“Buy American” legislation preserves American jobs. Or does it? Buy American legislation is hurting people in my corner of America.

Farrell, Pa., named for the highly successful president of U.S. Steel (1911-1932), James A. Farrell, is a steel town located about an hour north of Pittsburgh. Ironically, the town named for a man who believed in free trade is being hurt by the anti-free trade Buy American provision of the $787 billion stimulus package officially titled the “American Recovery and Reinvestment Act of 2009.”

This industrial boomtown adopted its name in 1932, during the Great Depression. You’ll recall that largely the Smoot-Hawley Tariff Act of 1930 brought on the worldwide depression. In a May 1932 speech in Vancouver, Farrell said, “People of all countries should unite in resistance to undue isolation and the restriction of international trade. . . . With world trade free of unnecessary restrictions, these potential [international] markets are open to the industrial nations of the world, and the possible rise in living standards and the resulting power of consumption is sufficient to blot out the present anomaly of one-half of the world suffering from a surplus of goods while the other half is subject to extreme deprivation. This is indeed a heavy price to pay for nationalistic desire for self-containment.”

Less than a year after Farrell made that speech, President Hoover signed the Buy American Act on his last day in office before Franklin D. Roosevelt succeeded him. The purpose of the Buy American Act was to encourage the federal government to favor American companies in its purchasing over foreign entities offering lower prices. Various Buy American provisions have been included in legislation in the decades since, including the monstrous stimulus bill signed in February.

Here’s where things get dicey for the struggling town of Farrell, population 6,000. The AFL-CIO labor union’s director of government affairs, William Samuel, wrote a letter to the federal government advising it how to implement the law’s Buy American regulations. Among other things, the AFL-CIO asked that American steel be defined as “produced in the United States if it is melted and poured in a blast or arc furnace in the United States. Under this definition steel sheet, for example, made from slab produced outside the United States would not be considered steel produced in the United States.” The federal government adopted the AFL-CIO’s guidelines.

Gotcha, Farrell.

Farrell’s largest employer, Duferco Farrell Corporation of the multinational Duferco Group, rolls steel slabs into steel sheet, which it sells to other manufacturers to be made into pipe, automobile bumpers, washing machines, dryers, corrugated roofing, etc. Duferco Farrell’s largest customer is Wheatland Tube Company, which is just one mile down the street. Wheatland Tube is an industrial pipe maker owned by The Carlyle Group, a private global investment firm. Under the Buy American guidelines, Wheatland Tube Company cannot buy steel from Duferco for stimulus-related projects because Duferco buys the steel slabs it rolls into sheets from international producers. Absurd? A multinational firm with operations in Farrell can’t sell to its neighbors down the street who are owned by a private global investment firm. And, ironically, due to the Buy American provision and the AFL-CIO’s influence, 600 union workers are now experiencing layoffs while Duferco is running at only 35 percent capacity.

Henry Hazlitt warned Americans about the unintended consequences of shortsighted economics like Buy American policies in his 1946 classic Economics in One Lesson. “Economics is haunted by more fallacies than any other study known to man,” he wrote. “The inherent difficulties would be difficult in any case, but they are multiplied a thousand times over by . . . the pleading of selfish interests.” Hazlitt continued, “The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but the longer effects of any policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

Clearly, the AFL-CIO blew it. They influenced government power—unconstitutional government power, in my opinion—to benefit a segment of union employees in the short-term without considering the long-term implications for workers in places like Farrell. The outlook for the unemployment rate in Farrell, one of the highest in Pennsylvania, is not promising. Sadly, the AFL-CIO and the Buy American provision hurt real people—men, women and children—in an already highly distressed community. This is what happens when the federal government stretches its power far beyond a common sense reading of the Constitution and passes laws like the massive, deficit-creating stimulus package and its Buy American provision. People lose out unnecessarily.

James Farrell got it right in 1932: People around the world should unite in opposition to restriction of international trade. Hazlitt got it right in 1946: The pleading of selfish interests and shortsighted thinking haunts economics. Congress and the AFL-CIO got it wrong in 2009—and the people of Farrell are paying the heavy price warned about by their namesake.