The traditional success stories for industrial policy are catch-up stories: the American colonies learning to make what they'd once bought from Britain, Japan and the Asian Tigers going from poor to rich.
Can industrial policy make a real difference in countries that are already rich and have high labor costs?
Do we really have to give up on free trade though?
My hope has been that we better articulate the distinction between "strategically important" things like semiconductors and "random crap" like sneakers and fidget-spinners...
I have a son who is a bit of a Bernie-type socialist, and he gets caught up on the healthcare issue a lot to say markets don't work. My counter is always that *most things* aren't like that - free market capitalism is doing just fine for getting you Doritos and donuts and most "normal" things you purchase. I feel the same argument applies to free trade.
Yglesias suggests we won't have fiscal room to keep spending like this on industrial policy without either raising taxes or triggering inflation. Is he right?
If he is right, and we want to watch our budget and support these industries at the same time, what are the cost-effective options?
Is there a more efficient way to encourage semiconductor plants and electric cars than writing checks on an inflation-constrained national budget?
As the former Chief Economist at PJM Interconnection (largest wholesale power market inn the world and 2nd or 3rd largest dispatched power system globally), I have seen this coming for years...industrial policy based on climate and environment. The changeover from coal to gas and now moving to renewables is staggering in its rapidity since 2008. To date much of this policy has been decentralized with the states, but EPA policy has also been a big driver during the Obama years and now with Biden. This all works had in glove with the industrial policy we see at work now.
What I fear is the lack of faith in market mechanisms and incentives that could lead us down the path where we found ourselves in the 1970s and 1980s with an overbuilt, costly (see nuclear), system which drive the reforms of the 1990s with EPAct 1992 that led to wholesale power markets we see today. The emerging command and control mentality is going to lead us back to high cost power (contrary to the concrete promise) due to the desire to over build transmission assets and the reliability need to overbuild renewable resources which ties directly into national security issues.
The problem I see in my part of the world is environmentalists do not understand the physics and reliability needs of power system operation and control. The right wants to dictate old technologies that should go away and have forced through the Cory’s leas flexibility in environmental policy (see the press reports on forthcoming GHG rules for power generation as a replacement for the Obama era Clean Power Plan).
I happen to agree with the main ideas of the Biden industrial policy, reducing market power and dominance, and onshoring industrial production. But the implementation details matter. If we botch the power system aspects, which are a necessary condition for the rest of industrial policy, we will have nothing to show for it. We need a complete rethinking of how the power system works, how to manage intermittency, and minimize costs to avoid going back to the 70s and 80s problems. This is far from insurmountable but does require thoughtfulness and thinking outside the traditional boxes and silos most operate in today.
Targeting "job creation" is our ugly mirror of China's provincial GDP targets and should be viewed with similar skepticism. The PRC builds empty apartment towers, we build factories then shut them down. We're great at cutting ribbons, less up on sustainability or market fit. We celebrate the shiny new headquarters while ignoring that all those jobs were just moved across a state line.
We should acknowledge the failure modes of the former consensus, empowering Beijing. That doesn't mean we should develop amnesia for the failures of protectionism.
Must we prioritize 6,000 steel jobs over 6,000,000 factory jobs that rely on steel as an input because that's just the way the wind is blowing? Should we go ahead and spend $926,000 per job saved in a blue collar industry for the sake of the headlines? Should we go ahead and rip safe infant formula out of mothers' hands and then pat ourselves on the back for our ability to adapt to the new status quo?
When states play the market it often goes poorly, often undermining the very goals the state is pursuing. We're watching this play out in slow motion and nobody is willing to admit it yet on either side of the aisle. Here's how:
A bias for trade was too permissive, but the reactive bias against trade has led to Biden-admin skepticism for President Tsai's signature push, a trade deal with the US. Taiwan has chips and we have beef, among a million other temperate zone agricultural products that are absurdly expensive on the island. The trade compatibility couldn't be better, and would directly blunt the PRC's use of economic coercion. By flatly rejecting these overtures and preferring a "jobs-focused" trade policy, it weakens the DPP relative to the KMT, creating an opening for the historical party of Beijing accomodationists. The KMT cannot campaign on unification post Hong Kong, but it can now campaign on offers of resumed trade with Beijing for various political concessions. DPP's focus on a trade deal it could not deliver most notably brought an exit strategy for TSMC, a path to weaken the silicon shield.
