Back to Smoot-Hawley protectionism?

The bailout bill is loaded with ‘Buy American’ requirements. Isn’t that reminiscent of the Smoot-Hawley Tariff that pushed the already-weakened economy in the 1930s into a global depression? The problem with protectionism is that it causes other countries to raise barriers of their own, cutting off American businesses from the markets that could bring them back to life. Also, it won’t help us to ruin other country’s export economies, since we depend so heavily on their investments here.

Metaphors as Economics

George Will, in a column about how no one really knows what they are doing in trying to fix the economy, points out the role of metaphors in our economic thinking:

Economic policymaking in turbulent times is a science of single instances, meaning no science at all. When economic theories matter most — when the economy is in uncharted waters — all theories are necessarily untested. Hence attempts to derive prescriptions from the New Deal are somewhat surreal.

Furthermore, our language is bewitching our intelligence. Long ago — a year ago — Russell Roberts, an economics professor at George Mason University, deplored terms that suggest that economics is a science akin to medicine. With a “stimulus,” of a sort that makes the legs of a dead frog twitch, the government will “inject” money as a doctor gives a blood transfusion. Or as a life-reviving “jolt” from a defibrillator.

What other metaphors are at work in our economic discourse?

Rejoicing at gains and weeping at losses

Thanks to Tickletext for this pertinent and timely quotation from Augustine:

“Many weep with the weeping of Babylon, because they rejoice also with the joy of Babylon. When men rejoice at gains and weep at losses, both are of Babylon. You ought to weep, but in the remembrance of Sion. If you weep in the remembrance of Sion, you ought to weep even when it is well with you in Babylon.” – Augustine, Exposition on Psalm 137

The Democrats’ bailout bill

The House passed the $819 billion bailout bill. Not a single Republican voted for it. That means the Democrats own it. If it succeeds in getting the economy on track, they get the credit. If it doesn’t, Republicans can tell America they told us so.

Is this good Republican strategy to rebuild the party, or an obstructionist rejection of the President’s call for bipartisan government?

(Today the bill goes to the Senate, which is expected to up the pricetag to $900 billion.)

HT: Jackie

Deflation vs. Inflation

More benefits from the bad economy. Inflation slows to half-century low in 2008:

Inflation slowed to a half-century low last year and industrial output fell for the first time since 2002, data showed on Friday, as the recession deepened toward year-end, raising the specter of deflation. . . .

The Consumer Price Index dropped 0.7 percent in December, a third straight monthly decline, capping a year in which prices advanced only 0.1 percent — the weakest 12-month reading since December 1954, the Labor Department said.

On the other hand, the nearly trillion dollar bailout bill is sure to be inflationary. Indeed, that is its main goal, to raise the price of stocks and housing.

What are the chances of the inflation exactly canceling out the deflation?

Which is better, inflation or deflation?

Trickle Down vs. Seep Up economics

Republicans trying to help the economy have pushed for “trickle down economics.” That is, help businesses, who, in turn, will hire more people, which will increase prosperity for all. Democrats tend to favor what we might term “seep up economics.” (Hey, maybe there is my contribution of a new term. I couldn’t find it on google.) The idea is to help individual workers, who, in turn, will have money to spend that will help businesses.

The cornerstone of Barack Obama’s stimulus plan is massive spending to repair the nation’s roads and bridges. Also money to weatherproof buildings, build new school buildings, etc. In other words, much of the money and the job creation will go to construction companies.

I worked construction putting myself through college, and I honor those workers. That industry requires highly-skilled and specialized experts–not just anyone can work steel or operate a crane or survey gradients–as well as lower-skilled laborers like I was. Those latter jobs, though, are taken up largely today by not-always-legal immigrants. Contractors say that Americans often don’t want those jobs, not finding hauling lumber, digging ditches, and pouring concrete all that fulfulling. (I did all of those jobs, to the great benefit of my character!) Will massive government spending to create these kinds of jobs actually employ 4 million Americans, as planned, or just create an even bigger market for illegal immigrants?

How would a huge infusion of cash into road construction help the typical laid off factory worker or the downsized company executive or the busted Wall Street investor? I suppose the theory is that a construction boom would help the factories that make the equipment and raise the stock of the companies that own the factories, which, in turn, would help other businesses. But
do you think seep up economics like this will really give the economy the help it needs?