I am willing to bet that in 2030 you will regret your enthusiasm for industrial policy. Call this a vague broadside, but I don't think that our government is capable of running this type of program in a way that ends up achieving (or even working toward) its goals and not becoming utterly corrupt. How are those ethanol mandates workin' out for ya?
Personally I think semiconductors, the ARPAnet, GPS, nuclear power, lasers, semiconductors, literally every vaccine including the Covid ones, MRIs, satellites, barcodes, fracking, the Human Genome Project, the civilian aviation industry, and all of the other wonderful things the US government funded or outright created have been working out great. Thanks for asking!
+ 1 this. It’s like people don’t know the economic history of the US and how much of its technological innovation and growth came from government investment lol
Innovation and production are two different animals. The first involves a small number of researchers and limited funds; the second requires lots of capital and business savvy. Government is awful at the second. Business spent over 1 trillion delivering internet to 99% of Americans in less than three decades, an amazing accomplishment.
The US has consistently subsidized production lol what are you talking about?
The US subsidized the production of chips, high tech components in the bust cycle of the 1970s, and most recently has subsidized the car industry, the plane industry, agriculture, oil etc. Businesses like Boeing, Tesla and SpaceX exists because of US support for production. And the production of the 3 COVID vaccines and subsequent treatments were heavily subsidized by the US.
As Noah has written about before, the idea that the US has been a bastion of only free trade is ahistorical and the reality is that the US has consistently put its thumb on its scale. Industrial policy may not have been popular in the US for the last 30 years, but there’s a deep history there and the US has been ok.
This isn’t to say that there is no role for private companies - there absolutely is. I think the correct approach to industrial policy is the government setting high level objectives for businesses and letting businesses figure out how to meet those goals (a bottoms up approach), as the US did when partnering with private companies in WW2 that led to overwhelming production.
Please don't use ISPs as an argument for industrial policy. They have consistently taken taxpayer subsidies and then failed to deliver. If I thought our latest foray into industrial policy was going to be as effective as our efforts at encourage internet access I would have to start agreeing with CATO and Heritage and I really don't want to be in that position.
120 million us households, out of 129 million, have access to broadband internet services. And the number continues to increase. How is that failing to deliver?
Again, see my note - for most Americans, internet is slower and more expensive than the rest of the developed world (Japan, Korea, most of Europe, etc).... And for many of us, it is incredibly flaky as well).
Huh, not sure where you live - internet in the US sucks. It is far behind most of the rest of the developed world..... And it is cheaper elsewhere and it was done at least as quickly if not more so....
I reckon one of the challenges of "industrial policy" is the term (very much like liberal, conservative, progressive, socialist, neoliberal, libertarian, neocon, free trade, open borders, mass immigration, misogyny, woke, etc) can mean a lot of different things, depending on context, and depending on the user's intent.
I believe virtually everyone (even the hardest of hard core libertarians) is on board with the notion that, if there are things vital to the country's well-being (especially national defense) America absolutely cannot live without—and only government action can guarantee their availability—well, you gotta do what you gotta do.
Also, many broad areas of government action could be classified as parts of "industrial policy" (again, depending on what the user of that term wishes to convey), even when the policy in question tends to be more or less sectorally agnostic. So, government ensures, say, a strong transport sector. Or an adequate supply of skilled workers. Or sufficient funding for basic research. And so on. All highly proper.
What free market types tend to get a bit queasy about is what they derisively call "picking winners."
Some of the areas you cite are things we definitely wouldn't want to live without (satellites, HGP, vaccines). But it's a stretch to call all of them "industrial policy" (some are military R&D that happily found civilian uses; nuclear energy is a classic example of this). Again, the term can mean different things.
But, just to play devil's advocate: We leveraged WW2 and later Cold War spending into lots of things that proved useful to civilian life. Which is great. On the other hand, we were steadily spending 9-11% of GDP on defense 20+ years after Tokyo Bay. We can't visit the alternate reality where WW2 and the Cold War never broke out, and fantastic quantities of resources flowed not to defense-related production and research but to purely civilian uses. Would we not be better off now if that alternate reality were our own? Like, did spending 9% of GDP 1950-1970 instead of 2% *not* make us poorer than would otherwise be the case?
So, my general position on the most recent iteration of "industrial policy" in the US context is: we gotta do what we gotta do. If we can't depend on foreigners for things we absolutely need, then let's get on with the task of making them. And let's hope for the best in terms of positive externalities. But let's be clear we're doing these things because there's no alternative, and not because we know better than markets how to allocate capital over the long term to maximize broad economic strength and living standards.
That’s a pretty ridiculously broad claim of what government created. Taking just one item from your list, semiconductors, if you read the book mentioned in the post “Chip War” you’ll see that the transistor was created by private research at Bell Labs, and integrated chips by Fairchild and Texas Instruments, the only role the government had was buying a few of the early ones for missile guidance systems and NASA, but most production was for private sector customers. That wasn’t industrial policy, it was just being a well funded buyer and an absence of regulations.
Bell Labs got considerable support from the government. Read Bill Janeway's book, "Doing Capitalism in the Innovation Economy". Janeway is both a private equity financier and a trained academic, so he sees this from both ends. He suggests that the government provides the platform, which facilitates the sorts of activities done in Silicon Valley, Marianna Mazzucato makes a lot of the same points in her works.
Ah you’re cherry-picking. Lost Future said, “US government funded or outright created...”.
While the government didn’t create all the things that Lost Future identifies, it certainly did have a hand in funding them.
Let’s use Boeing as an example. The government didn’t create the B707. But it did fund Boeing’s massive R&D spending by purchasing the military version of that aircraft. This funding enabled Boeing to be the first mover in the burgeoning global jet aviation industry, which then enabled it to dominate for decades, generating considerable wealth for itself and the entire U.S.
The economy is a human invention that should serve us. It is not some magical god we must serve to our detriment. If sound industrial policy delivers better national security and accelerates decarbonization, even if it results in some lost efficiency, then I will make that trade all day long.
According to legal documents disclosed Tuesday, Sharon Bush's lawyers questioned Neil Bush closely about the deals, especially a contract with Grace Semiconductor Manufacturing Corp., a firm backed by Jiang Mianheng, the son of former Chinese President Jiang Zemin, that would pay him $2 million in stock over five years.
Marshall Davis Brown, lawyer for Sharon Bush, expressed bewilderment at why Grace would want Bush and at such a high price since he knew little about the semiconductor business.
"You have absolutely no educational background in semiconductors do you?" asked Brown.
"That's correct," Bush, 48, responded in the March 4 deposition, a transcript of which was read by Reuters after the Houston Chronicle first reported on the documents.
"And you have absolutely over the last 10, 15, 20 years not a lot of demonstrable business experience that would bring about a company investing $2 million in you?"
The human genome project was expensive and slow compared to a private initiative. The Civil Aeronautics Board was abolished under the Carter Administration, which apparently thought it was doing more harm than good.
But more important, the examples you give are industries that were new, and government funding helped to get them started. Now we are talking about existing industries, and I find it hard to come up with examples where massive intervention in an existing industry has been constructive.
I'm fairly confident that you need to first have an existing industry before you do cutting-edge research and invent something new based on it. Satellites, rockets, the ARPAnet etc. required an existing manufacturing base and technological know-how to develop off of.