We're gutting the WTO, even though it's the only international body that had actually compelled changes in PRC behavior. Rare earths took a couple tries, but the second case was decided far faster than the first, and it seems to have sunk in.
The TPP was loaded with handouts for aggressive IP protection for our content industries, and there were other deeply questionable provisions. Nonetheless, Hanoi wants trade, and unlike the PRC, is willing to normalize excesses in its political and economic system to get it. The provisions in these regional agreements constrain authoritarian governments, creating a safe haven for businesses, spreading rule of law through a subtle backdoor. Walking away from the TPP was not a pro-jobs move, for most jobs, it was not pro-democracy or rule of law, it was certainly not a move to contain the PRC. It had massive flaws, but the solution was to fix it, and funnel the domestic trade surplus into trade assistance, not abandon it.
Where economists develop a consensus and the public disagrees, your problem is branding. The solution is not to simply give up on everything. Tie tenure to fewer articles and more billboards, give nobels for communication and marketing as often as theory.
In the meantime, I long for the days where our industrial policy does not target GDP or job growth, and someone picks up a book and reads about Goodhart's Law. One day we might actually target just *improved human welfare,* whether that means working fewer hours or more, whether that means enjoying things, or services, or even just leisure. It's easy to forget that the goal isn't to make some number go up on paper, it's to ensure people can live full, happy, and valuable lives.
I wait for that day. In the meantime, long live the Jones Act I guess. This is our curse for finding sanctuary on econ blogs, then never going outside to talk to anybody else.
Nice, but one small contradiction. Not all economists are free trade enthusiasts. Perhaps my background as an industrial worker is the cause. However, I clutch my Ph.D diploma and argue for what is describe as reality about trade. On it's surface, the doctrine of comparative advantage is unassailable. Given their climatic endowments, Hawaii should grow pineapple and Idaho potatoes. They will then benefit from trading their respective surpluses. The catch is that this result only holds where endowments and technology are fixed. With constantly evolving technology, comparative advantage becomes a Red Queen's race. The value of endowments and lowest costs of production will constantly change driven by competition. The United States lost comparative advantage in manufacturing in part because corporate leadership no longer understood their own firm's production technology. Applying only financial metrics, outsourcing towards lower labor costs appeared more profitable than internal investment.
The success of this new industrial policy really depends on quickly Getty some large successes. Right now it’s all promises, ground broken, but nothing actually completed.
For instance Microns proposed Fabs in Boise and New York. Shortly after Micron made these announcements for billions dollars of spending, the market went soft. In Boise, Micron laid off people and froze hiring even though the project is moving a long slowly.
Until one of these large infrastructure projects is completed and we can see concrete results, will people really support the project. It’s the same for rail and energy. We need to see results, where real people have jobs and their is real production.
"The new industrial policy is intended to strengthen the U.S.’ hand against China, and an attempt to at least partially reverse the rise in inequality that happened in the 80s, 90s, and 00s."
Sounds a lot like an agenda to make America great again. :-)
To be fair, as someone who essentially likes that economic agenda, I'm not picky whether its championed by the Left or the Right. But it is pretty funny that the entire establishment of this country (Left and Right -- universities, labor unions, big business, government bureaucracies, media) would spend 4 years telling us that this agenda was going to destroy America and democracy, that the American press would abandon any semblance of objectivity, declare that "making America great" was code for fascism, and set itself the job of destroying the man who articulated those words... only to embrace the same agenda immediately once their preferred candidate won.
The root cause origins, from my personal observations working at one of top free trade globalization companies GE follows:
Around the mid 1980s, 5 yrs in, Jack Welch determined he didn't like a lot of manufacturing. He got rid of everything that was- high union, low margin, not 1 or 2 market share. Jack, as evidenced by his RCA acquisition, sold off Research and Innovation giant Sarnoff labs; manufacturing of TVs, RCA defense, space and aero businesses.
Jack kept NBC. It was "Japan proof". Japan held the place of threat back then that China took over as to buying everything and making everything. Before Rupert, foreign ownership of TV media was not allowed.
Jack's love became the "low people intensity" of service. He came to despise internal Innovation and capex. He bought up R&D and service companies instead of investing.
This was the the launch of the mindless short sighted "free traders" and globalization. In reality, just my guess and feel here, free trade did not increase at all US-EU. Instead, it was all a cover for making China the low cost manufacturing site for the US.
