“Buy America” sounds great. But it’s costly and about to rise steeply.
‘Buy American’ Policies Don’t Help Americans
Bloomberg columnist Tyler Cowen says ‘Buy American’ Policies Don’t Help Americans
“Buy American” sounds like such a good idea. The phrase itself evokes the benefits of commerce, and of America selling things, while renewed interest in industrial policy from both Republicans and Democrats increases the concept’s political appeal.
When assessing economic ideas, however, the focus should be not on vibes but on data. And a new study from the National Bureau of Economic Research indicates that Buy America provisions are costly and at best only modestly effective in creating jobs.
The concept may seem contemporary, but the Buy American Act actually dates to the Depression and was signed by President Herbert Hoover in 1933. It stipulates that, unless appropriate waivers are in place, the federal government should buy American-made goods, and at least half of the cost of production of those goods should be spent in America. More recently, the provisions of the act have been applied to the Inflation Reduction Act and the Infrastructure Investment and Jobs Act.
For obvious reasons, this has not been a controversial piece of legislation. Since US taxpayers are footing the bill, the argument goes, the money should stay in the country. US businesses are hardly going to complain. Supporters also cite national security reasons for such restrictions. But this policy comes with real costs, monetary and otherwise. The US is losing out on expertise, for one thing. Spain, for example, is a remarkably cost-efficient producer of mass transit. Would it be so terrible to bring more of that know-how directly to US infrastructure contracts? Time is another cost: Buy America provisions are holding back a high-speed rail project that has been in development in California for nearly two decades
Overall, the researchers estimate that Buy American provisions cost about $125,000 per job created, a relatively expensive investment. Depending on your politics, you may think that money would be better spent on tax cuts, or on more discretionary government spending.
Under current law, as has been supported by the administrations of both Donald Trump and Joe Biden, the domestic-content requirement is slated to rise to 75% in 2029. That is likely to raise the cost of Buy American provisions even more, especially in a world where more countries are entering the market as cost-effective producers. Furthermore, the higher that percentage, the more likely it is that the US is protecting sectors that spend their money on capital goods, rather than on US labor. Job creation or job protection is likely to dwindle accordingly. In the future, use of the program may cost between $154,000 and $237,000 per job.
The simple truth is that the standard economic case for free trade stands largely unscathed, so long as the US is willing to make appropriate national security exceptions. Reports of the death of neoliberalism are exaggerated, as is the need to throw out conventional economic wisdom. A sober look at the numbers reveals that common sense still reigns, protectionism is overrated, and an additional dose of freer trade would do us all some good.
When it comes to spending taxpayer dollars, I want government to spend as little as possible. That means competitive bidding, not high cost subsidies at taxpayer expense.
I don’t propose letting Russia, China or foreign adversaries bid on projects, especially sensitive ones. But if we insist on mass transit or high speed trains, why shouldn’t taxpayers get the most rather than the least for their money.
The screwiest thing about overpaying is that it allegedly adds to GDP. Spend $100 million on a bridge and it adds $100 million in GDP. Spend $100 billion on the exact same bridge and supposedly it adds $100 billion in GDP.
Those numbers are in nominal, not real GDP terms, but that gives you an idea of the waste.
Another $100 Billion Needed to Complete California’s Bullet Train Project
Cowen mentioned California’s high speed trains so let’s take a closer look.
ABC reports Another $100 Billion Needed to Complete California’s Bullet Train Project
When California’s “bullet train” was pitched to voters back in 2008, the cost of linking Los Angeles to San Francisco via high-speed rail was said to be about $40 billion.
But now, more than 15 years later, state officials say it’s going to cost as much as $35 billion just to complete the 171-mile stretch between Bakersfield and Merced. Completing the entire line will require an additional $100 billion.
“It’s never going to get built,” Republican State Senate Minority Leader Brian Jones said. “It’s never going to come to San Diego. It’s never going to come to L.A., and it’s always going to be $100 billion away.”
“When you put projects like this in a private enterprise… you get efficiency and you get proper planning,” he said.
The Bright Side
Some of us prefer to look on the bright side. You might be asking, “What the heck is that?”
We bought American silly, and we let government plan the whole thing. And best of all, the train will take another decade to build, at least.
That means thousands of more US jobs ongoing at $200,000 per year.
Related Posts
September 26: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
October 1: Trump vs Frederic Bastiat: Who Is Right About Tariffs?
Previously, I discussed tariffs and the trade deficit. This post is about Trump’s proposal to use tariffs to fund projects.
The Biden-Harris Administration Buried America in 1,000 Costly Regulations
In case you missed it, please see my related post The Biden-Harris Administration Buried America in 1,000 Costly Regulations
The House Committee on Oversight estimates Biden-Harris regulations will cost consumers and businesses a whopping $1.5 trillion dollars.