You may be ideologically predisposed to dismiss the examples of Japan, South Korea, Taiwan, China and Germany moving up the value chain of industries that already existed (steel, shipbuilding, construction, simple electronics, automobiles etc.) But those would be the strongest examples. I'm finishing 'MITI and the Japanese Miracle' by Chalmers Johnson right now
I'd like to note that first you said 'I don't think that our government is capable of running this type of program', then when I presented you with tons of examples (GPS, nuclear power, the ARPAnet, etc.), you switched gears to 'OK so it works for new frontiers, but not existing industries'. Then I gave an example of other developed countries that became wealthy through industrial policy by copying existing industries pioneered by others (steel, shipbuilding, autos, electronics) and your argument became 'well sure maybe Japan did that in the 50s through 70s, OK, but that book is old....'
Showing examples of successful government action is just an apocalyptic scenario for libertarian worldview types (I guess including you, I think you're someone I've heard of). So there has to be an all-out defense of ever-changing rhetorical arguments to handwave away the plain fact that several advanced economies have successfully done this several times over the last 150 years. It's like a psychological defense mechanism!
You're making me out to be more dogmatic than I really am. If you were to READ Krugman's article instead of straw-manning me, you would see that he argues that industrial policy was never a big win for Japan.
That article appears to be written by a single junior fellow at an international-relations think tank rather than "Economists", but in any event, it's quite possible that part of the causal graph here is (MITI) → (Japanese catch-up growth) → (Japanese economic miracle); "catch-up growth" is just a name for a phenomenon, where it happens it must happen through actual mechanisms, and industrial policy may be one of those mechanisms.
I'm not convinced a direct comparison of the HGP to "a private initiative" (presumably that of Celera Genomics) tells us much about what would've happened without government funding/backing. The HGP preceded Celera's sequencing initiative (hence why the HGP was "slow" despite publishing its draft sequence at about the same time as Celera) and may well have provoked it, and Celera used existing sequencing data from GenBank (funded by the NIH, NSF, DOE,and DOD!) to kickstart its effort. More money did supposedly go into the HGP, but I suspect that's an artifact of different financing. The HGP frontloaded its funding whereas Celera expected to recoup its costs later by patenting gene sequences and charging for full data access.
Regarding the CAB, I'm not sure I would treat the Carter Administration's judgment as probative.
On the general claim that Lost Future's examples are of "industries that were new", isn't this really just a camouflaged lumper/splitter dispute over which industries to count as new? Why would COVID-19 vaccines count as a product of a "new" industry rather than as a product of the decidedly old pharmaceutical sector? I find it odd that the worth of industrial policy would hinge on this taxonomic lumping-versus-splitting question.
I don't like to settle it on the basis of "my anecdote vs. your anecdote," either. That is why I proposed a bet. Will *this* set of industrial policies lead to good outcomes or not? I think that the outcomes will be close to the ethanol mandate (generally agreed to have bad outcomes and to persist because of an entrenched constituency) and far from DARPA under Lickleider.
No objection to proposing bets, but if we have difficulty figuring out causation in historical cases like the HGP, I'm not sure it'll be much easier to figure out causation ("lead to") to resolve a bet about the future. In any case, if the decisive matter is the bet, then all this stuff about the HGP and the CAB and Japanese catch-up growth is a sideshow.
The government genome project started in 1990, Craig Ventner didn't get Celera Genomics going until 1998 to outpace the government's method. Would Ventner have started Celera without the government first going where no private company would dare? Kind of like NASA being able to hand off the workload to SpaceEx etc al. Government is a facilitator, but not the end game, in a perfect world.
Noah gets this correct. It's the last 40 years of neo-liberal economic policy that have been an outlier. For most of American history, we had distinct economic goals which were fostered by government. The original term for "economics" was "political economy" for a reason.
Well one point of view could also be that without the government much of capitalism wouldn't even be around. If you think of the numerous times that the taxpayers, through the government had to bail out the great capitalists of this country because they go too far and can't control themselves, you would need both hands. Just the latest example was 15 years ago when we spent incredible amount of bail out all the banks, some of the richest SOBs in the country. That wasn't a corrupt government that was corrupt bankers and insurers. The government is vitally important to jump, start and throw cash at things that need to happen. I didn't see private enterprise bringing chips back to the United States or working on climate change. And if they are, it is not coming near fast enough to make it difference. There must be a partnership between government and business and taxpayers. Businesses can be just as corrupt as government, Even more so.
You bring up ethanol mandates. I wouldn't necessarily call that corrupt government. We learn from our mistakes and we try to do better sometimes your ideas and theories of what's going to work don't turn out.
Of course capitalism would not be around without government. And of course businesses can be corrupt. But when business makes enough mistakes, it disappears (unless it gets a government bailout). The ethanol mandates are here forever. There is no learning from mistakes in that sense. I am not dogmatically against government and in favor or markets. But I have a view of the types of circumstances in which government intervention tends to go awry, and trying to steer the economy through big subsidies to an industry is one of those.
Adding to all other comments, this is also an answer to a different thing. "Will the government be actually able to deliver" is different from both "should the government deliver" and, more importantly, "is the government attempting to deliver better than status quo".
Buy American for military equipment has essentially been a pilot program for the larger economy. At some point Cold Warrior senators figured out that defense spending and Buy American requirements for defense manufacturing and giving our NATO partners military equipment didn’t exacerbate inflation…which is why we spend $800 billion a year on defense. So the Military Industrial Complex creates solid union jobs and military jobs (great for young men who are responsible for most violent crime) and leads to technological advancements and keeps us safe.
Very helpful post in distinguishing the goals of industrial policy from manufacturing jobs creation.
One of the reasons that industrial policy and jobs creation are twinned together is local/state governments competing for these new businesses and factories. The smaller the unit of government, the less credible is touting the twin goals of climate and defense.
Just like the US can only do so much alone in fighting climate compared to a global view.
"China has one of the world’s top electronics manufacturing clusters; the U.S. no longer does. Perhaps industrial policy could help create an advanced electronics manufacturing cluster in the U.S.; it’s a question at least worth thinking about."
This. The most advanced semiconductor chips are useless without resistors, capacitors, diodes, circuit boards, power supplies, etc. And the U.S. has little to no capability for producing these, arguably, commodity items since the margins are so low. If you cannot manufacture an entire computer from domestic components you may face a severe challenge. Particularly if your enemy is the global source for the SMT resistor.
How do we get an industrial policy that isn't diverted into giveaways?
China's own quest for "national champions" has delivered few champions but titanic corruption. Many of Japan's technology bets foundered. Why are America's odds better?
Why do we think that we'll unlock new investments that wouldn't have happened, as opposed to handouts for what companies were already planning?
I want industrial policy that actually gets us closer to green power, chip diversification, new antibiotics and the rest. I don't want a bunch of giveaways that only improve corporate earnings, and don't accelerate more actual progress. I definitely don't trust the government to automatically get this right.
How do we get industrial policy that makes a difference, instead of industrial policy that makes a giveaway?
We don't have industrial policy but we still have giveaways today. China had titanic corruption before its quest for national champions, just look at articles like "The Intensification of Corruption in China", which is from 2004 and talks about how corruption in China became "epidemic" by the late 1990s.