The Conservatives thought exporting US manufacturing jobs to China, and post Soviet Russia, would carry over to exporting western style democracy. Oops! Flawed to the infinite.
Finally, we are starting to get our senses back. The strongest nations Build!
Excellent analysis, the part about not having an industrial policy being an industrial policy favouring financial institutions is insightful and probably accounts for a good portion of America's industrial decline. If USA can execute well and I would not bet against the USA - for all its shortcomings it is THE place where great things can happen - it will define economics for the next few decades.
Free market capitalism doesn't apply to healthcare for numerous reasons. Fundamentally, consumers are at the mercy of the providers due to exigent nature of a medical incident, so the supply/demand balance is out of whack. Insurance to the rescue! In other circumstances (when the provider creates the exigent circumstance for the consumer) we call them a mugger (your money or your life!). Most people are happy to pay up when the cost (your wallet) is small compared to the asset at risk (you). That is probably why there isn't a market for mugging insurance. Since a heart attack can literaly cost you your house if you don't have insurance, most people are happy to pay protection money to stave off the medical muggers.
Another reason healthcare won't be reformed anytime soon is that it is a jobs program, much like bank branches, cellphone stores, tax preparers, etc. It keeps people of normal intelligence gainfully employed turning the gears of artificially complicated processes.
You are confusing trade policy towards China with trade policy generally and creating factory jobs with having munition factories to win a war. At a minimum the US should have a policy of free trade for free people, but what Biden is doing is forcing European countries to decide if they also want to provide lavish subsidies to compete. If you want to argue for the death of free trade, explain why you believe that a subsidy war with Europe is a good idea because that is the policy that’s actually being implemented. And clean energy production at home does not make bombs. Reshoring chips is closer to the mark, but the fact remains that Ukraine is easily firing more howitzer shells than we can make let alone something with a computer chip in it. This is our problem in a potential war with China, not where solar panels are manufactured. You’re right that free trade did not democratize China, but that’s no reason to throw out free trade in general, particularly for the free world.
2. Much more needs to be written; discussed and turned into policy on this
Key points for me/
- …” to restore an economic mentality that champions building. And that is the core of our economic approach. To build.”
- “ a foreign policy for the middle class”
- the type of growth DOES matter
- This feels very electable / voteable - “ American consumers and workers that they’re going to get cheap electricity, a nice new electric car, a better job, safety from climate change, and safety from domination by the Chinese Communist Party”
In a political world where everything is about "the other side is trying to kill us", it's a nice read that appears as "Man vs Nature" not "Man vs Man" plot. Even China is treated as "Nature" with "China's disruptive entry" into the world causing all those jobs to be offshored - as if it wasn't a thousand cold decisions by factory owners to ship jobs - first to Mexican maquiladoras, mostly, then the China when they were even cheaper.
Income inequality is a "Man vs Man" plot, still being played out, as the author notes, with Republican hostility to any alleviation. The challenge of "industrial policy" is to induce the owners of all the capital to shift their investments with carrots; there's still no sticks to be used - so that it can look like a "Man vs Nature" story, with the only "bad guys" being the lack of investment or research, or anything neutral.
In the Everything Bagel industrial policy and its potential impact on the US economy. The policy seeks to encourage innovation and investment in key sectors of the economy, including advanced manufacturing, clean energy, and digital infrastructure. One way to ensure that the policy leads to an effective outcome is through federally funded technology competitions. Such competitions can drive innovation, promote collaboration among industry players, stimulate grassroots inventors and identify the best technology solutions for a given problem.
The proposal we made to the Biden Administration regarding the 2nd Generation Superconducting Maglev transport system is a good example of how federally funded technology competitions can contribute to the success of the new industrial policy. This high-speed transport system, invented by the late Drs. James Powell and Gordon Danby, could complement the existing rail and highway infrastructure by showing investors, the public, and the media how well this zero-emissions, very low energy per ton mile transport would be in comparison to similar systems being developed and by foreign government investors.
Technology competitions can serve as a catalyst for innovation, bringing together researchers, engineers, and entrepreneurs to develop new technologies and products. The competition can be designed to identify the best solution to a particular problem, such as reducing greenhouse gas emissions or improving energy efficiency. In the case of the 2nd Generation Superconducting Maglev transport system, a competition could be designed to identify the best technology for high-speed transportation in the US.
