smoot hawley tariff

Stimulus Ignites Job-Killing Trade War With Canada

by Hans Bader on May 15, 2009 · 1 comment

in Economy, Employment, Energy, Environment, Global Warming, International, Odds & Ends, Politics as Usual, Stimulus to Nowhere, Trade

The $800 billion stimulus package pushed through by Obama has ignited a trade war with Canada, reports the Washington Post. In response to vague “buy American” provisions in the stimulus, “A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts — the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.”

A trade war is also underway with Mexico, thanks to a provision in the stimulus package that blocked a measley 97 Mexican truckers from U.S. roads. That minor NAFTA violation “caused Mexico to retaliate with tariffs on 90 goods affecting $2.4 billion in U.S. trade,” destroying 40,000 American jobs.

Obama’s protectionism echoes Herbert Hoover’s protectionism, which helped spawn the Great Depression. President Hoover signed the Smoot-Hawley tariff, which helped turn a recession into the Great Depression by triggering a trade war with other countries.

Unemployment is now even higher than what Obama predicted it would be without the stimulus. The White House now admits that there will be no job growth until 2010. The Congressional Budget Office repeatedly predicted that the stimulus would shrink the economy “in the long run,” but increase it in the short run, i.e., by the next election.

But so little of the stimulus money has gone into sectors of the economy where unemployment is high (like construction and transportation) that it seems to be doing nothing for the economy even in the short run. The $100 billion it pours into education — a sector where unemployment is very low, and where the U.S. also spends more per capita than almost every other country — appears likely to be wasted. Only 5.9 percent of the stimulus will go to transportation, a small amount compared to the amount of money it showers on state governments, which are using it to continue to provide lucrative pension and health benefits for state employees, whose wages continue to rise much faster than private sector workers.

Obama is following in Herbert Hoover’s footsteps on taxes and spending. In the Great Depression, Hoover raised marginal tax rates to 63%, and went on a deficit spending binge. Similarly, Obama has proposed higher marginal tax rates, which will produce another $1.9 trillion in tax increases. One of Obama’s own advisers now says that “the barrage of tax increases proposed in President Barack Obama’s budget could, if enacted by Congress, kill any chance of an early and sustained recovery.” He compares Obama’s tax increases to those that deepened the Great Depression.

Hoover imposed regressive taxes that burdened consumers, like the Revenue Act of 1932. Obama is now doing the same thing through his proposed $2 trillion cap-and-trade carbon tax. Obama privately admitted to the San Francisco Chronicle (which didn’t report it) that under his “plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s 1932 excise tax increase was. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air. It is also chock full of corporate welfare, regional favoritism, political pay-offs, and give-aways to special interests.

The Dishonesty of Poltical Adjectives

by Fred Smith on January 19, 2009

in Culture, Politics as Usual, Sanctimony, Zeitgeist

Rhetoric is a noble field — the ability to use language skillfully to clarify and justify a policy. But the political use of language is often used In a far less honest fashion. Consider the language of some policy positions advanced today:

Fair Trade: No one likes to be seen as a protectionist.  Protectionism—the idea that a nation should help its own industries by taxing their foreign competitors—is now widely viewed as a discredited policy.  This is largely due to the failures of protectionism’s past, like the Smoot-Hawley Tariff policy which exacerbated the suffering of the Depression and was one of many causes of WWII.

Thus, modern protectionists favor trade that is “fair.”   This term signifies that voluntary exchanges between individuals is only justified if it meets the criteria of a wide array of other interests such as labor, human rights advocates, internationalists, environmentalists, religious advocates, or feminists. These other goals may be legitimate but if this criteria is used only trade approved by Greenpeace, Amnesty International, the AFL-CIO, the Christian Coalition, and NOW would be allowed. Few trading arrangements could meet the utopian demands of these disparate groups.   Thus, “fair” trade is another way of arguing for protectionism.

Safe Nuclear and Clean Coal: Americans believe that energy should be accessible and that the poor should not be shouldered with unnecessary costs.  Thus, those opposed to energy development allege that they favor expanded use of nuclear power — as long as it is “safe”, greater use of coal power as long as it is “clean.”

But there are no “safe” energy sources (only “safer” ones) and no “clean” sources of power.   Even the cleanest and safest processes for creating anything have some risks and some waste associated with them.  So, if we’re being honest, there are only really “safer” and “cleaner” methods than those now in use.  Environmentalists and others seeking restrictions on American energy (and thus higher prices) use the absolutes—”safe” and “clean”—  which are very deceptive qualifiers.

Green Jobs: A capitalist economy seeks to employ people to meet human needs and job creation is very politically popular. However, some environmentalists and others would focus job creation efforts on employment in those areas which would advance their anti-development aims — thus, “green” jobs.

Social Justice: We all favor “justice” but, as Friedrich Hayek noted long ago, “social” is a weasel word designed to weaken this core value of any moral civilization into a tool of redistributive policy. According to “social justice,” creating wealth and knowledge is irrelevant unless such achievements also increase income equality.

One professor was told by one of his Canadian students that he could never migrate to America. “How,” he asked, “could anyone live in a world with such a poor GINI (a measure of income dispersion) value?”

That those income differences (like the prizes granted athletes and others) might increase general welfare is viewed as secondary.

Political discourse would be more transparent and honest if such deceptive adjectives were banned.