Congress Passes Buy America in Stimulus
Uribe: War is Peace, Ignorance is Strength

Buy Keynesian

My colleague John Schmitt has written an interesting column suggesting the following:

The President could rewrite the current "Buy American" restriction to allow US recovery funds to be spent on US goods — as well as those from any country that passes an economic stimulus program that is at least as large (as a percent of their national GDP) as the package ultimately passed here. Call it a "Buy Keynesian" plan.

The "Buy Keynesian" clause would let the President thread the political needle. He gets to keep the "Buy American" provision that many taxpayers (and Senators) are demanding. And, when foreign leaders accuse him of protectionism, he can rightly respond that their goods have been excluded not because they are foreign, but because their countries aren't pulling their weight in the international recovery.

This is a great idea, and obviously a great way to reflate the economy. Which of course means that it's  WTO illegal. Check this out from the WTO procurement agreement:

With respect to all laws, regulations, procedures and practices regarding government procurement covered by this Agreement, each Party shall provide immediately and unconditionally to the products, services and suppliers of other Parties offering products or services of the Parties, treatment no less favourable than:

            (a)        that accorded to domestic products, services and suppliers; and

            (b)        that accorded to products, services and suppliers of any other Party.

And unfortunately, there is no Keynesian exception to the national-treatment and most-favored nation obligation. Yet another reason that I am coming to the point of view that EVERY policy proposal ith any WTO implications should include both the proposed domestic measure, and a proposed sense of Congress that the WTO should be renegotiated to allow policy space for the measure.

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What about the Balassa-Samuelson effect and the the Penn effect?


What about the Penn effect and the Balassa-Samuelson effect?

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