So what if "many" of Japan's technology bets foundered? That's like whataboutism that "many" of Andreessen Horowitz's technology bets foundered. Why shouldn't a nation take that same VC-oriented approach of caring more about 100x wins than than the 90% that fail?
For a line in the sand: let's say that the total cost of industrial policy shouldn't exceed the total cost of all current local, state, and federal support to businesses (including things like federal contracting guidelines that encourage picking small businesses simply because they are small) before it becomes "corporate welfarism".
I would argue that some of the IRA industrial policies are going to do wonders for getting us to green power; the reality was that electrification was going to slow in the US. I think the US took the right approach of being agnostic on what technologies would be winners, funding research, and helping consumers transition to better power sources (EVs, heat pumps).
I’m less sanguine on the CHIPS acts. With energy, there is a lot of competition that works to drive down prices and acts as a check on businesses just rent seeking; with semiconductors there are not. One thing that does give me hope is that their is semblance of oversight on the US and we can adjust if need be.
Hi, Noah. Off-topic, someone is trying to impersonate you here on Substack as I received an email. This may be a scammer please check. I am not sure if that's you who shared me the email address: //substack.com/profile/157161289-noah-smith?utm_source=substack_profile
I was so worried. It felt just like being sent to the principal"s office: "This is the last straw. I've had it up to here with your insufferable comments... your refund is on its way"
Someone please help me understand the FRED graph. (And please note that I stopped reading to write this concern. Please accept my apologies if the answers appear further into the article.)
The CHIPS Act and the IRA were passed in mid August of 2022. The upward spike in the graph looks to start in November or December of 2022.
How, than, were these projects able to go through the planning and permitting process and move into construction in less than 2 months? It would seem that there are three options:
1) The numbers do count work done on planning.... somehow.
2) This country is blessed with some amazing project managers who only work after large government programs are funded.
3) The effect we are seeing was primarily due to some other cause, such as the market's response to supply chain issues that had become obvious two years earlier.
And a cynic might note that politicians are much more likely to vote for things that they know will look successful in the near future.
JES has a good point. The planning and financing cycles for capital investments of this magnitude are too long for CHIPS or IRA to have had this effect. The political will and matching regulatory environment to re-shore / on-shore high tech industrial production was started with the previous US administration. This focus has now become bi-partisan. This is how government is supposed to work, good governance, in this case re-shoring / on-shoring industrial capacity, is a policy both parties recognize needs to continue.
My hope is that we will see similar awareness and focus in Canada from all our political parties and corporations.
I haven’t seen anyone in an airport reading any paper magazines in years, your comment sounds like one someone trying to think they are funny would make.
Mad respect, always with the good analyses. My biggest fear is on decarbonization though. That’s not what this industry policy is thinking about. They just need more renewable energy to continue growing the pie. Sure, fossil fuels will drop relatively, but still increase wildly in magnitude from new energy demands like desalination that can only be met with high energy density fuels. There is simply too much fossil fuel and it’s too profitable to ever allow themselves a decrease in profits. Even if they add their own renewable energy into the mix, fossil fuel industry at the moment is dedicated to increasing output without anyone blinking an eye. Thus electric cars, green energy- these things are only possible now because the fossil fuel lobbyists didn’t kill them, they’ve adjusted and prepared just fine for the future.
And to be clear, decarbonization of new any energy sources is fantastic. I’m just guessing fossil fuel demand will still continue to grow at even a greater pace than ever before, and criticism of it will be lacking. And that the administration knows this, taking Willow project as an example.
I think the oil producers realize that fossil fuels are on the way out. The clearest evidence comes from the Gulf Arab states, whose economies are almost totally dependent on oil and gas exports but which are also leaning into decarbonization pretty hard:
The "Guardian" predictably tries to spin this in a negative way, pointing out that the UAE plans to continue producing oil and gas. But the Persian Gulf has the world's lowest production costs for oil, so even if global consumption falls sharply you should expect these countries to keep pumping until the very end.
What they've realized, though, is that *prices* for oil are going to drop significantly in that scenario, so they need to diversify their economies away from dependence on a single product.
The fact that these are also the world's hottest inhabited regions, and probably the first to become uninhabitable if things get out of hand, is surely a factor too.
Natural gas is now more important than oil…it’s not a coincidence that the 3 most important natural gas countries will have hosted the last 3 World Cups after 2026…and the 4th is hosting the women’s World Cup right now!
They have known this for over 20 years. In 2000, I was working as a consultant for BP when they changed their name to “bp” and started talking about going “beyond petroleum”. The major energy companies employ some of the most talented engineers in the world who understand the transition needed. They also have talented financial professionals who understand how to allocate large sums of capital to big projects. They have to be economically viable. Now that renewable energy projects are transitioning from fantasy to reality, they will be big players. They will have to in order to survive. We would be better off now if the effort put forward to demonize the industry would have been used toward collaborating with it.
Since at least the beginning of WWII, the US has been engaging in a multi-trillion dollar "experiment" in top-down industrial policy: It's been overseen by the Department of Defense and referred to colloquially as "defense spending." I guess the opponents of industrial policy have simply chosen to ignore all that.
Specific catalogued broadside: U.S. history has proven industrial policies work. In fact, the knock-on effect of these policies are still with us today: railroads (one knock-on effect: initial funding to create Stanford University); State Land Grant University System (still the envy of the world); Interstate Highway System (knock-on effect, take your pick: every major trucking freight company, UPS, FedEx, et alia); bar codes/optics: US Postal Service; GPS DARPA (knock-on effects are endless); mRNA vaccines,; $4.2 billion sweetheart government loan to save a Tesla from bankruptcy).
The common theme is national security. When Eisenhower returned from WWI, he was in a convoy of military vehicles and equipment being transferred from the East Coast to the West coast. It was a sort of Oregon Trail experience. The roads were horrible and the convoy experienced difficulties all the way, including getting bogged down in mud (ask the Russians about mud in Ukraine). It took the convoy an extended period of time to complete its delivery mission. Eisenhower never forgot the experience. When he became President, having participated in two world wars, he understood first-hand the U.S. vulnerability was an attack on either coast. This was the impetus for the Interstate Highway System, which provided a means to move, if needed, military vehicles, equipment, etc. rapidly anywhere in the U.S. The impetus for DARPA’s creation of GPS was also national security. Russia had put a satellite, Sputnik, in orbit. You could see it travel overhead on every clear night. The U.S. needed a technology to track Sputnik. And it needed it NOW! There was no limit to the money thrown at DARPA, and nobody complained. (For that matter, few complained about the cost of the Interstate Highway System because everybody used it. Anyhow, the team leader of the DARPA GPS group, asked immediately after the success of creating a way to track Sputnik, if it could be reversed (read: tell a device exactly where it was on Earth. Nobody complained or even asked about the cost. A few years later, the GPS system was made available to the public. Again, everybody uses it. A little research reveals many stories of government money making infrastructure and technologies work for everybody. Here’s why government has to play this financial role: because the private sector has no interest in investing capital on the scale (billions) required to do big things that benefit everybody., when there’s no guarantee of success. Remember this when Libertarians such as Musk or Thiel start whining about the government (the government is Palintir’s biggest customer.) Billionaire libertarians, in practice, are lowercase libertarians.
