In addition to the three problems, it may may be a knowledge problem. The players simply don't have the technical and managerial capability. And don't know it!
The CHIPS act and the infrastructure bill make some sense and could easily have passed years ago except Pelosi controlled the House and wouldn’t allow it under Trump. The CHIPs act was a bipartisan effort started in Congress during the Trump years but had very little to do with either Trump or Biden (a rare example of a good concept actually backed by key players from both parties in congress). I think it is largely a waste of money in normal times (as the plants being built in the US by TSMC aren’t for their most advanced chips) and the idea of the US fabricating even more commoditized chips flies in the face of comparative advantage. However, it does make sense from a national security point of view, as do some of the limitations on sales to China.
The IRA seems to be a boondoggle that is less industrial policy and more paying off donors. I think this leads to a gross misallocation of resources as using some of your “best” skilled labor and mechanical engineers, construction engineers to assemble largely Chinese parts using Chinese IP in old tech (lithium batteries) doesn’t seem to be the optimal use of these scarce resources. I know the IRA is about more than EVs, but a lot of it about EVs. Time will tell. As you note, early days yet.
Manufacturing has effectively been in a recession over the past year, but I believe much of this is a hangover from subsidized overconsumption of real goods during Covid, particularly 2021-2022. I believe this is cyclical rather than an implicit criticism of the effectiveness of recent donor handouts. We should hopefully see a bit of rebound this year and next. Maybe not in autos as at these interest rates fewer people can afford car loans.
Totally on point. We have developed government atherosclerosis. The Republicans want to kill the patient, like SCOTUS dismantling Chevron. Progressives proceed in denial. Both are unwilling, incompetent and unable to do driven problem solving. FDR PROBLEM solved.
I really like this: I call it Darwinian Driven productivity (in learning, product development, market iteration, manufacturing productivity)
"These are two very important examples of a very important principle: New economic approaches need to iterate, actively learning from their mistakes and making course corrections."
Rule 1 of productivity and the learning curve is that only works to level their is a driving force. Equilibrium, laziness, comfort are the stasis of 99% of people.
Rule 2 - Someone has to lead and drive Productivity and results.
FDR. Leslie Groves. Sony, Toyota 1980s for decades. US automotive is the best at this here. I'd hire a hot shot 45 yr old and empower that person to drive and rule over all regulations, barriers. Decisively
Excellent overview...... In general, the machinery of government is best for long Horizen immutable themes. That is, it is better to direct regulations and even investment with broad themes (innovation, governance, national security, etc) vs very specific highly volatile industrial markets. It is very very easy to "miss" and create perverse incentives... one need only look at the healthcare/education sectors to see these in action.
From a pure theory basis, to subsidize investment with a higher deficit ought to be mainly a wash. The increased deficit (supposing the Fed has an inflation target) means, ceteris paribus, less private investment.
The proof of the value of the subsidies is the ROI of the investments (counting as part of the return the value of the CO2 emissions avoided). I'm rather pessimistic on the green energy investments because the subsidies are given for the investment, not in proportion to the net CO2 emissions avoided. Tariffs also give more room for inefficiency and can lower the economic rate of return. This is a perverse legacy of the Trump era.
The real value in these projects could be in learning how to remove regulatory impediments to investment.
I think people only really learn from painful mistakes. We're in for a world of hurt before we get it right. Time can march soo slowly when we want a change in direction
It's also worth noting that Biden did nothing to remove a major impediment to manufacturing, the fiscal deficits that attract foreign capital and overvalue the dollar making imports cheaper and exporting more difficult, in addition to the drag on private investment generally. Another unfortunate holdover from Trump.
How can government be bold when it is being undermined from without and within by toxic actors? Our system is broken. We need to admit that before anything will happen to fix it. Christian nationalism and people like Tommy Tuberville, Paul Gosar, and Mike Johnson are destroying government from inside government. Trump and his cult are waiting on the sidelines. No matter who is elected in the upcoming Presidential race, things are going to get much worse before the possibilities start to look positive.
I would like to propose “budgetism” as a replacement for “checkism.” It makes me think of “checks and balances,” as in too much red tape. Plus Gen Z doesn’t know what a check is ;)
One problem with the "learning" idea: change of administrations. If Raimondo stays in her post through 2028 and if she's as sharp as touted and if ..., by the end of 8 years she may have learned some lessons and begun to apply them. But few cabinet officers stay on the job for 8 years, and even if they do, either their politically appointed subordinates or superiors don't.
Another problem is that each of the contracting and permitting hurdles has a history, often one where a political power and an interest group combine to push it and write it into law. There's no "sunset" provision for such provisions, and few politicians or bureaucrats get much credit for killing obsolete, ineffective, or perverse provisions..
In addition to the three problems, it may may be a knowledge problem. The players simply don't have the technical and managerial capability. And don't know it!
Very good overview, thanks.
