold out to the level Canada has. This blog shows what happens when there is almost a zero manufacturing base.

    When you talk about NAFTA, you are making the same mistake as when you claim the US has been ‘big winners’. And thats to forget class distinctions. As Richard said on the next post, if you’re a civil servant or public servant then you are doing just fine. But that’s not the majority of workers. Remember that when you state that incomes are 20 grand higher in ontario you are talking about AVERAGES.

    Like the US, Ontario saw a lot wealth creation-keep in mind that in these last few years much of that has come from the increasing privatization of public services like health care and road maintenance. But for regular canadians it is the same as for the majority of americans-REAL wages haven’t changed since the eighties (OK, in the states its been since the seventies, but same idea).

    Why do readers think that ‘buy local’ programs have spouted up all over the country? Let’s use a quick example, say there were a law stating that HALF of Wal Mart or department store products like clothes HAD to be manufactured in the province. What would happen? Well, first of all, the Yarn companies in the north would still be in business, and second, there would be TONS of new jobs in clothing manufacture and design. In fact that would instantly build a new industry in the north, a cottage industry because NB is a small province, but a cottage industry is better than NO industry.

    Now, the argument usually goes “yeah, but what if EVERYBODY did that”. First, that assumes that there isn’t enough of a market in NB to keep a clothing industry in business-but that of course depends on how many suppliers ‘turn up’. Second, we know for a fact that few governments are that proactive and WOULD do such a thing. Which means there’s your competitive advantage. As that supply chain builds up, it becomes cheaper and more efficient, costs go down and then US and Canadian opportunities open up the next time oil hits 1.35 a litre. However, in some ways thats bad, if the industry stayed just big enough to serve local markets, then there are no worries that it would get too big to suffer from export sales. Third, like I said, the legislation would only cover HALF the products, so there is still the ‘dirt cheap slave labour’ crap available, but as other costs go down that would be phazed out.

    In other words its win-win-win. There is simply no way to argue that this ‘isolationism’ somehow ‘worsens a depression’ or recession, or that it isn’t GOOD for a local economy. There’s no doubt there are benefits to trade, nobody is arguing that, but ‘trade’ is such a complicated issue that the word is meaningless.

    Even AIMS and Brian Crowley are picking up on this and changing their terminology. The latest quote from Crowley is that trade is “not just a matter of economics, but one of the most important manifestations of human freedom, and that barriers to trade impoverish us in an economic sense that is relatively trivial, and impoverish us in a moral and spiritual and institutional sense in ways that are far from trivial.”

    In other words, even if trade screws you blue economically, that’s not so important because its fulfilling you spiritually and morally. And THIS guy is lead atlantic adviser to the Prime Minister. I’m always surprised that to be derogatory the claim ‘loony left’ is still used, I mean, you don’t get much crazier than that quote. Perhaps the churches should be set up as bazaars and people should be swapping coats and shoes in the name of the lord.

  3. Not all of us are as smart as you. The rest of us look at record levels of job growth, standard of living growth, the widespread reduction in poverty around the world, etc. after the emergence of freer trade around the world and consider it on the whole a good thing. You can zoom in on the displacement of certain classes of workers and like Lou Dobbs cry failure but you don’t offer any real alternatives. I won’t link to ‘economists’ – I can’t take the time but I have listened to no less than a dozen podcasts on the subject in just the past year.

    As for the Great Depression, you don’t have to agree with me but I have actually completed some research on this subject and there is far more than just one guy that says isolationism in that period prolonged and deepened the depression and you can use all the inflated rhetoric you want to dispute it – that’s your right.

  4. I think it is fairly well established that the Smoot-Hartley tariff act made it more difficult for international trade during the Depression. How big a factor it was, I can’t say, but it certainly did not help in the recovery effort.

    If there is a rational critique to be made of the globalization of trade, I’d say that it is that capital and profits have flown about fairly freely, but labour laws and environmental standards are still locally determined and enforced. I think it is fair to ask that nations participating in NAFTA or WTO meet reasonable standards in labour rights, human rights and environmental protection, and that effective enforcement mechanisms be in place for these protections. At this point, we can’t even get reasonable trade dispute mechanisms in place for NAFTA, so we have a ways to go.

