This week, Dr. Donald J. Boudreaux, a prominent economist and the former Chairman of the Department of Economics at George Mason University in Fairfax, Virginia, penned an open letter to me in response to my Feb. 12th posting, “Record Crushed: U.S. Trade Deficit with China – $273 Billion in 2010 – Biggest Ever Between Two Countries.” He also posted the letter in the comments section of the posting on this blog. In the open letter, Boudreaux posed several barbed questions about the Buy American Challenge effort. Here is my response…
Thank you for visiting my blog. I appreciate your comments and direct questions. And I appreciate you thinking so highly of my posting that you penned an open letter to me on your own blog. I truly love a good debate, so this should be fun. I realize, of course, I am choosing to engage in an economics debate with a renowned economist (or perhaps multiple economists), but hey, I guess eventually you have to play with the big boys.
So let’s go question by question. You asked:
- Because “buying American more often” means buying low-priced imports less often, Americans’ spending power will shrink. Americans will then have less money to spend at the movies, at local restaurants, on premium cable-tv packages, and the like. How do you know that the job losses that result from contractions in these industries won’t offset whatever job gains emerge in other industries from “buying American more often”?
I like how you phrase that… How do I know if jobs created from buying American won’t be offset in other areas? Of course, I don’t pretend to know because these things do not have a direct relationship on each other; job creation and unemployment is caused by a myriad of factors. So no one could ever know this sort of thing, much less be certain of it ahead of time. But, since we are currently experiencing a huge jobs crisis in this country, and you are the one who argues for a less intuitive method of creating jobs in this country than I do, I would like to know: How do you know that the job losses that result from $500 billion leaving the country via the trade deficit – which most economists say is stifling job-creation in the U.S. – are fully offset by employment increases in other industries as you claim? I don’t think you could possibly know that.
Your whole question starts with a faulty assumption. The assumption you made is that buying American will reduce one’s buying power. That is an entirely untrue assumption. I have been on a strict buy American program for a year, and I have more money to buy things I want and need than I ever had. Try to buy American for a week and you will see why. When you buy American, you rarely make impulse purchases. How many sweaters do you have in your closet? More than you need? Me too. Practically every sweater I have in my closet was purchased on impulse. That stops when you buy American because the majority of the consumable goods you see in malls and at Target are imported. Buying American makes you think about whether you actually want to buy something because American-made things are a little harder to find. Buying lots of stuff you don’t need reduces your buying power, not buying American. Buying American actually helps people live within their means and increases buying power. Plus, I am not saying everyone should entirely stop buying imports (so please do not pretend that is what I’m saying), what I am saying is that if Americans can cut their consumption of imported goods 25% and replace that with American-made goods, we will have no trade deficit, and many more jobs because of it.
Here is another wrong assumption. You assumed that American-made things are more expensive. Certainly that is true sometimes, but not always. There are lots of American-made items that are of equal quality that are less expensive than imported goods. Are American-made New Balance running shoes more expensive than imported Nike? No. Is Tito’s Handmade Premium Vodka (made in Texas) more expensive than imported Grey Goose? No. People pay more for imported items sometimes because there is a higher perceived value simply because the product is imported. But those misperceptions can be changed, and that is precisely what I am trying to do. Buying American in these cases will increase one’s buying power. Using your own logic, you should be a big supporter of buying American when American-made goods are less expensive. Not only would we create jobs from the goods being made here, but we would also be increasing our buying power through cost savings, which would lead to more jobs created in other areas like restaurants, cable-TV, and the like. I don’t think you can have it both ways. If you think it is better to buy less expensive imported goods because of the impact it has on job creation in other areas, then you should be a big supporter of buying American-made in cases when the American-made product is less expensive. Do you support buying American in these cases?
Then there is the issue of quality. A lot of the cheaper imported products are in fact poorer quality. How many $5 umbrellas have you broken? Me too. They say, “They don’t make ‘em like they used to,” for a reason. Much of the imported stuff we are buying is cheaper quality. American-made stuff is more expensive sometimes, but in most cases, products made in the U.S.A. are higher quality and last longer.
- At least half of all U.S. imports are inputs used for production here at home by American firms. So if American firms substitute more costly American-made inputs for lower-priced imported inputs, many American firms’ costs will rise. These firms will lose market share. How do you know that the job losses that will result from these firms’ contractions and bankruptcies will not offset whatever job gains emerge from “buying American more often”?
Again, I object to the phrasing of the question. My method of job creation and deficit-reduction is straight forward and intuitive. Buying American-made things puts Americans to work who make those things. That is plain and simple. The burden of knowing is on you, since your position (as I understand it) is that American consumers should do nothing to correct the trade imbalance or create jobs for Americans by buying American.
I have never said that I think companies should stop using imported goods in production. The reason I have not said that is because I advocate a consumer approach to addressing the trade deficit and unemployment problems in this country. I believe that if we create demand for American-made goods by talking about the superior quality of American products and the positive impact buying American has on our economy – and millions of people start to do it – American firms will be profitable meeting that demand. I’m not sure how we could make American companies use domestic inputs even if we wanted to. But if the American people demand it, then companies will find a way to fill that demand profitably. But we are a long way from that. Right now you can’t even find the domestic parts content for most goods. If you think somehow that American consumers buying American-made goods will cause bankruptcies, I think you are wrong.
- Because every dollar of America’s trade deficit is a dollar invested in the U.S. economy – investments that overwhelmingly expand the volume of America’s productive capital assets above what this volume would be without these foreign investments – eliminating America’s trade deficit will likely result in a net reduction of investments in the U.S. economy. How will less investment “secure our long-term economic future”?
Please reword this question and I will be happy to answer it. I’m not sure what you are asking.
Please answer this hypothetical:
You are considering purchasing one of two widgets. One is an American-made product, produced by an American-owned company and made with 100% American parts content. The other is an imported product, produced by a foreign-owned company and made with 0% American parts content. They are both the exact same price. In your opinion, which is better for the American economy?
A) Buying the American-made widget is better for the American economy
B) Buying the imported widget is better for the American economy
C) They are completely equal (neither A, nor B is better for the American economy)
I’d like to hear your other questions, and I would love to hear your answers to mine.
Thank you very much for commenting and starting what is sure to be a lively debate.
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