Friday, January 2, 2009

Releasing the Special Interest Hounds

So the much anticipated "stimulus" package to be enacted soon after the new Congress comes into session with a price tag potentially reaching $1 Trillion, will likely become the largest pork barrel bill in history. The centerpiece of the plan is infrastructure projects. Now infrastructure can be beneficial if there is a positive return on investment. However, considering the size and the speed at which this bill is likely to be enacted, it is likely going to be dominated by special interest “bridges to nowhere” and not legitimate public investments.

Also embedded within this bill will be all the various special interests who try to direct the funding to their pockets. One of these is the steel industry, which is currently lobbying Congress to include a “made in America” clause into the bill, which would force all projects to use solely American made inputs, specifically in this case – steel. This will only benefit the steel industry at the expense of everyone else. Projects will be slowed down due to supply bottle necks if potential supply sources are limited, and the costs of the projects will be higher. This means a worse deal for the taxpayer. Possibly more importantly however, is that it will divert greater amounts of capital to these projects then would have been required, displacing it from other areas of the economy. Ultimately this will destroy more jobs in other industries that are competing in the capital markets.

The irony is that one of the first things the Bush Administration did when it entered office was place a steel tariff on imports in order to “protect” steel producers. However, many more companies use steel then make it and the net result was a loss of jobs and higher prices for consumers. The Obama Administration would be prudent to not follow in Bush’s footsteps and create his own steel industry bailout at the expense of everyone else.