  5. mikel you make some good points in the comments quite often, but you are way, way off-base here. So off base you are out of the ballpark i think.

  6. Well, you can’t please everybody. Richard makes some good comments, but again, simply show the PROOF of such a statement. Show what papers or studies have said that.

    The problem is what Crowley exemplifies, for so many years ‘trade’ (and a very specific kind of trade) has been raised to a ‘religious mantra’ that is supposedly ‘self evident’. It’s of course absurd, as just a moment’s thought shows. IF there were a system of ‘real’ trade that did what Richard says, and had environmental and labour laws and also, I’d add, respected collective and individual rights then that would be different. If corporate rights didn’t supercede all other rights, and on and on. In other words…if everything worked well then everything would work well.

    It’s so self evident that now governments are starting to recognize it. Legislation in the US is going to force any company that deals with the government to ‘buy american’. Stockwell Day was on CBC talking about impeding ‘trade wars’. It’s so self evident it explains why so few post here-IF India and China can supply virtually EVERY product and service you could need or want for a fraction of the price-then how exactly do you expect to operate an economy? David mentions autos all the time, what about when China and Mexico can produce enough autos for the world? What about when they know enough english and french and technology enables them to do EVERYTHING individuals do in the New Brunswick (or any) economy?

    Trade of course doesn’t HAVE to be that. If I make clothes and you make food, then it makes sense to trade my excess clothes for your excess food. That translates to countries as well, however, you’d have to be crazy to think that that is what international trade means. In fact lots of it isn’t trade at all, if Irving ships product over to Maine for any kind of processing its called ‘trade’ and ‘exports’, even though its technically not either, if it gets shipped back its called imports. In the US, inter corporate movements, its said, account for close to 40% of what is called ‘international trade’.

    But for the main idea, its simply impossible to posit a ‘what if’ in economics. Economics can’t even predict FUTURE events let alone alternate historical realities. So for a parrallel, lets use the ‘Jones Act’, that ‘barrier to trade’ that forces ships that use american ports to have american crews. It certainly hasn’t raised prices for americans, certainly hasn’t hurt them any. It has hurt US plenty, as Crowley will tell listeners over and over again. A tariff will hurt an importer, but it implies that there is no comparible inter country provider. In other words, IF an american company can provide a product cheaper, that prohibits the importer from passing on the effects of the tariff to the consumer. So its ‘win win’ for the country itself, which is of course why we’re hearing about a trade war.

  7. “Show what papers or studies have said that”

    Look it up for yourself. This is ‘received wisdom’ in economics; that might not make it true, but there are several studies showing a range of effects, from being largely responsible for prolonging the Depression to having a slight to moderate effect. The latter is probably closer to the truth, as global trade was much less important to the US as a factor of gnp than it is now.

    Generally, its important to review the data first, then formulate your position or hypothesis. Not the other way ’round.

  8. “What about when they know enough english and french and technology enables them to do EVERYTHING ”

    Presumably, their incomes would be then so high that they would price themselves out of manufacturing and have to rely on services, like so many of us here in NA.

    “Economics can’t even predict FUTURE events..”

    Not sure if the problem there is economics per se, or perhaps its just the economists we now have on hand.

    “So for a parrallel, lets use the ‘Jones Act’,”

    I believe that this act applies to shipments between US ports, not the general shipping of goods into US ports from abroad. According to some, this act has greatly increased the cost of shipping between US ports and weakened US shipping firms. In any event, its doubtful that it is relevant to global trade to any great degree. Not much of a parallel.

  9. I have a personal rule that I don’t try to argue too strenously things I don’t know much about. My observations on the Great Depression and even on Daulton McGuinty are not based on detailed subject matter expertise but rather general kwowledge. It seems that Richard has far deeper knowledge and his thinking on this seems sound.