We need new slogans to celebrate. The lead chart is one possibility. But how about “You can get better, but you can’t pay more!”
“While the intention behind Buy American provisions is to support domestic industries and create jobs, the cost of $125,000 per job raises concerns about efficiency and effectiveness. Such a high price tag per job may indicate a need for re-evaluation of these policies to ensure taxpayers’ money is being used optimally. Are there alternative strategies that could achieve similar or better outcomes at a lower cost? Balancing economic growth, job creation, and fiscal responsibility is crucial for sustainable policymaking.”
Government is taking so much out of the pie and continues to increase the % I suprised nobody even talks about it. It’s the number one cause with this issue.
Read the Fate of Empires (1976, Sir John Glubb) online PDF. It’s but 24 (26 total) easy read pages. On page 15 into 16 read XXIV The Arab decline, especially regarding “the [negative] influence of women” (pars. 4-7). On page 24 read the Summary to cut to the quick, and especially note “An influx of foreigners.” The End of the US is nigh. It will be Very Ugly. Prepare as inclined. ☮️✝️
Seriously, how hard can it be to predict Stage iv?
From the St. Louis Fed
“… Historically, industrialization has three phases: (i) the first industrial revolution features labor-intensive mass production, (ii) the second industrial revolution features capital-intensive mass production, and (iii) the welfare revolution features mass consumption in a financial services-oriented welfare state….”
https://research.stlouisfed.org/publications/economic-synopses/2019/05/17/historical-u-s-trade-deficits
China high speed rail cost 17 to 21m$ per kilo. ( about 30m$ per mile )
For 171 miles, it will cost 5130m$ ( 5,13 billions )
In California, 35 billions for 171 miles. 6 times more.
May be land acquisiton is expensive.
Spain and Japan are competitive to China.
If US build on her own the cost will come down but takes many many years
to be competitive to China or even never.
China invested 45000 km high speed rail net work for years.
We absolutely should keep American Only.
What’s the real problem? The companies that overcharge the programs.
Perfect example. I went to Ohio State in the 90’s working my way through school with a moving company. Made about $10/hr.
A new job came in moving Les Wexner’s operations (big black square warehouses around Columbus) including Victoria’s Secret, and “somehow” it became a state “prevailing wage” project and were now paid ~$20/hr – on the state dime.
We need to crack down on this stupid corporate grift (especially cost-plus contracts) and politician favors, not reject US-first policies.
Another damned if you do, damned if you don’t. Most everyone wants to buy things for lower prices but also, most everyone is happy for everyone to be paid more. The two are in direct conflict.
And please spare me the protestations that you can take supposedly “excess” money from one group and reallocate tit to another group w/o increasing prices. The people you try to take money from are not going to allow this easily.
The ONLY solution is to automate and/or use robots/AI as much as possible, which will reduce costs.
But of course, robots not compensated don’t get taxed, so how do we pay for all the social costs to support an ever growing and aging population?
IMO, 2025 is going to being a much increased deployments of robots/automation/AI, which could lead to Luddite responses..
Automation does not result in a greater standard of living for the workers. I actually believed that when I was younger, but now I realize it’s false.
Does an auto worker today have a better standard of living than when Ford was making Model Ts?
Back when Adam Smith wrote ‘Wealth of Nations’ he specifically mentioned how well bank employees were paid. I found that interesting because that is not the case today.
Before computerization, a bank was staffed with dozens of employees presumably making white collar wages. Today, a bank is staffed with a low paid skeleton crew who barely make more than minimum wage.
We live within a Capitalist economic system. Automation isn’t intended to improve workers lives. Automation is to reduce costs of expensive laborers and return more profits to management/investors. D’oh
You argued that automation will “reduce costs” which you imply will help solve inequality without having to redistribute wealth. Re-read the first 3 paragraphs you wrote.
The high paying bank jobs were never in the branches, but in the HQ and tech development.
MMT, Modern Monetary Theory ( Modern Money Theory )
Print and distribute.
Unemployed can’t afford to buy anything however cheap.
gheessh…all the protectionist stuff from orange-man followers…remember I-pencil?
6-min video
https://www.youtube.com/watch?v=IYO3tOqDISE
Instead of a collection of distinct supply chains, our modern economy is a single globe-spanning web of interconnectedness. Within this web every output is the product of countless inputs and each kind of input typically is used to produce countless different kinds of outputs. This web of interconnectedness – the complexity of which is beyond human comprehension – is indispensable for our modern mass prosperity. Yet its existence – its ‘everything-is-connected-in-some-way-to-everything-else’ reality – means that there are no objective and clear lines separating “critical supplies” from “uncritical” ones.