The CHIPS act and the infrastructure bill make some sense and could easily have passed years ago except Pelosi controlled the House and wouldn’t allow it under Trump. The CHIPs act was a bipartisan effort started in Congress during the Trump years but had very little to do with either Trump or Biden (a rare example of a good concept actually backed by key players from both parties in congress). I think it is largely a waste of money in normal times (as the plants being built in the US by TSMC aren’t for their most advanced chips) and the idea of the US fabricating even more commoditized chips flies in the face of comparative advantage. However, it does make sense from a national security point of view, as do some of the limitations on sales to China.
The IRA seems to be a boondoggle that is less industrial policy and more paying off donors. I think this leads to a gross misallocation of resources as using some of your “best” skilled labor and mechanical engineers, construction engineers to assemble largely Chinese parts using Chinese IP in old tech (lithium batteries) doesn’t seem to be the optimal use of these scarce resources. I know the IRA is about more than EVs, but a lot of it about EVs. Time will tell. As you note, early days yet.
Manufacturing has effectively been in a recession over the past year, but I believe much of this is a hangover from subsidized overconsumption of real goods during Covid, particularly 2021-2022. I believe this is cyclical rather than an implicit criticism of the effectiveness of recent donor handouts. We should hopefully see a bit of rebound this year and next. Maybe not in autos as at these interest rates fewer people can afford car loans.
These woes make US weapons procurement look genius by comparison.
Totally on point. We have developed government atherosclerosis. The Republicans want to kill the patient, like SCOTUS dismantling Chevron. Progressives proceed in denial. Both are unwilling, incompetent and unable to do driven problem solving. FDR PROBLEM solved.
I really like this: I call it Darwinian Driven productivity (in learning, product development, market iteration, manufacturing productivity)
"These are two very important examples of a very important principle: New economic approaches need to iterate, actively learning from their mistakes and making course corrections."
Rule 1 of productivity and the learning curve is that only works to level their is a driving force. Equilibrium, laziness, comfort are the stasis of 99% of people.
Rule 2 - Someone has to lead and drive Productivity and results.
FDR. Leslie Groves. Sony, Toyota 1980s for decades. US automotive is the best at this here. I'd hire a hot shot 45 yr old and empower that person to drive and rule over all regulations, barriers. Decisively
Brad Templeton went into a lot more detail about the problems with how the EV charger subsidies were designed in an article here: https://www.forbes.com/sites/bradtempleton/2023/12/01/does-the-dept-of-transport-know-what-to-do-with-7b-for-ev-charging/
Excellent overview...... In general, the machinery of government is best for long Horizen immutable themes. That is, it is better to direct regulations and even investment with broad themes (innovation, governance, national security, etc) vs very specific highly volatile industrial markets. It is very very easy to "miss" and create perverse incentives... one need only look at the healthcare/education sectors to see these in action.
Thank you for your analysis, Noah.
From a pure theory basis, to subsidize investment with a higher deficit ought to be mainly a wash. The increased deficit (supposing the Fed has an inflation target) means, ceteris paribus, less private investment.
The proof of the value of the subsidies is the ROI of the investments (counting as part of the return the value of the CO2 emissions avoided). I'm rather pessimistic on the green energy investments because the subsidies are given for the investment, not in proportion to the net CO2 emissions avoided. Tariffs also give more room for inefficiency and can lower the economic rate of return. This is a perverse legacy of the Trump era.
The real value in these projects could be in learning how to remove regulatory impediments to investment.
My blood is boiling
I think people only really learn from painful mistakes. We're in for a world of hurt before we get it right. Time can march soo slowly when we want a change in direction
It's also worth noting that Biden did nothing to remove a major impediment to manufacturing, the fiscal deficits that attract foreign capital and overvalue the dollar making imports cheaper and exporting more difficult, in addition to the drag on private investment generally. Another unfortunate holdover from Trump.
Just put the charging stations in Buccee's, truck stops, and rest areas. Why is that so hard?
How can government be bold when it is being undermined from without and within by toxic actors? Our system is broken. We need to admit that before anything will happen to fix it. Christian nationalism and people like Tommy Tuberville, Paul Gosar, and Mike Johnson are destroying government from inside government. Trump and his cult are waiting on the sidelines. No matter who is elected in the upcoming Presidential race, things are going to get much worse before the possibilities start to look positive.
I would like to propose “budgetism” as a replacement for “checkism.” It makes me think of “checks and balances,” as in too much red tape. Plus Gen Z doesn’t know what a check is ;)
As I point out in this article on Australia, lack of state capacity isn't an inherent fact about the state it's the inevitable end-product of neoliberalism, and, in particular, New Public Management https://www.themonthly.com.au/issue/2021/september/1630418400/john-quiggin/dismembering-government
Rebuilding state capacity is part of the iterative process you describe.
One problem with the "learning" idea: change of administrations. If Raimondo stays in her post through 2028 and if she's as sharp as touted and if ..., by the end of 8 years she may have learned some lessons and begun to apply them. But few cabinet officers stay on the job for 8 years, and even if they do, either their politically appointed subordinates or superiors don't.
Another problem is that each of the contracting and permitting hurdles has a history, often one where a political power and an interest group combine to push it and write it into law. There's no "sunset" provision for such provisions, and few politicians or bureaucrats get much credit for killing obsolete, ineffective, or perverse provisions..