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Keep Your Localization Local

A story on NPR’s All Things Considered this week dealt with St. Lucie County, Florida, whose government is trying to counter high local unemployment by requiring that 75 percent of government contracts be reserved for local firms and that the firms employ local workers. This is true for both local tax revenues and federal stimulus package funds.
Even ignoring the legality of restrictions on the federal money, this is the kind of autarky behavior that leads to a reduction in production possibilities. In the name of job protection, local taxpayers forego efficiency — forego using the principle of comparative advantage — and waste tax dollars. Worse still, this can lead other localities to do the same. Even worse, if it were to spread so that national governments helped to “protect” local companies and employees even more than they now do, we would be headed rapidly down the protectionist road that helped produce the Great Depression. I hope this truly stupid idea is localized and does not spread.