  10. That’s a bad presumption. Why would their incomes be so high? Workers in Mexico aren’t making any more than they were ten years ago. In China the vast majority live below what we’d consider to be the poverty line, in India they still make poverty wages even though they are doing services. A call centre in India is a ‘service’ industry. Even in New Brunswick a call centre employee only tends to make 10 bucks an hour, that’s probably LESS than when call centres were first set up.

    For the second, are you saying that with ‘better’ economists we’ll be able to predict economic behaviour in the future? You CAN”T be serious (and the guy above thinks I”M out of the ball park:)

    For the Jones Act, again, according to WHO. It does regulate cabotage between US ports, that was my point. So how exactly has this ‘weakened US shipping firms’? No other country has such restrictions, so it doesn’t hurt them abroad, they can still buy and sell their ships dirt cheap.

    If it WEREN”T relevant to global trade then you wouldn’t see Brian Crowley talking about it all the time, and wasn’t it HERE that David was talking about inter country shipping and the importance of ports for global trade?

    But the first post was essentially a cop out. Like I’ve said, I’ve DONE the searches, they aren’t based on economics but on ‘economic punditry’. So lets say this, find me ONE paper that makes this claim and we can go from there. It is most certainly NOT ‘recieved wisdom’, if by that you mean its something most economists take for granted. It may be what some new grads are trying to spin out, again, for the political reason of trying to make sure that the current administration doesn’t try to actually implement policies that help workers. You’ll see it lots on the Fox network, but no economist worth his salt would be making claims like that (again, because it simply can’t be proven, in fact the variables can’t even all be quantified). In fact, find me ANY economic study that makes ANY sort of similar claim-that decision X in 1945 ‘resulted’ in conclusion Y, and that decision Y would have resulted in a ‘better’ conclusion. There are simply too many variables that have to be ‘assumed’ for such a study to make ANY sense, which of course makes it completely worthless.

  11. The article that spawned the book was written by Harold Cole, from UCLA. It’s ironic that I think its Richard who is always deriding university professors as ‘idealogues’, but rather than get into it, suffice it to say that the phrase “This paper develops a theoretical model of these policies, and uses it to quantitatively
    evaluate their macroeconomic effects” explains it all. In ‘theory’ of course, anything is possible, and economics is NOT like physics or chemistry. A scientific theory is proven true by its applicability and how well subsequent tests are explained by it. Just one quick example is the ‘assumption’ that high wages (relatively) CAUSED high prices and therefore low demand, even though the paper admits Roosevelt’s main policies only lasted two years before being declared unconstitutional. Yet Norway and most of europe have high wages, high prices, yet they do not suffer from the low demand that is claimed protracted the depression. In economics one can find data to say just about anything, which is why serious economists are like serious historians, they study the past and what actually happened, they don’t make conjectures on what MAY have happened ‘if’.

  12. “It does regulate cabotage between US ports, that was my point. ”

    I don’t beleive that was your point at all. I will leave it as an exercise to you to study the analyses that have been done on the negative impact of this act on US shipping.

    “you wouldn’t see Brian Crowley talking about it all the time”

    Perhaps we can agree that Mr Crowley is not worth listening to. Why you bother is a mystery to me.

    “Like I’ve said, I’ve DONE the searches”

    ..but not the research. Google Scholar will find some of those articles.

    “something most economists take for granted”

    In fact, economists do take the negative impact of Smoot Hartley for granted. Where they differ is on the scale of the effect – very large or quite small. Again, as I indicated above, I am not sure the debate is even relevant, given the impact of international trade on the US then vs now.

    “What about when they know enough english and french and technology enables them to do EVERYTHING ”

    That was your previous remark; why are you now talking about call centres. If Mexicans could do EVERYTHING and do it more cheaply than anyone else, their economy would grow and labour shortages would develop. Just as has happened throughout SE Asia over the past few decades. When labour shortages occur, wages tend to go up. Is there anywhere that has not happened?

    “Harold Cole, from UCLA.”

    Never heard of him. Again, I believe you are misreading my previous posts.

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