The Peterson Institute's report entitled 'Buy American: Bad for Jobs, Worse for Reputation' (
http://www.petersoninstitute.org/publications/interstitial.cfm?ResearchID=1114 )
which proclaims that Mr. Prez Obama's stimulus package should be cleansed of the pollution of 'buy american' measures, is apparently the Bible of the movement opposed to the 'buy american' measures in the stimulus package, a movement Prez Obama has apparently just recently joined. This despite the fact that during the presidential campaign less than one year ago, Prez Obama scored with voters by condemning McCain because McCain was against some 'buy American' initiative with regards to US govt procurement of motorcycles. And guess who Prez Obama's right-hand man will be in exorcising the 'buy American' legislation? None other than his opponent, Senator McCain. I guess I'm not smart enough to see how you can have a democracy when politicians in the heat of a campaign vehemently support one thing, and then three months later when in office vehemently support the opposite of what they supported during the campaign.
It seems to be the case, that President Obama in proclaiming his disdain for the 'buy american' provisions in the stimulus package, was parroting the Peterson Institute, as if the Peterson Institute is prez Obama's tag-team partner in an assault on so-called 'protectionism'. The president's statements were apparently made immediately after the Peterson Institute released its report; for days prior to the President's rejection of the 'buy American' provisions, the report's authors had been proclaiming anti-'buy American' summaries of what is in their report.
"As the (Wall St) Journal notes, a study out today from the Peterson Institute for International Economics found that the provision would cost many more jobs than it creates."
--
http://www.cbsnews.com/blogs/2009/02/04/politics/politicalhotsheet/entry4775674.shtml "A study released Tuesday by the centrist Peterson Institute for International Economics in Washington concluded that the provision would likely cost far more jobs than it created."
--
http://online.wsj.com/article/SB123370411879745425.html?mod=googlenews_wsjIt is astonishing how amateurish this Peterson report, which has become the bible of the anti-'buy american' movement, is. It's amazing that the "Think Tank and Civil Societies Program at the University of Pennsylvania" (Jan 2009) rated the Peterson Institute as the "top think tank in the world".
The Peterson Institute report, simply throws out projections regarding how US exports could be reduced by foreign retaliation for the US enacting 'buy American' measures; and, based on this alone, it concludes that the "buy american' provision in the stimulus bill is "bad for (American) jobs".
Problem with this is that any fool could (like the Peterson report) dream up massive trade retaliations that the world could inflict on the US, and that would more than cancel out whatever advantages the US gained through 'protectionism', and on this basis conclude that the 'protectionist' measure in question is a 'bad' idea.
It is simply irrational to say that since it is possible thgat disproportionate retaliation can be taken by an involved party when it comes to so-called 'trade wars', therefore all trade-barrier increasing acts are foolish.
Of course it is possible that the world could retaliate against US economic nationalism, hitting the US much harder than the US has hit it. However to say that this means the US should not hit the world with some economic nationalism, is illogical. If the foreign nations did indeed hit the US with disproportionate retaliation, the US could take appropriate counter-measures. The fact that the US is able to take such counter-measures, would impair the tendency to hit back at the US disproportionately.
The Peterson Inst report keeps saying: "if this 'buy American' provision is enacted the world COULD retaliate by reducing US exports to the world by 1 billion, the world MIGHT retaliate by reducing US exports to the world by 10 billion, the world COULD retaliate by reducing US exports to the world by 100 billion; since the world COULD and MIGHT do these things, therefore the US should not enact economically nationalist 'buy American' provisions in the stimulus package. This line of argument is obviously foolish.
The elephant in the room is the fact that over the past 30 years the US net international investment position has declined from plus two trillion to negative one trillion; simultaneously with this, the US had been running gigantic trade deficits as a result of continual reduction of trade restrictions. Obviously, the reductions in trade barriers have economically damaged the US at the expense of the world (we ignore for now the negative effects trade liberalization has had on the world). It is lunacy to ignore this elephant in the room, and to instead focus on amateurish, childish arguments such as those presented by the Peterson Institute's authors.