Perhaps one should question some the basic assumptions behind the article and US policies. That climate change is an existential threat to humanity is not being challenged. Rather, the assumption that China is a military state with intention to invade and conquer. It isn’t. The second assumption that should be questioned is that the world is as it has always been and all the US has to do is shuffle a few things. Well, the world has changed exponentially and will continue to do so. The G7 countries that ruled the world in 19th and 20th centuries can no longer do so realistically. They represent about 10 per cent of the world’s population and a declining share of world’s wealth. It is not only China that is changing the world, it is also the “rise of the rest”. For its own success, US “industrial policy” can be about more collaboration with others, not as the world’s boss but in win-win partnership.
"So preserving the ability to make computer chips outside of China is critical to our national security. Some of that production can and will take place in friendly countries like Japan and Korea. But China may be able to interdict shipping from those places in the event of a war, so it makes sense to keep some production in the U.S."
although one could also argue that having a critical resource like chip production located in allied-but-threatened places like Taiwan is an excellent forcing mechanism to counter America's natural isolationist tendencies and making it impossible for the US to let Taiwan go Sudetenland style which would only lead to worse problems down the line. Just look at how much more disengaged in ME US policy has become since they achieved oil & gas self-sufficiency. An America that is no longer willing to play world police because they have achieved autarky is not a good thing.
"The first main purpose of industrial policy is decarbonization. Climate change is a major threat, even an existential threat, to our way of life. And we have only two options for stopping it: the mass global impoverishment of degrowth, or building a bunch of green energy to replace fossil fuel energy. That’s it. Those are our only two options. "
isn't this a bit like a Malthus contemporary saying the only two options to avoid starvation are to have fewer kids or to conquer other people and take their land? There is _always_ a potential technological innovation solution to these problems. These solutions are hard to pinpoint ex ante and sound very deus ex machina, and am not instinctively satisfied either with just blindly trusting they will magically appear, but frankly _if_ we manage to stave off catastrophe I'd say the odds of us getting there through a technological solution are actually much higher than all humanity getting its act together (applies whether getting act together means achieving degrowth or effecting green transition, btw)
Green energy *is* the technological solution. Even if it's some novel thing that isn't solar panels or wind or whatever, it's going to count as "green energy".
Carbon capture with storage , solar shielding, new steel and concrete production and agriculture techniques are not green energy but reduce atmospheric warming, which should be the goal instead of decarbonization. Judging by how Noah doesn’t ever mention nuclear power, he probably doesn’t even consider that green energy, so he is artificially narrowing the domain.
well, green energy as a category could be part of the solution yeah. Solar/wind as at present, even if costs/efficiency shift by another order of magnitude, won't cut it (by themselves, although maybe could be marginal contributors to solution as part of a wider arsenal)
Agree re Cato. Half baked libertarian economic "thinking" of the chicago school that doesnt stand up to scrutiny or reality. Gets a lot of money from somewhere though: Alt right sympathisers, and maybe from foreign sources that do not always have the west's best interests at heart.
This is an incredibly unhelpful and boring addition to the discussion. If we are going to demagogue our opponents without substance would it be appropriate to call you a groomer or a Stalinist yet?
Are you implying Cato is funded by China or Russia? That’s hilarious. Cato produces much better analysis than what was written here, as did the author of the Economist article.
>There’s also another important reason why subsidizing green energy is better than a carbon tax, and that’s learning curves. The more of stuff like solar and batteries we build, the cheaper it gets:<
I get the political case for green energy subsidization: policy is indeed the art of the possible. But, just to pick a nit, in the parallel universe where the US were able to successfully implement a carbon tax, wouldn't the "learning curve" advantage also apply? We'd "build more stuff like solar and batteries" because it would become increasingly expensive *not* to do so. Right? Or am I missing something obvious?
I think Matthew Yglesias has addressed this point. You have to take the fiscal-policy effects into account as well.
In theory, you can add new fossil-fuel taxes or new green-energy subsidies without changing the size of the budget deficit. You just need to offset them with new spending programs/new tax cuts in the first instance, or new taxes/spending cuts in the second. But in practice it's very hard to raise taxes or cut spending, so the path of least resistance has been to add subsidies while letting the deficit increase.
That was fine--in fact it was beneficial--when the US economy was operating below full employment. The case for subsidizing renewables was overdetermined. But now that the economy is running hot and bumping up against an inflation constraint, the argument for raising taxes (even though it's politically difficult) becomes much stronger.
So lately Yglesias has been arguing that we need to take another look at carbon taxes. (He's also argued for much higher taxes on alcohol, another product that generates negative externalities. That's not a climate issue but the logic is the same.)
We definitely could use more revenue (or, if you like, greater constraints on consumption) in our current, more inflationary, environment. But I see very little prospect of any kind of tax increase absent a Democratic trifecta. The other party is ludicrously unserious about taxes.
Democrats are unwilling to tax 99% of the population. Republicans are unwilling to tax 100%. They are really not that different.
When push comes to shove, the Democrats are still not so keen to tax anyone. A lot of 1 percenters are voting for and funding D campaigns. Moreover, the corporate tax increases that Dems seem to love so much are largely incident on consumers and workers, alongside management and shareholders.
Let’s not forget, one of the most expensive items in BBB was a repeal of the SALT cap. That’s right, one of Dems top priorities in reality was and is a big tax cut for the wealthy. This is what broke the cost projections and derailed the legislation, not Manchin.
Has not the USA had industrial policy(s) in place all along? But quietly so, with 'neo-liberalism' taking over from 'the new deal' as above the table talking points? Does not extensive and ongoing support for agriculture; the original homesteading land grants, subsidized irrigation water, exemption from highway fuel tax, and now morphed into subsidies for industrial ethanol production, count? And so with the fossil fuel industry; including below-market-rate drilling leases, public funding for highways, roads, and bridges, minimum parking requirements for housing development, and so on. Aren't these industrial policy in political disguise? [I was going to say 'policies, but for the link between ethanol and fossil fuels, with ethanol requiring more BTU's from oil to produce than it returns. A win for both sides of the industrial policy.]
I am willing to bet that in 2030 you will regret your enthusiasm for industrial policy. Call this a vague broadside, but I don't think that our government is capable of running this type of program in a way that ends up achieving (or even working toward) its goals and not becoming utterly corrupt. How are those ethanol mandates workin' out for ya?
Personally I think semiconductors, the ARPAnet, GPS, nuclear power, lasers, semiconductors, literally every vaccine including the Covid ones, MRIs, satellites, barcodes, fracking, the Human Genome Project, the civilian aviation industry, and all of the other wonderful things the US government funded or outright created have been working out great. Thanks for asking!
+ 1 this. It’s like people don’t know the economic history of the US and how much of its technological innovation and growth came from government investment lol
Innovation and production are two different animals. The first involves a small number of researchers and limited funds; the second requires lots of capital and business savvy. Government is awful at the second. Business spent over 1 trillion delivering internet to 99% of Americans in less than three decades, an amazing accomplishment.
The US has consistently subsidized production lol what are you talking about?
The US subsidized the production of chips, high tech components in the bust cycle of the 1970s, and most recently has subsidized the car industry, the plane industry, agriculture, oil etc. Businesses like Boeing, Tesla and SpaceX exists because of US support for production. And the production of the 3 COVID vaccines and subsequent treatments were heavily subsidized by the US.
