I was struck by this observation by Eric Boehm in a piece at Reason.com complaining about the “Buy American” provisions in the President Biden’s infrastructure bill:
And if you can get a ton of steel made somewhere else for a lower price than the same steel produced here, then you can afford to build more things. Which is, you know, the point of Biden’s infrastructure bill.
Is “to build more things” actually the point of the infrastructure bill? Or do building things, employing Americans, bolstering American industries, and achieving political goals all play roles in it? I suspect that if we hired Chinese crews who used Chinese materials and waived all labor, environmental, and construction laws, we’d actually maximize the amount of stuff built. But that’s not the point.
Now my own personal view is that we don’t really need to build more things. I think we’re actually overbuilt already and that building more roads and bridges actually puts money in the pockets of land developers, contributing to sprawl. Most federal highway dollars by design go to building new roads; maintaining those roads is the responsibility of the states. That’s why when you drive from Illinois to Iowa, Wisconsin, or Indiana you can’t help but be struck by how much better the roads quite suddenly become. That’s because our neighboring states do better jobs of maintaining their roads than we do. What we really need to do is decommission some of the infrastructure that’s already built, identify what’s really useful, and maintain that.
Sadly, I doubt that’s what will happen. What I think will happen is the between three and five years will be spent in the planning and litigation phases of infrastructure before they actually get around to doing anything and when the construction phase actually begins the dollars appropriated won’t go nearly as far as had been expected.
“And if you can get a ton of steel made somewhere else…”
This is Ricardo’s theory of comparative advantage, and it forms the basis of our present trade and economic policies.
Please note the consequences of some 50 years of following Ricardo.
First, we cannot fight a war with either Russia or China, because we lack the industrial base required. We have been de-industrialized. That is happening to Germany and most of Europe now.
Second, you can’t simply move labor from one activity to another. The workers in one business lack the skills (and maybe personalities, interest, ability to learn) needed in other businesses. Look at all the abandoned factories across the Midwest. The interstate through Akron is a Bayeux tapestry of failure. And look at all the unemployed, another reminder of a failed theory. A steel worker will not become a coder, and there are far fewer coding jobs today than there were steel mill jobs 50 years ago.
Ricardo’s theory is seductive, but should be regarded as disproven.
Making things is the base of any economy, not finances.
I have linked to this site before, but I will do it again. It compares the real, material economies of several countries. Real means “things,” metals and ores, fossil fuels, manufactured goods, agriculture, electricity…
https://threadreaderapp.com/thread/1549554660184231936.html
Be patient. The author approaches his subject, economic tables, slowly.
Here is a summary, the Russian real economy is 68% of the US real economy, and 4.6 times as large as the German real economy. The Chinese real economy is 1.5 times as large as ours.
Those stats will surprise most people, and one respondent I had claimed the data were cherry picked, just a few oddities. But they aren’t. The author sought all the relevant economic data for a wide variety of activities.
Again, people are ignorant about Europe. See this site:
https://fee.org/articles/most-of-europe-is-a-lot-poorer-than-most-of-the-united-states/
On a per caput GDP basis, every European country and Japan and South Korea are poorer than Missouri, which ranks 38th among the states. Most European countries are poorer than Mississippi.
I would also remind you that in the sanctions war against Russia, which Russia is winning, no country in Latin American (not even Mexico), no country in Africa (not even Egypt), no country in the Middle East (Israel reluctantly supports some), and no country in Asia except for Japan, South Korea, and the Philippines supports them.
The US and the West in general is in steep decline both relatively to our competitors and foes. We are in absolute decline in some areas, manufacturing in particular.
This decline is a direct consequence of following Eric Boehm’s recommendations.
IMO the key problem with Ricardo’s proposition is that the critical success factors are a lot more portable than they used to be.
Furthermore managers tend not to understand comparative advantage but they definitely do understand absolute advantage.