By funding technology competitions, the federal government can also promote collaboration among industry players, including startups, established firms, and research institutions. Participants in the competition could be encouraged to form partnerships and collaborations to develop more effective solutions. Such collaborations can lead to the creation of new products, services, and technologies, which can boost economic growth and create jobs and accelerate the development of critical infrastructure that will help the world meet the zero emissions goals.
Finally, technology competitions can help identify the best technology solutions for a given problem. In the case of the 2nd Generation Superconducting Maglev transport system, a competition could be designed to identify the best technology for high-speed transportation in the US. The competition could evaluate the performance, efficiency, and safety of various transport systems, and identify the best solution for the US market. This information could then be used to inform policy decisions and guide investment in the transportation sector.
In conclusion, federally funded technology competitions can contribute to the success of the new industrial policy by driving innovation, promoting collaboration among industry players, and identifying the best technology solutions for a given problem. The proposal to showcase the 2nd Generation Superconducting Maglev transport system is a good example of how such competitions can be used to identify the best technology solutions for key sectors of the economy. By investing in technology competitions, the federal government can help ensure that the new industrial policy leads to a more effective outcome, boosting economic growth and creating jobs.
OK. I'm totally on board, but I do have to question one of the assumptions. There's no question that WW2 changed everything in the U.S. economy. Out of it, we had a stronger middle class with much less inequality. What could possibly go wrong?
Let's start with debt. Government debt to GDP ratio hit over 120% by the end of the war a level not achieved again until the COVID crisis in 2020. Interestingly, we saw many signs of decreasing inequality starting to show up in the years since 2020. One might be tempted to draw a conclusion that running huge debts itself is part of the answer, but there's more there than that. The proceeds of the debt do have to be invested wisely. Let's hope the Biden policies are wise.
The other caution I'd add is that the world was a very different place in 1946. The only parts of the world that weren't devastated by the war weren't serious economic competitors to the U.S. (Africa, S. America). The U.S. was the only country in the world with the ability to produce the goods the world needed to rebuild in the quantities required. For U.S. workers, this was a huge shot of steroids that lasted for a generation, but it's gone.
My point is not that the industrial policy is wrong, but no matter how you slice it, it isn't going to be as spectacularly successful as that of the end of WW2. If we use that as the test case, it's going to appear to be a failure.
The traditional success stories for industrial policy are catch-up stories: the American colonies learning to make what they'd once bought from Britain, Japan and the Asian Tigers going from poor to rich.
Can industrial policy make a real difference in countries that are already rich and have high labor costs?
I guess we'll find out!
Do we really have to give up on free trade though?
My hope has been that we better articulate the distinction between "strategically important" things like semiconductors and "random crap" like sneakers and fidget-spinners...
I have a son who is a bit of a Bernie-type socialist, and he gets caught up on the healthcare issue a lot to say markets don't work. My counter is always that *most things* aren't like that - free market capitalism is doing just fine for getting you Doritos and donuts and most "normal" things you purchase. I feel the same argument applies to free trade.
Yglesias suggests we won't have fiscal room to keep spending like this on industrial policy without either raising taxes or triggering inflation. Is he right?
If he is right, and we want to watch our budget and support these industries at the same time, what are the cost-effective options?
Is there a more efficient way to encourage semiconductor plants and electric cars than writing checks on an inflation-constrained national budget?
Noah,
Another thoughtful piece as always.
As the former Chief Economist at PJM Interconnection (largest wholesale power market inn the world and 2nd or 3rd largest dispatched power system globally), I have seen this coming for years...industrial policy based on climate and environment. The changeover from coal to gas and now moving to renewables is staggering in its rapidity since 2008. To date much of this policy has been decentralized with the states, but EPA policy has also been a big driver during the Obama years and now with Biden. This all works had in glove with the industrial policy we see at work now.
What I fear is the lack of faith in market mechanisms and incentives that could lead us down the path where we found ourselves in the 1970s and 1980s with an overbuilt, costly (see nuclear), system which drive the reforms of the 1990s with EPAct 1992 that led to wholesale power markets we see today. The emerging command and control mentality is going to lead us back to high cost power (contrary to the concrete promise) due to the desire to over build transmission assets and the reliability need to overbuild renewable resources which ties directly into national security issues.
The problem I see in my part of the world is environmentalists do not understand the physics and reliability needs of power system operation and control. The right wants to dictate old technologies that should go away and have forced through the Cory’s leas flexibility in environmental policy (see the press reports on forthcoming GHG rules for power generation as a replacement for the Obama era Clean Power Plan).