As Noah has written about before, the idea that the US has been a bastion of only free trade is ahistorical and the reality is that the US has consistently put its thumb on its scale. Industrial policy may not have been popular in the US for the last 30 years, but there’s a deep history there and the US has been ok.
This isn’t to say that there is no role for private companies - there absolutely is. I think the correct approach to industrial policy is the government setting high level objectives for businesses and letting businesses figure out how to meet those goals (a bottoms up approach), as the US did when partnering with private companies in WW2 that led to overwhelming production.
Please state a subsidy the government gave from the production of chips, lol. Being an early customer is not subsidy.
It absolutely is, especially if it’s as a buyer of last resort.
As far chips production: you can look at DARPA’s work in the chip industry here:
https://www.piie.com/research/piie-charts/darpa-made-us-chip-industry-more-competitive-and-triggered-employment-boom
For an overview of industrial police’s of the last 50 years:
https://www.piie.com/sites/default/files/documents/piieb21-5.pdf
Please don't use ISPs as an argument for industrial policy. They have consistently taken taxpayer subsidies and then failed to deliver. If I thought our latest foray into industrial policy was going to be as effective as our efforts at encourage internet access I would have to start agreeing with CATO and Heritage and I really don't want to be in that position.
120 million us households, out of 129 million, have access to broadband internet services. And the number continues to increase. How is that failing to deliver?
Millions of those households with broadband access have it through a monopoly (https://ilsr.org/report-most-americans-have-no-real-choice-in-internet-providers/), so a lot of consumer surplus isn't being delivered.
Again, see my note - for most Americans, internet is slower and more expensive than the rest of the developed world (Japan, Korea, most of Europe, etc).... And for many of us, it is incredibly flaky as well).
Huh, not sure where you live - internet in the US sucks. It is far behind most of the rest of the developed world..... And it is cheaper elsewhere and it was done at least as quickly if not more so....
You don’t seem to know much about it either, lol.
I have offered multiple examples of the US industrial policy.
You’re welcome to dispute them. And I would be happy to learn how I’m wrong
But your ad hominem, lazy comment isn’t needed. That’s what Twitter is for.
I reckon one of the challenges of "industrial policy" is the term (very much like liberal, conservative, progressive, socialist, neoliberal, libertarian, neocon, free trade, open borders, mass immigration, misogyny, woke, etc) can mean a lot of different things, depending on context, and depending on the user's intent.
I believe virtually everyone (even the hardest of hard core libertarians) is on board with the notion that, if there are things vital to the country's well-being (especially national defense) America absolutely cannot live without—and only government action can guarantee their availability—well, you gotta do what you gotta do.
Also, many broad areas of government action could be classified as parts of "industrial policy" (again, depending on what the user of that term wishes to convey), even when the policy in question tends to be more or less sectorally agnostic. So, government ensures, say, a strong transport sector. Or an adequate supply of skilled workers. Or sufficient funding for basic research. And so on. All highly proper.
What free market types tend to get a bit queasy about is what they derisively call "picking winners."
Some of the areas you cite are things we definitely wouldn't want to live without (satellites, HGP, vaccines). But it's a stretch to call all of them "industrial policy" (some are military R&D that happily found civilian uses; nuclear energy is a classic example of this). Again, the term can mean different things.
But, just to play devil's advocate: We leveraged WW2 and later Cold War spending into lots of things that proved useful to civilian life. Which is great. On the other hand, we were steadily spending 9-11% of GDP on defense 20+ years after Tokyo Bay. We can't visit the alternate reality where WW2 and the Cold War never broke out, and fantastic quantities of resources flowed not to defense-related production and research but to purely civilian uses. Would we not be better off now if that alternate reality were our own? Like, did spending 9% of GDP 1950-1970 instead of 2% *not* make us poorer than would otherwise be the case?
So, my general position on the most recent iteration of "industrial policy" in the US context is: we gotta do what we gotta do. If we can't depend on foreigners for things we absolutely need, then let's get on with the task of making them. And let's hope for the best in terms of positive externalities. But let's be clear we're doing these things because there's no alternative, and not because we know better than markets how to allocate capital over the long term to maximize broad economic strength and living standards.
This was probably the most well rounded comment on this thread tbh
That’s a pretty ridiculously broad claim of what government created. Taking just one item from your list, semiconductors, if you read the book mentioned in the post “Chip War” you’ll see that the transistor was created by private research at Bell Labs, and integrated chips by Fairchild and Texas Instruments, the only role the government had was buying a few of the early ones for missile guidance systems and NASA, but most production was for private sector customers. That wasn’t industrial policy, it was just being a well funded buyer and an absence of regulations.
Bell Labs got considerable support from the government. Read Bill Janeway's book, "Doing Capitalism in the Innovation Economy". Janeway is both a private equity financier and a trained academic, so he sees this from both ends. He suggests that the government provides the platform, which facilitates the sorts of activities done in Silicon Valley, Marianna Mazzucato makes a lot of the same points in her works.
Ah you’re cherry-picking. Lost Future said, “US government funded or outright created...”.
While the government didn’t create all the things that Lost Future identifies, it certainly did have a hand in funding them.
Let’s use Boeing as an example. The government didn’t create the B707. But it did fund Boeing’s massive R&D spending by purchasing the military version of that aircraft. This funding enabled Boeing to be the first mover in the burgeoning global jet aviation industry, which then enabled it to dominate for decades, generating considerable wealth for itself and the entire U.S.
The economy is a human invention that should serve us. It is not some magical god we must serve to our detriment. If sound industrial policy delivers better national security and accelerates decarbonization, even if it results in some lost efficiency, then I will make that trade all day long.
According to legal documents disclosed Tuesday, Sharon Bush's lawyers questioned Neil Bush closely about the deals, especially a contract with Grace Semiconductor Manufacturing Corp., a firm backed by Jiang Mianheng, the son of former Chinese President Jiang Zemin, that would pay him $2 million in stock over five years.
Marshall Davis Brown, lawyer for Sharon Bush, expressed bewilderment at why Grace would want Bush and at such a high price since he knew little about the semiconductor business.
"You have absolutely no educational background in semiconductors do you?" asked Brown.
"That's correct," Bush, 48, responded in the March 4 deposition, a transcript of which was read by Reuters after the Houston Chronicle first reported on the documents.
"And you have absolutely over the last 10, 15, 20 years not a lot of demonstrable business experience that would bring about a company investing $2 million in you?"
The human genome project was expensive and slow compared to a private initiative. The Civil Aeronautics Board was abolished under the Carter Administration, which apparently thought it was doing more harm than good.
But more important, the examples you give are industries that were new, and government funding helped to get them started. Now we are talking about existing industries, and I find it hard to come up with examples where massive intervention in an existing industry has been constructive.
I'm fairly confident that you need to first have an existing industry before you do cutting-edge research and invent something new based on it. Satellites, rockets, the ARPAnet etc. required an existing manufacturing base and technological know-how to develop off of.
