My new column for National Journal attacks the Buy America language in the fiscal stimulus bills [the link expires in two weeks].
During the past few months, as the severity of the recession has become clearer, drawing parallels with the Depression of the 1930s has been a staple of economic commentary. Rightly so: This may yet turn out to be the worst economic setback for 70 years, and the Great Depression says something about how bad things can get if governments fail to respond quickly and about the need to learn from history.
Speaking of that, remember Smoot-Hawley? One can overstate its role, no doubt--it did not actually cause the Depression--but most economists, I think it fair to say, believe that the effort in the 1930s to boost domestic output by restricting imports made things worse. The collapse of world trade, and hence global output, was helped along by deliberate policies in the United States and abroad, as governments tried to keep employment high at home by shifting unemployment overseas. In the end, everybody was worse off.
I had thought this lesson had sunk in. Smoot-Hawley is a byword for economic incompetence and illiteracy. In a global slowdown, "Beggar thy neighbor" is a formula for disaster. Who dissents? The issue, I had supposed, arouses no controversy--causing far less disagreement than how to mend the banking system; less than whether a big fiscal stimulus is needed to revive demand; and less than whether tax cuts or increases in public spending are the best way to stimulate. Yet both the House and the Senate have drafted stimulus bills that include protectionist "Buy American" language. The spirit of Smoot-Hawley lives.
You can read the rest here.