Feb 18, 2021 • 33M

Hexapodia II: Industrial Policy

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Brad DeLong and Noah Smith discuss economics and other nerdy things
Episode details

Should the U.S. have an industrial policy, and if so, what should it be? That’s the subject of the second episode of Brad DeLong and my podcast, Hexapodia: The Key Insight.

With American leaders increasingly focused on industrial competition with China, and Biden promising to bring supply chains back within our borders, economists need to be thinking about industrial policy — what it is, how to do it, and how to avoid the many pitfalls involved. Meanwhile, in the world of economics, there has been a renewed interest in the topic of industrial policy, with some IMF researchers declaring that “the policy that shall not be named” has returned. Think tanks on the political Left and the political Right are both getting interested in the idea as well.

So in this week’s episode, Brad and I discuss what a 21st century industrial policy might look like, and how to make sure it doesn’t turn into either a protectionist boondoggle or a swamp of cronyism. We don’t reach many firm conclusions, but don’t worry — we’ll be returning to this topic a lot.

Here is the episode if you want to listen on SoundCloud. And it should be up on Apple Podcasts now as well! So many ways to listen to Hexapodia.

Anyway, here are the works referenced, followed by my weekly Bloomberg Roundup.

Works Referenced:

Noah Smith: Don’t Give Up on Bringing Manufacturing Back to the U.S.

Joe StudwellHow Asia Works: Success and Failure In the World's Most Dynamic Region

Michael Porter, Hirotaka Takeuchi, and Mariko SakakibaraCan Japan Compete?

Albert Hirschman: The Strategy of Economic Development

Henry FarrellIn Praise of Negativity

Chalmers JohnsonMITI & the Japanese Miracle: The Growth of Industrial Policy 1925-1975

Henry Farrell & Abraham NewmanWeaponized Interdependence: How Global Economic Networks Shape State Coercion

Stephen Cohen & J. Bradford DeLongConcrete Economics: The Hamilton Approach to Economic Growth

Charles SchultzeIndustrial PolicyA Dissent

Bloomberg Roundup

1. America needs a national population strategy

We Americans tend not to worry too much about our country’s population. We’ve always been able to take advantage of high immigration rates, high fertility rates, or both. But with fertility plummeting and immigration damaged by Trump and COVID, it’s time to start thinking about how to keep our population from shrinking.

Encouraging immigration is an important piece of any population strategy. In the wake of four years of anti-immigrant rhetoric and policies, U.S. leaders should deploy pro-immigrant rhetoric similar to that of former President Ronald Reagan. Let everyone know that America’s doors are open again and that it welcomes the people of the world.

Then there’s fertility…The child benefits now being proposed by President Joe Biden, Senator Mitt Romney and others would be exactly the kind of thing that would give American fertility a modest boost. Efforts to decrease the high cost of child care might likewise ease the financial and time costs of having kids. We can’t expect miracles from these measures — the baby boom is not coming back — but they might nudge the fertility rate up a bit closer to the sustainable replacement level.

Read the whole thing here!

2. The pandemic and the welfare state

COVID-19 finally made Americans wake up and realize that our welfare state was inadequate. Now people want to fix that welfare state as much as possible while the crisis is still upon us.

The very generosity of the Cares Act seems to have awakened something in the American psyche. It was the most transformative, effective government social program since the creation of Medicare in 1966. And it was so simple: the government just gave people a bunch of cash. It appears to have vindicated the refrain of those who have been calling for the U.S. to increase the welfare state by adding direct cash benefits rather than expanding the typical thicket of vouchers and conditional aid…

If the U.S. is going to add cash benefits to the current mix of government programs, it needs to add them on an ongoing basis. This is what Biden’s child tax credit proposal and Senator Mitt Romney’s even more generous counter-proposal are all about.

Read the rest here!

3. How to get poor people the basics

Beyond just cash, poor people need to be able to afford the basics of life — housing, food, health care, and transportation — cheaply. America needs to use a mix of policy tools to hold down costs for the things poor people can’t live without.

Cash can help. But there are two problems with the cash-based approach. First of all, it can push up the price of these essentials, canceling out some of the poor's increased purchasing power as it lines the pockets of landlords and vendors with taxpayer money. Second, because the U.S. can’t seem to produce many of these commodities efficiently, the amount of cash required to buy them is much larger, which makes the political battles required to shell out the requisite cash all the more arduous.

Thus, it makes sense to focus on finding ways to produce food, shelter and health care more cheaply…

Note that in each of these three cases, the solution for getting low-income Americans the necessities of life is different — deregulation in the case of housing, increased government involvement in health care, and behavioral nudges and increased cash when it comes to food. In our quest to get all of our people access to the basics of survival, we have to be ideologically flexible, and use whatever tools are appropriate to the particular task.

Read the whole post here!