You may be ideologically predisposed to dismiss the examples of Japan, South Korea, Taiwan, China and Germany moving up the value chain of industries that already existed (steel, shipbuilding, construction, simple electronics, automobiles etc.) But those would be the strongest examples. I'm finishing 'MITI and the Japanese Miracle' by Chalmers Johnson right now
maybe you should not form your opinion about Japan from a book published in 1982. Economists now use the phrase "catch-up growth" to describe its boom. https://carnegieendowment.org/2010/03/18/japan-s-past-and-u.s.-future-pub-40356
I'd like to note that first you said 'I don't think that our government is capable of running this type of program', then when I presented you with tons of examples (GPS, nuclear power, the ARPAnet, etc.), you switched gears to 'OK so it works for new frontiers, but not existing industries'. Then I gave an example of other developed countries that became wealthy through industrial policy by copying existing industries pioneered by others (steel, shipbuilding, autos, electronics) and your argument became 'well sure maybe Japan did that in the 50s through 70s, OK, but that book is old....'
Showing examples of successful government action is just an apocalyptic scenario for libertarian worldview types (I guess including you, I think you're someone I've heard of). So there has to be an all-out defense of ever-changing rhetorical arguments to handwave away the plain fact that several advanced economies have successfully done this several times over the last 150 years. It's like a psychological defense mechanism!
Oh you had time today
You're making me out to be more dogmatic than I really am. If you were to READ Krugman's article instead of straw-manning me, you would see that he argues that industrial policy was never a big win for Japan.
That article appears to be written by a single junior fellow at an international-relations think tank rather than "Economists", but in any event, it's quite possible that part of the causal graph here is (MITI) → (Japanese catch-up growth) → (Japanese economic miracle); "catch-up growth" is just a name for a phenomenon, where it happens it must happen through actual mechanisms, and industrial policy may be one of those mechanisms.
Sorry, that was the first thing I Googled. Does Paul Krugman count as an economist to you? https://www.kansascityfed.org/Jackson%20Hole/documents/3913/1983-S83KRUGM.pdf
On your specific counterexamples...
I'm not convinced a direct comparison of the HGP to "a private initiative" (presumably that of Celera Genomics) tells us much about what would've happened without government funding/backing. The HGP preceded Celera's sequencing initiative (hence why the HGP was "slow" despite publishing its draft sequence at about the same time as Celera) and may well have provoked it, and Celera used existing sequencing data from GenBank (funded by the NIH, NSF, DOE,and DOD!) to kickstart its effort. More money did supposedly go into the HGP, but I suspect that's an artifact of different financing. The HGP frontloaded its funding whereas Celera expected to recoup its costs later by patenting gene sequences and charging for full data access.
Regarding the CAB, I'm not sure I would treat the Carter Administration's judgment as probative.
On the general claim that Lost Future's examples are of "industries that were new", isn't this really just a camouflaged lumper/splitter dispute over which industries to count as new? Why would COVID-19 vaccines count as a product of a "new" industry rather than as a product of the decidedly old pharmaceutical sector? I find it odd that the worth of industrial policy would hinge on this taxonomic lumping-versus-splitting question.
I don't like to settle it on the basis of "my anecdote vs. your anecdote," either. That is why I proposed a bet. Will *this* set of industrial policies lead to good outcomes or not? I think that the outcomes will be close to the ethanol mandate (generally agreed to have bad outcomes and to persist because of an entrenched constituency) and far from DARPA under Lickleider.
No objection to proposing bets, but if we have difficulty figuring out causation in historical cases like the HGP, I'm not sure it'll be much easier to figure out causation ("lead to") to resolve a bet about the future. In any case, if the decisive matter is the bet, then all this stuff about the HGP and the CAB and Japanese catch-up growth is a sideshow.
The government genome project started in 1990, Craig Ventner didn't get Celera Genomics going until 1998 to outpace the government's method. Would Ventner have started Celera without the government first going where no private company would dare? Kind of like NASA being able to hand off the workload to SpaceEx etc al. Government is a facilitator, but not the end game, in a perfect world.
Noah gets this correct. It's the last 40 years of neo-liberal economic policy that have been an outlier. For most of American history, we had distinct economic goals which were fostered by government. The original term for "economics" was "political economy" for a reason.
As Lost Future said, the government runs things businesses fail at doing.
We should place 100% of Pharma in the same position as Defense.
Buy pills like Bullets. FFP, Cost plus
Well one point of view could also be that without the government much of capitalism wouldn't even be around. If you think of the numerous times that the taxpayers, through the government had to bail out the great capitalists of this country because they go too far and can't control themselves, you would need both hands. Just the latest example was 15 years ago when we spent incredible amount of bail out all the banks, some of the richest SOBs in the country. That wasn't a corrupt government that was corrupt bankers and insurers. The government is vitally important to jump, start and throw cash at things that need to happen. I didn't see private enterprise bringing chips back to the United States or working on climate change. And if they are, it is not coming near fast enough to make it difference. There must be a partnership between government and business and taxpayers. Businesses can be just as corrupt as government, Even more so.
You bring up ethanol mandates. I wouldn't necessarily call that corrupt government. We learn from our mistakes and we try to do better sometimes your ideas and theories of what's going to work don't turn out.
Of course capitalism would not be around without government. And of course businesses can be corrupt. But when business makes enough mistakes, it disappears (unless it gets a government bailout). The ethanol mandates are here forever. There is no learning from mistakes in that sense. I am not dogmatically against government and in favor or markets. But I have a view of the types of circumstances in which government intervention tends to go awry, and trying to steer the economy through big subsidies to an industry is one of those.
Please supply documentation that ethanol is “utterly corrupt “
https://www.politico.com/newsletters/morning-agriculture/2019/03/05/ethanol-retains-grip-on-iowa-primary-politics-534069
Are legislators that favor labor positions corrupt? Are those who pass laws encouraging manufacturing corrupt? So why is favoring farmers corrupt?
Adding to all other comments, this is also an answer to a different thing. "Will the government be actually able to deliver" is different from both "should the government deliver" and, more importantly, "is the government attempting to deliver better than status quo".
Buy American for military equipment has essentially been a pilot program for the larger economy. At some point Cold Warrior senators figured out that defense spending and Buy American requirements for defense manufacturing and giving our NATO partners military equipment didn’t exacerbate inflation…which is why we spend $800 billion a year on defense. So the Military Industrial Complex creates solid union jobs and military jobs (great for young men who are responsible for most violent crime) and leads to technological advancements and keeps us safe.
Very helpful post in distinguishing the goals of industrial policy from manufacturing jobs creation.
One of the reasons that industrial policy and jobs creation are twinned together is local/state governments competing for these new businesses and factories. The smaller the unit of government, the less credible is touting the twin goals of climate and defense.
Just like the US can only do so much alone in fighting climate compared to a global view.
"China has one of the world’s top electronics manufacturing clusters; the U.S. no longer does. Perhaps industrial policy could help create an advanced electronics manufacturing cluster in the U.S.; it’s a question at least worth thinking about."
This. The most advanced semiconductor chips are useless without resistors, capacitors, diodes, circuit boards, power supplies, etc. And the U.S. has little to no capability for producing these, arguably, commodity items since the margins are so low. If you cannot manufacture an entire computer from domestic components you may face a severe challenge. Particularly if your enemy is the global source for the SMT resistor.
How do we get an industrial policy that isn't diverted into giveaways?
China's own quest for "national champions" has delivered few champions but titanic corruption. Many of Japan's technology bets foundered. Why are America's odds better?
Why do we think that we'll unlock new investments that wouldn't have happened, as opposed to handouts for what companies were already planning?