“When you put projects like this in a private enterprise… you get efficiency and you get proper planning”
Here we go again…. Piling idiocy upon even more idiocy…
When you OPEN for private enterpriseS (plural); anyone anywhere; to perform any little part of what combined makes up such “projects”; competitively; you end up getting “planing” as proper as any you’ll ever get.
OTOH: When all you do is hand “contracts” to some lobbying entity “owned” by some good-ole-boy whose children go to the same school as the Governor: All you get is what we currently have in America: NOTHING other than graft, waste, and failure upon failure upon failure, without ANY exception whatsoever. Just massive welfare handouts to every pathological idiot under the American sun.
COMPETITION, unconstrained, open to anyone, is what drives efficiency. Not just rebranding The Department of Public Works and Silly Walks to The Public-Private Works and Silly Walks Corporation, while in the process 20-doubling the former Department head, now CEO’s, salary and handing a 50% cut of all spent to illiterate Blackrock trashbags, ambulance chasers and “consultants” incapable of building anything more complex than a Powerpoint presentation.
Here is the underlying problem. Let’s use states instead of countries. Two neighboring states produce the same product, but one state has burdensome regulations, and its products cost 50 percent more. Additionally, the unregulated state gets state grants to grow and compete against the other state. Who will sell the most products and make the most money? Obviously, the unregulated state.
For example, the difference between the US and China is the above. The Chinese have been dumping cheaper products and funding companies in China to dump products.
Of course, the US policy and laziness of many industries have created an opening for a country like China to take advantage of the largest consumer market in the world, the US. We can’t simply blame China because America sat on its asses for decades, allowing its competitiveness to rot.
Still, some type of balance needs to be made because soon enough, China will take away the most all important consumer title away from America.
China, China, China. You should stop shouting “China”.
Nowadays, US has to compete with not only China but India, Vietnam, Malaysia, Mexico and many more. In a very short period of time India will be third largest economy in the world competing with US and China in every fields.
40 years ago, US destroyed rival Japan. Now its very difficult to destroy these countries.
This is global race.
US needs to run very fast. Don’t look back. Stop wars.
China is neck to neck. Others are catching up very very fast.
The only good thing about a stupid economic policy in a large country like the US is that it costs (as a percent of GDP) much less than in a small country. The big downside of being a large country is that you get a lot of more stupid economic policies than in a small country.
Does the US want to go down the path of Australia to save a few dollars? No trains, no cars and no tractors made locally. Totally dependant on China.
Did a renovation in 2019 on the biggest army base in Sydney. The furniture was all Chinese supplied materials. Went to the toilets on base and the toilet paper was Chinese; wonder what happened in that base in 2020 with the toilet paper shortage?
Right now wearing my sons spare army boots; yes they say Made In Australia; but the fabric, the threads, the laces etc are all supplied by China.
When the balloon goes up across the Taiwan Straights Australia will be Chinas bitch. So don’t follow suit by having a dependence on cheaper foreign goods else you will find your soldiers will have no boots.
And Mish is wrong about only considering sensitive things need to be US made as you need most general things made locally to support the sensitive things. For example because Australia now imports most civilian footwear there isn’t the overall demand for any company to make things like boot stitching thread.
For want of a nail (or boot stitching thread) the battle was lost.
This bogey man argument is trotted out over and over again.
Yet the only place we have ever seen it happen is when the US and Europe have sanctioned Russia (or someone other country) over invasions. More importantly, has it actually mattered to Russia? Did they suddenly fall apart as you seem to think Australia would do? No! In fact 2+ years later they are fine because they’ve sourced elsewhere or restarted domestic industries as required. That’s EXACTLY what Australia or the USA would also do unless you think you can’t manage to do what Russia did.
Also you aren’t considering the reciprocal side of the trade with China. Australia sends Iron Ore, Oil and other minerals which you’d certainly stop sending if they stopped sending finished products to you. I wonder how they’d continue on without raw materials and fuel? Don’t forget, China needs to keep it’s own people working otherwise they are out of jobs and social unrest rises which the government doesn’t want.
You are dreaming and levitating in the air.
Aus economy is more dependent on China than China on Aus.
China is top trading partner of Aus.
Especially now, Aus needs China as in recession.
There is no way Australia could restart domestic industries. The factories to make the tools needed to have factories no longer exist here. Except for antique tools in my work shed every tool I have is imported. My drills, my lathe, my drill bits etc are all imported. Once you lose your skilled tradies who can sink a die, rewind a motor or do all the 101 trades needed to make tools locally it is hard to regain that industry.
Do what you good at.
If Aussie produce nail or others it might cost 5 to 10 times more than China.
Aus is resources rich. Mining makes Aus rich.
Aus population is 50 times smaller than China. Aus has no scale to produce cars, high speed rails or compete with China.
Aus will never be rich producing nails, clothes, etc.