Obviously, reduction of trade barriers has economically damaged the US while in the aggregate economically benefitting the world. This indicates that obviously, one could expect an increase of trade barriers to benefit the US at the expense of the world.
Obviously the Peterson Institute report is wrong to ignore the general history of the past 30 years and imply that increases in trade barriers always have equivalent effects on the US and on the world, or hurt the US more than they hurt the world, simply because a tit can be retaliated for with a tat and a tat can be retaliated for with a tit, tit for tat fashion. The fact that the world is capable of retaliating against economic nationalism, does not prove that the US is incapable of improving its position through the use of trade restrictions.
Things get to the point where the world's tit for tat fails to negate the advantages the US gains through economic nationalism. The fact remains that when trade barriers were higher, the US net international investment position, the US economic health, was far superior to what it is today. It is reasonable to believe that although the world can retaliate with tits for US tats, nevertheless the US by piling tat upon tat can climb out of its disadvantageous position.
Although relatively insignificant 'protectionist' measures taken by the US can be equivalently retaliated against by the world, nevertheless, the cumulative effect of several 'insignificant' measures together, can produce advantage for the US vis a vis the world.
The Peterson Institute's 'Bad for Jobs, Even Worse for Reputation' report attempts to estimate the amount of money foreign governments spend importing from the US as follows: (foreign govt ABC spending on goods & svcs as % of gdp) times (foreign nation ABC imports of US goods & svcs) equals (estimated $ spent by foreign govt ABC on US goods & svcs). In doing this they blythely assume, that for govt the percentage of total money spent that is spent on imports is the same as the percentage of total money spent on imports in the private sector --this despite the fact that even though data they themselves provide in their report (they state that 4% of the money the US govt spends on manufactured goods is spent on imports), indicates that governments spend a very different percent of their expenditures on imports compared to the general public. This is the best that the 'world's best think tank can do'? This is supposed to over-ride the elephant in the room which is the changes in US NIIP corresponding with trade liberalization?
Indications are that the total spending to purchase of imports ratio varies widely from nation to nation; and, the ratio of the percent of govt spending that is spent on imports compared to the percent of public spending that is spent on imports varies widely from nation to nation. The Peterson study estimates ignore such variation.
The Peterson report attempts to predict how much foreign govts spend consuming imports from the US, based on the percentage of total national spending in a given nation that is government spending. This is unworkable however, because many nations import more than they consume from all sources combined. This being the case, one cannot simply assume, that for example if govt of nation ABC spends 10% of the GDP of nation ABC, therefore the govt of ABC consumes 10% of the imports. The private sector does not consume all that it imports--the private sector uses imports to produce exports also. Therefore to say that since a nation imports 100 billion dollars of goods and services it consumes 100 billion dollars of goods and services, is inadmissible. When a nation imports 100 billion of goods and services, it consumes less than 100 billion of goods and services. Nations vary in terms of the imports consumed to imports purchased ratio.
The Peterson estimates ignore the fact that the ratio ofimported goods and services that are consumed to imported goods and services that are purchased in the private sector in a nation, will vary from the ratio of imported goods and services that are consumed to imported goods and services that are purchased for the government of the given nation. Since the activity of using imports to produce exports is predominantly concentrated in the private sector, government will consume a greater percentage of the imports that it spends money on, compared to the private sector. This factor in isolation indicates the Peterson Institute report underestimated the amount of money foreign governments spend on imports.
By way of contrast, the fact that nations consume only a portion of the imports they spend money on, indicates that the Peterson study overestimated the amount that foreign governments spend on imports; and the fact that in the US (according to my best estimates as of now) the money the US as a whole spends on imports amounts to 17% of total US consumption of goods and services whereas according to the Peterson study itself only 4% of the money the US government spends on manufactured goods is spent on imports, contradicts the Peterson study's assumption that the spending on imports compared to total spending ratio is the same for government as it is for the private sector.
