My friend Steve Clemons has one of the most interesting blogs around; today I think he went off the rails with a post on a New York City $100 million stimulus project that has gone to a Chinese firm. Even when he’s wrong, Steve is interesting. This time, he’s very wrong — and wrong in a way that points to some of the problems that have derailed liberalism as America’s governing philosophy.
While recognizing the importance of US-China economic links, Steve thinks it’s a travesty that stimulus money, intended to provide jobs here at home, is being given to a Chinese firm. This is wrong on so many levels it is hard to know where to start.
But I’ll try.
First, I wonder if Steve has forgotten who is funding the massive deficit spending that is ‘paying’ for the stimulus. Last time I looked, China was buying a lot of these bonds. I’m not sure why the Chinese should be interested in funding a deficit while we discriminate against Chinese firms. China won’t stop buying our bonds overnight, but this kind of provocation will increase China’s interest in changing the terms of the relationship and hasten the day when China takes some steps we won’t like.
To give Steve credit, he tries to address this point. Chinese interests, he said, require putting Americans back to work. And, he argues, China ‘should’ understand that for China’s own sake, it should start importing more manufactured goods from the US. Three problems here: people want what they want not what we think they ‘should’ want. China doesn’t want to allow the US to discriminate against its companies. Period. Second, Steve overlooks a serious WTO issue: the kind of trade discrimination Steve proposes here violates WTO rules. China could and would retaliate with restrictions on imports from the US. Third, a big part of our efforts to get China to import more US goods involve breaking down Chinese trade discrimination. Those efforts will be fatally undermined if we start doing the very same things we want them to stop.
In any case, if Steve is right and it’s better for the economy to spend stimulus money on ‘buy America’ programs, wouldn’t it be better to spend all our money that way? Why is it only stimulus money that should be spent on American products and American firms? All government money ultimately comes from taxpayers; shouldn’t all government money be spent in ways that bring taxpayers the most benefit? But if this is true for the United States, it’s true for China, Germany, Japan and everybody else. If all governments acted on this logic when it came to stimulus money and regular budget expenditures, the world would be full of trade barriers and trade wars. That’s exactly how recessions turn into depressions — and how international relations go sour and global cooperation becomes much harder.
Then as a New Yorker I have another question about Steve’s argument. New York City needs a lot of help. We’ve got a huge budget deficit, the state is in trouble too — and we need to spend every dollar we have as effectively as possible. New York needs to get the best price possible for everything we buy. We can’t afford to turn away low bids. Neither can the federal government, for that matter. More broadly, Steve argues that rebuilding our infrastructure is an essential element in any strategy to repair the economy. But our resources are limited. Isn’t it vital to get as much infrastructure improvement for the money we can spend? And won’t the long term advantages of better infrastructure outweigh the short term costs of spending some of our investment on goods and services produced overseas?
There’s one more problem with this line of thought, and that’s the one that gets to the weakness in liberal policy making these days. In the old days, trade was not as big of a deal as it is now. In the 1930’s, Americans bought American cars by and large and the US did not import oil. In those days, when people had more money to spend, they tended to spend it on stuff made in the US. The stimulus stayed in the United States and helped the economy grow. That growth created more income, and the higher tax revenues from this growth helped pay for the stimulus.
These days when Americans get more money, they head down to Walmart and buy more stuff from China. Or they buy cars from Germany and Japan. Or they buy more gas for the cars they already have — stimulating the Venezuelan or Canadian economies.
Old fashioned Keynesian stimulus doesn’t work as well as it used to.
That is the ugly truth underlying the point Steve is trying to make. The stimulus isn’t creating enough jobs in part because the stimulus is going to imports.
Steve has perceived a real problem, one that cuts to the heart of the assumptions that have guided liberal policy making since the New Deal, but his solution — protectionism — won’t help.
We are in a new place, facing economic problems that are different from those we have faced in the past. I’m skeptical about the comfortable old conservative answers, and I’m skeptical about the comfortable old liberal answers.
In time, we will figure this out, and come up with new answers and new policies that fit the unique circumstances of our time. Until then, keep your seat belts fastened: we are flying through turbulent air.