I want industrial policy that actually gets us closer to green power, chip diversification, new antibiotics and the rest. I don't want a bunch of giveaways that only improve corporate earnings, and don't accelerate more actual progress. I definitely don't trust the government to automatically get this right.
How do we get industrial policy that makes a difference, instead of industrial policy that makes a giveaway?
Why is having zero giveaways a useful goal?
We don't have industrial policy but we still have giveaways today. China had titanic corruption before its quest for national champions, just look at articles like "The Intensification of Corruption in China", which is from 2004 and talks about how corruption in China became "epidemic" by the late 1990s.
So what if "many" of Japan's technology bets foundered? That's like whataboutism that "many" of Andreessen Horowitz's technology bets foundered. Why shouldn't a nation take that same VC-oriented approach of caring more about 100x wins than than the 90% that fail?
For a line in the sand: let's say that the total cost of industrial policy shouldn't exceed the total cost of all current local, state, and federal support to businesses (including things like federal contracting guidelines that encourage picking small businesses simply because they are small) before it becomes "corporate welfarism".
Yes I would also like to know where the line is drawn between "public investment" and corporate welfarism.
I would argue that some of the IRA industrial policies are going to do wonders for getting us to green power; the reality was that electrification was going to slow in the US. I think the US took the right approach of being agnostic on what technologies would be winners, funding research, and helping consumers transition to better power sources (EVs, heat pumps).
I’m less sanguine on the CHIPS acts. With energy, there is a lot of competition that works to drive down prices and acts as a check on businesses just rent seeking; with semiconductors there are not. One thing that does give me hope is that their is semblance of oversight on the US and we can adjust if need be.
Hi, Noah. Off-topic, someone is trying to impersonate you here on Substack as I received an email. This may be a scammer please check. I am not sure if that's you who shared me the email address: //substack.com/profile/157161289-noah-smith?utm_source=substack_profile
Yep, it's a phishing scam. I'll see if I can figure out how to stop it. Sorry about that.
No, issues. I checked your verified badge others won't.
I was so worried. It felt just like being sent to the principal"s office: "This is the last straw. I've had it up to here with your insufferable comments... your refund is on its way"
Someone please help me understand the FRED graph. (And please note that I stopped reading to write this concern. Please accept my apologies if the answers appear further into the article.)
The CHIPS Act and the IRA were passed in mid August of 2022. The upward spike in the graph looks to start in November or December of 2022.
The USBLS says that the construction spending is actual spending on "materials, labor, and equipment" used to produce different "assemblies" that lead to completed buildings. This all seems very tangible. https://www.bls.gov/ppi/factsheets/producer-price-index-data-for-nonresidential-building-construction-sector-new-industrial-building-construction-naics-236211.htm
How, than, were these projects able to go through the planning and permitting process and move into construction in less than 2 months? It would seem that there are three options:
1) The numbers do count work done on planning.... somehow.
2) This country is blessed with some amazing project managers who only work after large government programs are funded.
3) The effect we are seeing was primarily due to some other cause, such as the market's response to supply chain issues that had become obvious two years earlier.
And a cynic might note that politicians are much more likely to vote for things that they know will look successful in the near future.
JES has a good point. The planning and financing cycles for capital investments of this magnitude are too long for CHIPS or IRA to have had this effect. The political will and matching regulatory environment to re-shore / on-shore high tech industrial production was started with the previous US administration. This focus has now become bi-partisan. This is how government is supposed to work, good governance, in this case re-shoring / on-shoring industrial capacity, is a policy both parties recognize needs to continue.
My hope is that we will see similar awareness and focus in Canada from all our political parties and corporations.
Excellent article - thanks Noah! Gives one lots of food for thought.
I haven’t seen anyone in an airport reading any paper magazines in years, your comment sounds like one someone trying to think they are funny would make.
Mad respect, always with the good analyses. My biggest fear is on decarbonization though. That’s not what this industry policy is thinking about. They just need more renewable energy to continue growing the pie. Sure, fossil fuels will drop relatively, but still increase wildly in magnitude from new energy demands like desalination that can only be met with high energy density fuels. There is simply too much fossil fuel and it’s too profitable to ever allow themselves a decrease in profits. Even if they add their own renewable energy into the mix, fossil fuel industry at the moment is dedicated to increasing output without anyone blinking an eye. Thus electric cars, green energy- these things are only possible now because the fossil fuel lobbyists didn’t kill them, they’ve adjusted and prepared just fine for the future.
And to be clear, decarbonization of new any energy sources is fantastic. I’m just guessing fossil fuel demand will still continue to grow at even a greater pace than ever before, and criticism of it will be lacking. And that the administration knows this, taking Willow project as an example.
I think the oil producers realize that fossil fuels are on the way out. The clearest evidence comes from the Gulf Arab states, whose economies are almost totally dependent on oil and gas exports but which are also leaning into decarbonization pretty hard:
https://www.theguardian.com/world/2023/feb/14/uae-running-towards-renewable-future-says-oil-boss-cop28-president
The "Guardian" predictably tries to spin this in a negative way, pointing out that the UAE plans to continue producing oil and gas. But the Persian Gulf has the world's lowest production costs for oil, so even if global consumption falls sharply you should expect these countries to keep pumping until the very end.
What they've realized, though, is that *prices* for oil are going to drop significantly in that scenario, so they need to diversify their economies away from dependence on a single product.
The fact that these are also the world's hottest inhabited regions, and probably the first to become uninhabitable if things get out of hand, is surely a factor too.
Natural gas is now more important than oil…it’s not a coincidence that the 3 most important natural gas countries will have hosted the last 3 World Cups after 2026…and the 4th is hosting the women’s World Cup right now!
They have known this for over 20 years. In 2000, I was working as a consultant for BP when they changed their name to “bp” and started talking about going “beyond petroleum”. The major energy companies employ some of the most talented engineers in the world who understand the transition needed. They also have talented financial professionals who understand how to allocate large sums of capital to big projects. They have to be economically viable. Now that renewable energy projects are transitioning from fantasy to reality, they will be big players. They will have to in order to survive. We would be better off now if the effort put forward to demonize the industry would have been used toward collaborating with it.
Since at least the beginning of WWII, the US has been engaging in a multi-trillion dollar "experiment" in top-down industrial policy: It's been overseen by the Department of Defense and referred to colloquially as "defense spending." I guess the opponents of industrial policy have simply chosen to ignore all that.
Specific catalogued broadside: U.S. history has proven industrial policies work. In fact, the knock-on effect of these policies are still with us today: railroads (one knock-on effect: initial funding to create Stanford University); State Land Grant University System (still the envy of the world); Interstate Highway System (knock-on effect, take your pick: every major trucking freight company, UPS, FedEx, et alia); bar codes/optics: US Postal Service; GPS DARPA (knock-on effects are endless); mRNA vaccines,; $4.2 billion sweetheart government loan to save a Tesla from bankruptcy).
