Saturday, February 6, 2010

Poll: Do you value a product more if it is "American"?

There has been a recent hubbub in the blogs I read about recent "Buy American" provisions in an agreement between the United States and Canada. Here's the background:
The U.S. and Canada, its largest trading partner, reached a preliminary deal to settle what had become an acrimonious dispute over "Buy American" provisions in the U.S. stimulus package.

The deal, if approved, will give companies on both sides of the border access to government procurement contracts at the state and local levels. U.S. Trade Representative Ron Kirk said the increased access for U.S. firms in Canada would be worth billions of dollars in contracts.

Sound good? Not to Don Boudreaux. Here's some of the letter he wrote to the Wall Street Journal.

In other words, Washington agrees that it will spend Americans’ tax dollars wisely – that is, get the most value in return for each dollar spent – only if Ottawa does the same with Canadians’ tax dollars. If instead Ottawa had stubbornly insisted on wasting Canadian taxpayer dollars by refusing to buy lower-priced goods and services from Americans, Washington would have boasted of its commitment to continue wasting American taxpayer dollars by refusing to buy lower-priced goods and services from Canadians.

This sort of Dali-esque surrealism of government behavior is ignored by the public and the punditry only because it is all too common.

He's not the only one on my blogroll who has come out writing against these agreements. Here's what Jeffrey Miron thinks about the issue:

Even if this issue gets resolved sensibly, it should never have arisen in the first place. When the government builds infrastructure, it should do so at minimum cost (quality adjusted). The Buy America provisions interfere with that objective and risk killing jobs when our trading partners retaliate.

A side issue (the subject of today's poll) is whether people value American products more because they were made in America. That is, are you more likely to buy a product if you know it was made in the United States (or Montana)? That brings me to the poll question of the week.

How do you value a product if it is "American made"?

(a) I like it about the same
(b) I like it better
(c) I like it worse

The poll is open for a week. Vote early and often (on the sidebar -->). I'm interested in hearing what you have to say.


  1. It's interesting, the "dispute" between the US and Canada. I'd argue that it's probably OK to import from Canada, since they are, essentially, on a level playing field with American workers and producers, and their economy is so tied to ours.

    The argument that "The Buy America provisions interfere with that objective and risk killing jobs when our trading partners retaliate" is really false, though, if you look at basic economics. For every dollar spent, you get a multiplier effect. Production is a "value added" enterprise, that is, what is produced (a car, for example) is worth more than the sum of its parts (rubber, glass, steel, electronic components, glass and paint). So for every dollar you put into producing a car, you get, say, five dollars in value back into the economy. That translates into wages for autoworkers, profit for the corporation, and investment in business (plant upgrade, R&D, marketing and design).

    When it comes to government stimulus of the economy, you want to get the most bang for your buck. So you build a highway, for example. The materials required to build that highway are concrete, asphalt, paint and steel. When you buy those materials from American producers, those dollars multiply though the economy in the form of wages, profit, and investment. It multiplies out into the broader economy. If you import all of those materials at a lower cost, you save tax dollars, for sure. Savings isn't the goal here, however. jump-starting the economy is. By importing materials, those are Americans that don't get the work producing those items, and those dollars don't find their way out into the American economy. So the dollars spent procuring those items leave the United States, netting us no additional dollars in our national economy, and in fact pumping up another economy, on the backs of the American taxpayer. (Part of the reason that other countries are so worked up about the "Buy American" provisions isn't because they want help save us money and rebuild our economy. It's because they want the jobs and the economic multiplier that comes with production.)

    There are a finite number of construction workers that can work on a highway job - only so many people can swing the hammers and push the shovels, so to speak. Saving money on the project doesn't translate directly into more jobs, because we won't take those savings and hire extra carpenters, welders, bricklayers and so forth. Therefore building a highway in the United States with American produced materials equals the greatest net economic multiplier for the dollars spent.

  2. Thanks for your comment.

    For additional (and insightful) reading on multipliers, I recommend Bastiat's "What is Seen and What is Not Seen." It's a classic.

    The economic multiplier argument is compelling, but the trouble is that every dollar spent has to be unspent from some enterprise (and those dollars that we don't see, because they're diverted, also have a multiplier). So, there's a plus and a minus.

    Given that people act on private information in making their individual decisions, I'm reluctant to intervene.

  3. Final Tally:

    12 said About the Same
    7 said Better
    4 said Worse


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