I happen to agree with the main ideas of the Biden industrial policy, reducing market power and dominance, and onshoring industrial production. But the implementation details matter. If we botch the power system aspects, which are a necessary condition for the rest of industrial policy, we will have nothing to show for it. We need a complete rethinking of how the power system works, how to manage intermittency, and minimize costs to avoid going back to the 70s and 80s problems. This is far from insurmountable but does require thoughtfulness and thinking outside the traditional boxes and silos most operate in today.
Targeting "job creation" is our ugly mirror of China's provincial GDP targets and should be viewed with similar skepticism. The PRC builds empty apartment towers, we build factories then shut them down. We're great at cutting ribbons, less up on sustainability or market fit. We celebrate the shiny new headquarters while ignoring that all those jobs were just moved across a state line.
We should acknowledge the failure modes of the former consensus, empowering Beijing. That doesn't mean we should develop amnesia for the failures of protectionism.
Must we prioritize 6,000 steel jobs over 6,000,000 factory jobs that rely on steel as an input because that's just the way the wind is blowing? Should we go ahead and spend $926,000 per job saved in a blue collar industry for the sake of the headlines? Should we go ahead and rip safe infant formula out of mothers' hands and then pat ourselves on the back for our ability to adapt to the new status quo?
When states play the market it often goes poorly, often undermining the very goals the state is pursuing. We're watching this play out in slow motion and nobody is willing to admit it yet on either side of the aisle. Here's how:
A bias for trade was too permissive, but the reactive bias against trade has led to Biden-admin skepticism for President Tsai's signature push, a trade deal with the US. Taiwan has chips and we have beef, among a million other temperate zone agricultural products that are absurdly expensive on the island. The trade compatibility couldn't be better, and would directly blunt the PRC's use of economic coercion. By flatly rejecting these overtures and preferring a "jobs-focused" trade policy, it weakens the DPP relative to the KMT, creating an opening for the historical party of Beijing accomodationists. The KMT cannot campaign on unification post Hong Kong, but it can now campaign on offers of resumed trade with Beijing for various political concessions. DPP's focus on a trade deal it could not deliver most notably brought an exit strategy for TSMC, a path to weaken the silicon shield.
We're gutting the WTO, even though it's the only international body that had actually compelled changes in PRC behavior. Rare earths took a couple tries, but the second case was decided far faster than the first, and it seems to have sunk in.
The TPP was loaded with handouts for aggressive IP protection for our content industries, and there were other deeply questionable provisions. Nonetheless, Hanoi wants trade, and unlike the PRC, is willing to normalize excesses in its political and economic system to get it. The provisions in these regional agreements constrain authoritarian governments, creating a safe haven for businesses, spreading rule of law through a subtle backdoor. Walking away from the TPP was not a pro-jobs move, for most jobs, it was not pro-democracy or rule of law, it was certainly not a move to contain the PRC. It had massive flaws, but the solution was to fix it, and funnel the domestic trade surplus into trade assistance, not abandon it.
Where economists develop a consensus and the public disagrees, your problem is branding. The solution is not to simply give up on everything. Tie tenure to fewer articles and more billboards, give nobels for communication and marketing as often as theory.
In the meantime, I long for the days where our industrial policy does not target GDP or job growth, and someone picks up a book and reads about Goodhart's Law. One day we might actually target just *improved human welfare,* whether that means working fewer hours or more, whether that means enjoying things, or services, or even just leisure. It's easy to forget that the goal isn't to make some number go up on paper, it's to ensure people can live full, happy, and valuable lives.
I wait for that day. In the meantime, long live the Jones Act I guess. This is our curse for finding sanctuary on econ blogs, then never going outside to talk to anybody else.
Nice, but one small contradiction. Not all economists are free trade enthusiasts. Perhaps my background as an industrial worker is the cause. However, I clutch my Ph.D diploma and argue for what is describe as reality about trade. On it's surface, the doctrine of comparative advantage is unassailable. Given their climatic endowments, Hawaii should grow pineapple and Idaho potatoes. They will then benefit from trading their respective surpluses. The catch is that this result only holds where endowments and technology are fixed. With constantly evolving technology, comparative advantage becomes a Red Queen's race. The value of endowments and lowest costs of production will constantly change driven by competition. The United States lost comparative advantage in manufacturing in part because corporate leadership no longer understood their own firm's production technology. Applying only financial metrics, outsourcing towards lower labor costs appeared more profitable than internal investment.
