As the new $800 billion stimulus bill is being put together, a clause about "Buy American" contained within it is stirring fears of protectionism. The clause would require all projects funded through the bill to use American-made steel, etc.
Sounds very reasonable, but lots of (interested?) parties are against it claiming it would result in a wave of countermeasures against the US. In particular, they resurrect the old bugaboo of the Smoot-Hawley Tariff Act, often blamed for exacerbating the Great Depression.
This analysis is just another example of knee-jerk thinking from "inside the box". In addition to objecting to the above clause, this line of post hoc thought is also responsible for other misguided and inappropriate actions, such as massive bank bailouts, zero interest rates and quantitative Fed easing.
Why? Because what really happened was not globalization of trade but an abrupt and massive relocation of manufacturing capacity, mostly to China. The US alone has "exported" an incredible 4.5 million manufacturing jobs in just seven years, an unprecedented economic event of historic proportions. Other western nations have done the same.
What did we exchange these jobs for? Loans of Chinese labourers' savings in the form of US Treasury and other bonds, i.e. debt. This insane policy of national emasculation will surely go down as one of the worst mistakes in the history of all empires.
OK, so why is "Buy American" a good idea? Because, first of all, it is most definitely NOT protectionism - just look at the above chart. And also because...
a) It will work towards slightly rebuilding manufacturing capacity and well-paid jobs.
b) It will encourage localization of production and distribution, sorely needed in a world of diminishing resources and environmental degradation.
c) It more fully recognizes real production costs, as stricter US environmental and social protection regulations must be adhered to, as opposed to the anything-goes regime in China.
President Obama (annual salary $400,000) has recommended that compensation for bailed-out executives be capped at $500,000 annually. Oh ho, ho! That's not even enough to pay for pool maintenance, never mind food and drink. But it is a most definite sign of deflation - even if it is highly populist and very popular with the hoi polloi.
Compare the measly 500K with compensation at Citi during 2007, to pick just one example. Click to enlarge for legibility.
I am aware of the restricted stock provisions of Mr. Obama's proposal, but even so I bet a ca. 97% reduction in lucre as loot is most definitely deflation.