The price of protectionism

We've written before about the often-unappreciated costs that result from government attempts to "protect" an industry or sector from competition of one form or another.

Now, in the wake of the Gulf oil spill disaster, comes a shocking example of the horrendous costs that protecting some favored group, regardless of consequences, can have.

According to this article in the Houston Chronicle, the Dutch government offered to help by supplying ships equipped with oil-skimming booms three days after the explosion and start of the oil leak, but the US government refused. There is a protectionist US law, the Jones Act, which has been on the books since 1920 and prevents ships from operating in US coastal waters unless they are flagged in the US, constructed in the US, owned by US citizens, manned by American crews, and that those crews be composed of crewmen who make the US their permanent residence.

Five weeks later, the Dutch oil-skimming booms are being airlifted to the US and fitted to US ships. If these booms can (as estimated) process 5 million gallons a day and remove 20,000 tons of oil and sludge each day, how much damage could have been prevented if they had been deployed sooner? And, why does the federal government care more about upholding a 1920s-era anti-competition law -- even in the face of a titanic disaster -- than in getting the resources needed to aid in solving the problem?

The Dutch are flabbergasted. The Ambassador from the Netherlands in Houston said, "The embassy got a nice letter from the administration that said, 'Thanks, but no thanks.' [. . .] What's wrong with accepting outside help? If there's a country that's experienced with building dykes and managing water, it's the Netherlands."

The Dutch aren't alone -- according to this Heritage Foundation article, they are one of thirteen countries whose offers to help have been turned down.

This aversion to "outsourcing" is a particularly jaw-dropping example of the potential ugliness of protectionism, and it demonstrates the futility of government laws which favor one group against competition from another (which is exactly what the Jones Act was written to do, and why it is still on the books today).

However, there are other egregious examples. For instance, many in government these days are taking up "the fight against obesity" and urging local leaders to build more parks, bring healthier foods into schools, and support farmers markets (as Health and Human Services Secretary Kathleen Sebelius told mayors at the annual US Council of Mayors this past Friday).

We don't have anything against farmers markets (in fact, we like them, although we're not sure we like the idea of having government "support them," whatever that means). However, what never gets mentioned by all these "healthier foods" advocates is the impact of long-standing protectionist measures on the food choices that citizens and businesses make.

Take a look at the price of sugar worldwide versus the price of sugar in the United States, as illustrated in this discussion of the subject by Professor Mark Perry of Carpe Diem:

The US government has been imposing high sugar tariffs against sugar produced outside of the US almost non-stop since 1816, through administrations and Congresses of both the existing political parties and all the parties that existed before the current ones came into being.

As you can see from the chart, in order to protect local farmers and sugar-industry companies from foreign competition, American consumers pay more than twice the world rate, and so do American companies making food products with ingredients that call for sugar. Is it any wonder that more and more of them are switching to high-fructose corn syrup as a cheaper alternative?

While the jury is still out on the impact of high-fructose corn syrup, there are dietitians who believe that pouring it into the human body is as unhealthy as pouring oil and sludge into the ocean.

The point is that protectionism always seeks to insulate one small group and disregards the cost to everyone else. The sooner this basic economic fact is understood, and the more widely it is known, the better.

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For later posts on this same subject, see also: