The version of the economic stimulus bill lumbering through Congress contains a pernicious provision barring foreign steel and iron from infrastructure projects and requiring that all such projects use only American-made equipment and goods. Steel and iron manufacturers and labor unions no doubt promote these “Buy American” provisions. But can they explain how banning inexpensive, high-quality, foreign-made steel and forcing American companies to use more expensive U.S.-made steel will help create jobs or improve the economy?

The consensus among economists is that the costs of protectionism far outweigh the benefits. Nobel prize winner Paul Krugman wrote, “If there were an Economist’s Creed, it would surely contain the affirmations ‘I believe in the Principle of Comparative Advantage’ and ‘I believe in Free Trade.’”

Americans should appreciate the benefits of free trade more than others for our 50 states trade freely with one another. Imagine how much lower your personal standard of living would be if goods or services from outside Montana carried a high tariff.

Let’s be clear; free trade create winners and losers. A textile worker who loses her job due to cheaper Chinese imports experiences real pain. The job losses from trade tend to be localized while the benefits are spread broadly. That’s why free trade is such an easy target, especially during times of economic hardship.

Robinson Crusoe was a castaway who spent 28 years marooned on an island. Frederic Bastiat, in his book Economic Harmonies, uses Crusoe’s situation to explain the danger of rejecting the gains from trade. (Thanks to a reader for suggesting this example.)

“Explain to me the effects of protectionism.”

“You remember how Robinson Crusoe managed to make a board when he had no saw?”

“Yes. He cut down a tree; then, by trimming the trunk...with his axe, he reduced it to the thickness of a plank.”

“And that cost him a great deal of labor?”

“Two full weeks.”

“And what happened to the axe?”

“It became very dull....”

“Quite right. But perhaps you do not know this: just as he was about to strike the first blow..., Crusoe noticed a plank cast up on the beach....”

“Oh, what a lucky accident! He ran to pick it up?”

“That was his first impulse; but then he stopped and reasoned as follows: ‘If I go to get that plank, it will cost me only the exertion of carrying it, and the time needed to go down to the beach.... But if I make a plank with my axe...I shall be assuring myself two weeks labor; then, my axe will become dull, which will provide me with the job of sharpening it; and I shall consume my provisions, making a third source of employment, since I shall have to replace them.

‘It is clear that I shall only be hurting my own interests if I go down to the beach to pick up that piece of driftwood. It is vital for me to protect my personal labor, and, now...I can even create additional labor for myself by...kicking that plank right back into the sea!’”

(This argument makes sense only if labor is considered wealth. Unless the exercise of hewing a log into a board keeps Crusoe out of trouble or has healthful benefits, it’s folly for him to reject the board. The argument is subtler and far more complex in a large-scale society, but the burden is upon those who reject the less expensive alternative.)

“What an absurd line of reasoning!”

“Perhaps. But the ‘reject the plank’ line of reasoning is adopted by every nation that protects itself by interdicting the entry of foreign goods. It kicks back the plank that is offered it in exchange for a little labor, in order to give itself more labor. Consider the nation as a collective entity, and you will not find an iota of difference between its line of reasoning and that of Robinson Crusoe.”

Protectionism hampers the division of labor and takes us back towards protectionist economics. We know President Obama understands this and hope he listens to his economic advisors who also surely know this story well.