As a kid I remember the population was 13 million, now 28 million. Cars were made locally, so we’re nails. Now both come from China and Australia is dependent on China buying more iron ore to build more apartment blocks. So as China now has too many apartments and a declining population what is the future of Australia when China stops buying iron ore and other minerals from Australia?
Appreciate you emphasizing how overpaying for the bridge (example) INCREASES GDP, which shows the fraudulent nature of the number. All government spending is an expense or drain on the productive economy. Someone has to be plundered in order to do the government spending. What’s really need is a GDPP stat – Gross Domestic Productive Product.
Yep, GDP and employment increase as living standards decrease.
Cause: waste due to misallocation of capital/labor by various govt entities.
Nothing to see here — move along.
We know that legalized corruption can substantially increase GDP in nontradable sectors. The US is a pioneer on legalized corruption.
Slave labor is cheaper.
No doubting that
There is an “easy” way for America to have it’s cake and it eat to and that’s by fixing immigration. I’m sure we could get 20,000 foreigners to come in and work cheap to build anything. It already happens now at most construction sites anyway. This happened in 1863 and is bound to be needed again likely around 2033 when 80m boomers are out of the labor force.
https://news.stanford.edu/stories/2019/04/giving-voice-to-chinese-railroad-workers
The First Transcontinental Railroad of the United States, constructed between 1863 and 1869, was arguably one of the most ambitious American engineering enterprises at the time and the source of much of the wealth used to create Stanford University. Reducing the time it took to cross the continent from months to days, the railroad helped pave the way for Western migration.
Often left out of the storytelling about the effort is the labor of an estimated 15,000 to 20,000 Chinese migrants who laid the tracks of the western half of the railroad. Those workers pounded on solid rock from sunrise to sunset, hung off steep mountain cliffs in woven reed baskets and withstood the harshest winters on record in the Sierra Nevada.
They’re already here for goodness sakes. ~95% of them are hardworking people looking for a better life. The problem is the ~5% that wish us harm. ~5% of ~20 million is a 1 million man, military age, army just waiting to be activated. Thank you uniparty.
How about we set a minimum IQ for entry? Maybe 100.
And what will an above 100 IQ get you? Would you say the “western civilization” has a high IQ? If so, then why is it attrition-ing itself to death and in a demographic spiral?
The vast majority of living involves hard work not paper shuffling or typing on a keyboard.
When a large solar flare or nuclear war wipes out computers, electricity and other “lazy” tools it will be the “brute” that can do hard work like hunt, chop, and kill that will survive.
Countries with higher average IQ’s are more prosperous.
Perhaps you should look up the definition of prosperous.
https://www.merriam-webster.com/dictionary/prosperous
Then ask yourself if what you see happening truly meets the definition. Locusts are prosperous too while they ravage all the resources around them then they mostly die.
You think it is the 1860s — good one!
Those days disappeared with the welfare state.
Yes, some will work for an honorable W-2 not knowing any better…not sure of 95%.
The welfare state will collapse within a decade or at a bare minimum be radically transformed. Don’t say you weren’t warned if you’re still alive to see it.
My point wasn’t that the welfare state will disappear/diminish … I suppose that’s inevitable. … good times make soft men, etc,
But the current system does not incentivize work like the 1800s or early 1900s (say until 1960 or so pre-food-stamps).
USA (and EU) is soft-socialism now … rich enough to afford benefits for, as you say, a few more years (the recent immigrants raise the burn rate of benefits tho).
A slow pair back might be acceptable; harsh cut of and rioting in the streets (although we’ve shown we like the China approach of “lock down and shut up”).
Why is Russia our “adversary”? Only because we needed one and picked them.
Creating domestic jobs also reduces government spending. Employed people commit fewer crimes and are less likely to become homeless, for example.
Prisons and police are expensive. Reducing demand for them cancels out some of the cost of policies to increase domestic employment.
This assumes Americans are capable of doing the work… and or/are even willing to work/// And why work when you can stay at home and collect from government welfare programs…
Free Enterprise system works… need to get government out of the building and welfare business…. and if we can get a better price overseas go for it..
exactly – except it works the other way too. Make companies that refuse to pay competitive wages go out of business for lack of workers instead of importing them, and the free market will rightfully replace them too.
Using California high speed rail as an example of why America at large would benefit by choosing the lowest cost provider foreign or domestic is hardly valid Mish. We need domestic industries like steel, pharmaceuticals, solar panels, aerospace, etc. Yes it’s going to cost more in the short term but we cannot continue to hollow out our domestic industries or we will be totally vulnerable to the demands of our suppliers some day.
Step 1: Separate our allies from our adversaries;
Step 2: Incentivize (tariffs maybe) supply chains accordingly.
See I-pencil for more….