The success of this new industrial policy really depends on quickly Getty some large successes. Right now it’s all promises, ground broken, but nothing actually completed.
For instance Microns proposed Fabs in Boise and New York. Shortly after Micron made these announcements for billions dollars of spending, the market went soft. In Boise, Micron laid off people and froze hiring even though the project is moving a long slowly.
Until one of these large infrastructure projects is completed and we can see concrete results, will people really support the project. It’s the same for rail and energy. We need to see results, where real people have jobs and their is real production.
"The new industrial policy is intended to strengthen the U.S.’ hand against China, and an attempt to at least partially reverse the rise in inequality that happened in the 80s, 90s, and 00s."
Sounds a lot like an agenda to make America great again. :-)
To be fair, as someone who essentially likes that economic agenda, I'm not picky whether its championed by the Left or the Right. But it is pretty funny that the entire establishment of this country (Left and Right -- universities, labor unions, big business, government bureaucracies, media) would spend 4 years telling us that this agenda was going to destroy America and democracy, that the American press would abandon any semblance of objectivity, declare that "making America great" was code for fascism, and set itself the job of destroying the man who articulated those words... only to embrace the same agenda immediately once their preferred candidate won.
The root cause origins, from my personal observations working at one of top free trade globalization companies GE follows:
Around the mid 1980s, 5 yrs in, Jack Welch determined he didn't like a lot of manufacturing. He got rid of everything that was- high union, low margin, not 1 or 2 market share. Jack, as evidenced by his RCA acquisition, sold off Research and Innovation giant Sarnoff labs; manufacturing of TVs, RCA defense, space and aero businesses.
Jack kept NBC. It was "Japan proof". Japan held the place of threat back then that China took over as to buying everything and making everything. Before Rupert, foreign ownership of TV media was not allowed.
Jack's love became the "low people intensity" of service. He came to despise internal Innovation and capex. He bought up R&D and service companies instead of investing.
This was the the launch of the mindless short sighted "free traders" and globalization. In reality, just my guess and feel here, free trade did not increase at all US-EU. Instead, it was all a cover for making China the low cost manufacturing site for the US.
The Conservatives thought exporting US manufacturing jobs to China, and post Soviet Russia, would carry over to exporting western style democracy. Oops! Flawed to the infinite.
Finally, we are starting to get our senses back. The strongest nations Build!
Excellent analysis, the part about not having an industrial policy being an industrial policy favouring financial institutions is insightful and probably accounts for a good portion of America's industrial decline. If USA can execute well and I would not bet against the USA - for all its shortcomings it is THE place where great things can happen - it will define economics for the next few decades.
Free market capitalism doesn't apply to healthcare for numerous reasons. Fundamentally, consumers are at the mercy of the providers due to exigent nature of a medical incident, so the supply/demand balance is out of whack. Insurance to the rescue! In other circumstances (when the provider creates the exigent circumstance for the consumer) we call them a mugger (your money or your life!). Most people are happy to pay up when the cost (your wallet) is small compared to the asset at risk (you). That is probably why there isn't a market for mugging insurance. Since a heart attack can literaly cost you your house if you don't have insurance, most people are happy to pay protection money to stave off the medical muggers.
Another reason healthcare won't be reformed anytime soon is that it is a jobs program, much like bank branches, cellphone stores, tax preparers, etc. It keeps people of normal intelligence gainfully employed turning the gears of artificially complicated processes.
You are confusing trade policy towards China with trade policy generally and creating factory jobs with having munition factories to win a war. At a minimum the US should have a policy of free trade for free people, but what Biden is doing is forcing European countries to decide if they also want to provide lavish subsidies to compete. If you want to argue for the death of free trade, explain why you believe that a subsidy war with Europe is a good idea because that is the policy that’s actually being implemented. And clean energy production at home does not make bombs. Reshoring chips is closer to the mark, but the fact remains that Ukraine is easily firing more howitzer shells than we can make let alone something with a computer chip in it. This is our problem in a potential war with China, not where solar panels are manufactured. You’re right that free trade did not democratize China, but that’s no reason to throw out free trade in general, particularly for the free world.
1. It’s about time
2. Much more needs to be written; discussed and turned into policy on this
Key points for me/
- …” to restore an economic mentality that champions building. And that is the core of our economic approach. To build.”