The common theme is national security. When Eisenhower returned from WWI, he was in a convoy of military vehicles and equipment being transferred from the East Coast to the West coast. It was a sort of Oregon Trail experience. The roads were horrible and the convoy experienced difficulties all the way, including getting bogged down in mud (ask the Russians about mud in Ukraine). It took the convoy an extended period of time to complete its delivery mission. Eisenhower never forgot the experience. When he became President, having participated in two world wars, he understood first-hand the U.S. vulnerability was an attack on either coast. This was the impetus for the Interstate Highway System, which provided a means to move, if needed, military vehicles, equipment, etc. rapidly anywhere in the U.S. The impetus for DARPA’s creation of GPS was also national security. Russia had put a satellite, Sputnik, in orbit. You could see it travel overhead on every clear night. The U.S. needed a technology to track Sputnik. And it needed it NOW! There was no limit to the money thrown at DARPA, and nobody complained. (For that matter, few complained about the cost of the Interstate Highway System because everybody used it. Anyhow, the team leader of the DARPA GPS group, asked immediately after the success of creating a way to track Sputnik, if it could be reversed (read: tell a device exactly where it was on Earth. Nobody complained or even asked about the cost. A few years later, the GPS system was made available to the public. Again, everybody uses it. A little research reveals many stories of government money making infrastructure and technologies work for everybody. Here’s why government has to play this financial role: because the private sector has no interest in investing capital on the scale (billions) required to do big things that benefit everybody., when there’s no guarantee of success. Remember this when Libertarians such as Musk or Thiel start whining about the government (the government is Palintir’s biggest customer.) Billionaire libertarians, in practice, are lowercase libertarians.
Perhaps one should question some the basic assumptions behind the article and US policies. That climate change is an existential threat to humanity is not being challenged. Rather, the assumption that China is a military state with intention to invade and conquer. It isn’t. The second assumption that should be questioned is that the world is as it has always been and all the US has to do is shuffle a few things. Well, the world has changed exponentially and will continue to do so. The G7 countries that ruled the world in 19th and 20th centuries can no longer do so realistically. They represent about 10 per cent of the world’s population and a declining share of world’s wealth. It is not only China that is changing the world, it is also the “rise of the rest”. For its own success, US “industrial policy” can be about more collaboration with others, not as the world’s boss but in win-win partnership.
"So preserving the ability to make computer chips outside of China is critical to our national security. Some of that production can and will take place in friendly countries like Japan and Korea. But China may be able to interdict shipping from those places in the event of a war, so it makes sense to keep some production in the U.S."
although one could also argue that having a critical resource like chip production located in allied-but-threatened places like Taiwan is an excellent forcing mechanism to counter America's natural isolationist tendencies and making it impossible for the US to let Taiwan go Sudetenland style which would only lead to worse problems down the line. Just look at how much more disengaged in ME US policy has become since they achieved oil & gas self-sufficiency. An America that is no longer willing to play world police because they have achieved autarky is not a good thing.
"The first main purpose of industrial policy is decarbonization. Climate change is a major threat, even an existential threat, to our way of life. And we have only two options for stopping it: the mass global impoverishment of degrowth, or building a bunch of green energy to replace fossil fuel energy. That’s it. Those are our only two options. "
isn't this a bit like a Malthus contemporary saying the only two options to avoid starvation are to have fewer kids or to conquer other people and take their land? There is _always_ a potential technological innovation solution to these problems. These solutions are hard to pinpoint ex ante and sound very deus ex machina, and am not instinctively satisfied either with just blindly trusting they will magically appear, but frankly _if_ we manage to stave off catastrophe I'd say the odds of us getting there through a technological solution are actually much higher than all humanity getting its act together (applies whether getting act together means achieving degrowth or effecting green transition, btw)
Green energy *is* the technological solution. Even if it's some novel thing that isn't solar panels or wind or whatever, it's going to count as "green energy".
Carbon capture with storage , solar shielding, new steel and concrete production and agriculture techniques are not green energy but reduce atmospheric warming, which should be the goal instead of decarbonization. Judging by how Noah doesn’t ever mention nuclear power, he probably doesn’t even consider that green energy, so he is artificially narrowing the domain.
well, green energy as a category could be part of the solution yeah. Solar/wind as at present, even if costs/efficiency shift by another order of magnitude, won't cut it (by themselves, although maybe could be marginal contributors to solution as part of a wider arsenal)
Agree re Cato. Half baked libertarian economic "thinking" of the chicago school that doesnt stand up to scrutiny or reality. Gets a lot of money from somewhere though: Alt right sympathisers, and maybe from foreign sources that do not always have the west's best interests at heart.
This is an incredibly unhelpful and boring addition to the discussion. If we are going to demagogue our opponents without substance would it be appropriate to call you a groomer or a Stalinist yet?
Are you implying Cato is funded by China or Russia? That’s hilarious. Cato produces much better analysis than what was written here, as did the author of the Economist article.
>There’s also another important reason why subsidizing green energy is better than a carbon tax, and that’s learning curves. The more of stuff like solar and batteries we build, the cheaper it gets:<
I get the political case for green energy subsidization: policy is indeed the art of the possible. But, just to pick a nit, in the parallel universe where the US were able to successfully implement a carbon tax, wouldn't the "learning curve" advantage also apply? We'd "build more stuff like solar and batteries" because it would become increasingly expensive *not* to do so. Right? Or am I missing something obvious?
Part of it would be that, but part of it would simply be curtailing energy use.
Right. That's the "obvious point" I missed. Thanks.
I think Matthew Yglesias has addressed this point. You have to take the fiscal-policy effects into account as well.
In theory, you can add new fossil-fuel taxes or new green-energy subsidies without changing the size of the budget deficit. You just need to offset them with new spending programs/new tax cuts in the first instance, or new taxes/spending cuts in the second. But in practice it's very hard to raise taxes or cut spending, so the path of least resistance has been to add subsidies while letting the deficit increase.
That was fine--in fact it was beneficial--when the US economy was operating below full employment. The case for subsidizing renewables was overdetermined. But now that the economy is running hot and bumping up against an inflation constraint, the argument for raising taxes (even though it's politically difficult) becomes much stronger.
So lately Yglesias has been arguing that we need to take another look at carbon taxes. (He's also argued for much higher taxes on alcohol, another product that generates negative externalities. That's not a climate issue but the logic is the same.)
We definitely could use more revenue (or, if you like, greater constraints on consumption) in our current, more inflationary, environment. But I see very little prospect of any kind of tax increase absent a Democratic trifecta. The other party is ludicrously unserious about taxes.
Democrats are unwilling to tax 99% of the population. Republicans are unwilling to tax 100%. They are really not that different.
When push comes to shove, the Democrats are still not so keen to tax anyone. A lot of 1 percenters are voting for and funding D campaigns. Moreover, the corporate tax increases that Dems seem to love so much are largely incident on consumers and workers, alongside management and shareholders.
Let’s not forget, one of the most expensive items in BBB was a repeal of the SALT cap. That’s right, one of Dems top priorities in reality was and is a big tax cut for the wealthy. This is what broke the cost projections and derailed the legislation, not Manchin.
Has not the USA had industrial policy(s) in place all along? But quietly so, with 'neo-liberalism' taking over from 'the new deal' as above the table talking points? Does not extensive and ongoing support for agriculture; the original homesteading land grants, subsidized irrigation water, exemption from highway fuel tax, and now morphed into subsidies for industrial ethanol production, count? And so with the fossil fuel industry; including below-market-rate drilling leases, public funding for highways, roads, and bridges, minimum parking requirements for housing development, and so on. Aren't these industrial policy in political disguise? [I was going to say 'policies, but for the link between ethanol and fossil fuels, with ethanol requiring more BTU's from oil to produce than it returns. A win for both sides of the industrial policy.]