How to diminish unemployment? The NY Times tells us about a Montana general contractor who plans to use only American-made goods for building his homes. Explaining, he said,  “I think we could solve this recession if everyone shifted just 5% of their purchases to U.S.-made products.”

Is he right?

Here, Nobel Laureate Milton Friedman (1912-2006) replies to a similar question during a 1977-78 lecture series. Competing against subsidized Japanese steel, US sales sunk, Japan’s market grew and we lost steel industry jobs. Asked about the loss of jobs, Dr. Friedman was not concerned. Yes, steel workers’ jobs would be lost. However, many of the dollars used to buy the steel would find their way back here through purchases of our exports. The result? U.S. job creation. And furthermore, Japanese steel is a bargain for U.S. businesses and consumers.

Why then do people worry about the steel industry? They belong to a visible group. As steel workers they can be identified. By contrast, if exporting industries lost business because of a buy-American policy, they would be invisible. Located in disparate places across the country, exporters and consumers are anonymous and scattered.

The Economic Lesson

Purchasing imports creates more American jobs than people realize. Correspondingly, buying American can retard economic growth and job creation. Expressed by David Ricardo (1772-18230), by trading, at home and abroad, everyone benefits.

An Economic Question: Milton Friedman explained his position by saying that we could place a high tariff on imported bananas and instead grow them in Utah hot houses.  Is this a good way to create jobs? Explain.