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. These days, the town named for a man who believed in free trade is being hurt by the anti-free trade, buy-American provisions in the $787 billion stimulus package, officially titled the "American Recovery and Reinvestment Act of 2009."

It was in 1932 that this industrial boomtown in Western Pennsylvania adopted the name Farrell. That year, as the Great Depression deepened, largely due to the protectionist Smoot-Hawley Tariff Act of 1930, James Farrell told the people of Vancouver:

"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 this speech, Herbert Hoover signed the Buy American Act on his last day in office before Franklin Delano 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 companies, even if the foreign companies offered lower prices. Ever since, buy-American provisions have found their way into various types of legislation, including the monster stimulus bill signed last February.

Here's where things get dicey for struggling Farrell, Pa., population 6,000:

The AFL-CIO labor union's director of government affairs, William Samuel, wrote a letter to the federal government advising it about 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 Corp., part 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 cannot sell to its neighbor down the street which is 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 rolling layoffs while Duferco is running at only 35 percent of capacity.

The late economist Henry Hazlitt warned Americans about the unintended consequences of short-sighted policies such as buy-American provisions. In his 1946 classic "Economics in One Lesson," Hazlitt wrote:

"Economics is haunted by more fallacies than any other study known to man. The inherent difficulties would be difficult in any case, but they are multiplied a thousand times over by ... the pleading of selfish interests. 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. It influenced government to exercise power -- unconstitutional power, in my opinion -- to benefit a segment of union employees in the short-term without considering the long-term implications for the workers in places like Farrell.

The job outlook in Farrell is grim. It has one of the highest unemployment rates in Pennsylvania.

Sadly, the AFL-CIO and the buy-American requirement in the stimulus bill is hurting 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 what a common-sense reading of the Constitution would allow and passes laws like the massive, deficit-creating stimulus package.

James Farrell got it right in 1932: People around the world should unite against restrictions on international trade. Hazlitt got it right in 1946: Economics is haunted by the pleading of selfish interests and short-sighted thinking. Congress and the AFL-CIO got it wrong in 2009 ... and the people of Farrell are paying the price.