- “ a foreign policy for the middle class”
- the type of growth DOES matter
- This feels very electable / voteable - “ American consumers and workers that they’re going to get cheap electricity, a nice new electric car, a better job, safety from climate change, and safety from domination by the Chinese Communist Party”
In a political world where everything is about "the other side is trying to kill us", it's a nice read that appears as "Man vs Nature" not "Man vs Man" plot. Even China is treated as "Nature" with "China's disruptive entry" into the world causing all those jobs to be offshored - as if it wasn't a thousand cold decisions by factory owners to ship jobs - first to Mexican maquiladoras, mostly, then the China when they were even cheaper.
Income inequality is a "Man vs Man" plot, still being played out, as the author notes, with Republican hostility to any alleviation. The challenge of "industrial policy" is to induce the owners of all the capital to shift their investments with carrots; there's still no sticks to be used - so that it can look like a "Man vs Nature" story, with the only "bad guys" being the lack of investment or research, or anything neutral.
Noah,
In the Everything Bagel industrial policy and its potential impact on the US economy. The policy seeks to encourage innovation and investment in key sectors of the economy, including advanced manufacturing, clean energy, and digital infrastructure. One way to ensure that the policy leads to an effective outcome is through federally funded technology competitions. Such competitions can drive innovation, promote collaboration among industry players, stimulate grassroots inventors and identify the best technology solutions for a given problem.
The proposal we made to the Biden Administration regarding the 2nd Generation Superconducting Maglev transport system is a good example of how federally funded technology competitions can contribute to the success of the new industrial policy. This high-speed transport system, invented by the late Drs. James Powell and Gordon Danby, could complement the existing rail and highway infrastructure by showing investors, the public, and the media how well this zero-emissions, very low energy per ton mile transport would be in comparison to similar systems being developed and by foreign government investors.
Technology competitions can serve as a catalyst for innovation, bringing together researchers, engineers, and entrepreneurs to develop new technologies and products. The competition can be designed to identify the best solution to a particular problem, such as reducing greenhouse gas emissions or improving energy efficiency. In the case of the 2nd Generation Superconducting Maglev transport system, a competition could be designed to identify the best technology for high-speed transportation in the US.
By funding technology competitions, the federal government can also promote collaboration among industry players, including startups, established firms, and research institutions. Participants in the competition could be encouraged to form partnerships and collaborations to develop more effective solutions. Such collaborations can lead to the creation of new products, services, and technologies, which can boost economic growth and create jobs and accelerate the development of critical infrastructure that will help the world meet the zero emissions goals.
Finally, technology competitions can help identify the best technology solutions for a given problem. In the case of the 2nd Generation Superconducting Maglev transport system, a competition could be designed to identify the best technology for high-speed transportation in the US. The competition could evaluate the performance, efficiency, and safety of various transport systems, and identify the best solution for the US market. This information could then be used to inform policy decisions and guide investment in the transportation sector.
In conclusion, federally funded technology competitions can contribute to the success of the new industrial policy by driving innovation, promoting collaboration among industry players, and identifying the best technology solutions for a given problem. The proposal to showcase the 2nd Generation Superconducting Maglev transport system is a good example of how such competitions can be used to identify the best technology solutions for key sectors of the economy. By investing in technology competitions, the federal government can help ensure that the new industrial policy leads to a more effective outcome, boosting economic growth and creating jobs.
OK. I'm totally on board, but I do have to question one of the assumptions. There's no question that WW2 changed everything in the U.S. economy. Out of it, we had a stronger middle class with much less inequality. What could possibly go wrong?
Let's start with debt. Government debt to GDP ratio hit over 120% by the end of the war a level not achieved again until the COVID crisis in 2020. Interestingly, we saw many signs of decreasing inequality starting to show up in the years since 2020. One might be tempted to draw a conclusion that running huge debts itself is part of the answer, but there's more there than that. The proceeds of the debt do have to be invested wisely. Let's hope the Biden policies are wise.
The other caution I'd add is that the world was a very different place in 1946. The only parts of the world that weren't devastated by the war weren't serious economic competitors to the U.S. (Africa, S. America). The U.S. was the only country in the world with the ability to produce the goods the world needed to rebuild in the quantities required. For U.S. workers, this was a huge shot of steroids that lasted for a generation, but it's gone.
My point is not that the industrial policy is wrong, but no matter how you slice it, it isn't going to be as spectacularly successful as that of the end of WW2. If we use that as the test case, it's going to appear to be a failure.