Thus it is obvious that the Peterson report's estimates: are surprisingly off-the-wall (like some movie about a damaged airplane patched together with rubber bands) indicating an incredible (for the 'world's top think tank') lack of access to statistics re economies foreign and domestic; fail to take into account all kinds of complications; in contradiction of empirical evidence assume that changes in trade barriers effect all parties involved equally; and, are a very inadequate foundation to build public policy on--especially when compared to the elephant in the room which is: the decline in the US Net International Investment Position (NIIP) coinciding with gigantic US trade and budget deficits, which indicates that changes in level of trade restriction do not effect all parties equally.
To me this is all indicative of the fact that generally speaking, Harvard, Ivy League, types, on the negative side, tend to over-value reputation, ie, 'I saw an article in Time that said Harvard is the best so I'm going there', while they ignore important facts ie, 'how is Harvard governed?'. President Obama is an Ivy league Harvard man--and he seems overly impressed by some amateurish 'think tank' simply because some university group has named it the 'world's top think tank'.
This economic stimulus package is being paid for by future generations of Americans. Especially at a time like this with the US economy as sick as it is, I do not see how future generations of Americans can be expected to subsidize foreign economic prosperity. The US would never expect the world to sacrifice its future generations to insure US prosperity. The US has already almost bled itself to death financially so that foreign nations might benefit. Yet President Obama today was quoted as stating:
"I think it would be a mistake ...at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade (
http://uk.reuters.com/article/euIpoNews/idUKN0431144920090204)" .
Similarly (I've heard that Prez Obama wants to give grants to illegal aliens as part of the stimulus package) I fail to understand what is 'democratic', about politicians not enforcing the law and contradicting the wishes of the voters of their nation by promoting the entry of illegal aliens into their nation, and then making mutually supportive deals with such illegal aliens--to me such looks like politicians teaming up with foreigners to circumvent the will of the voters they are supposed to represent.
Relevant Links:
USDX 100 in 2000, now 71. 0.71
-- http://www.populistamerica.com/what_is_a_dollar_bill_worth
Fed broad index of dollar, down from 116 feb 2000 to 109 feb 2009 0.94
-- http://www.federalreserve.gov/releases/h10/Summary/indexb_m.txt
Fed major currencies, down 98-81 200-2009 0.83
-- http://www.federalreserve.gov/releases/h10/Summary/indexn_m.txt
Fed OITP 2000-2009 up 128-139 0.09
-- http://www.federalreserve.gov/releases/h10/Summary/indexo_m.txt
exports world total exports 13.9 trillion US exports, 1.1 trillion, 8% of total world exports.
-- http://www.nationmaster.com/graph/eco_exp-economy-exports
imports
http://www.nationmaster.com/graph/eco_imp-economy-imports
Imports per capita
http://www.nationmaster.com/graph/eco_imp_of_goo_and_ser_cur_us_percap-services-current-us-per-capita
weighted average $4884 per capita, current US dollars. Range amongst major nations: India $178, China $546, Belgium $30,000. Taking into account decline ins USDX since 2000, this would be in 2000 dollars, $3468.
expenditure per capita
http://www.nationmaster.com/red/graph/eco_hou_fin_con_exp_etc_con_2000_us_percap-constant-2000-us-per-capita
weighted average: $3350 per capita, year 2000 US dollars.
Thus, estimate of percent spent on US imports vs total spending is: 3468/3350 = 1.04 x 0.08 = 0.08 = on average, the money the world spends on imports from the US, is equal to about 8 percent of the money its households spend consuming goods and services. By way of contrast, the money the US spends on imports from the world, is equal to about 17% of the money spent by US households on goods and services (and according to the Peterson Inst, 4% of the money spent by the govt on manufactures is spent on imports).
imports as % of gdp weighted average = 46%.
http://www.nationmaster.com/graph/eco_imp_goo_and_ser-economy-imports-goods-and-services
8% Japan, 13% US, 56% Netherlands, 85% belgium
gross fixed capital formation per $GDP
http://www.nationmaster.com/red/graph/eco_gro_fix_cap_for_cur_us_pergdp-formation-current-us-per-gdp
gross fixed capital formation
http://www.nationmaster.com/graph/eco_gro_fix_cap_for_con_2000_us-capital-formation-constant-2000-us
@2009 David Virgil HobbsLabels: buy american, economic, package, peterson institute, president