Michael Strain touts the American economy’s strength while pointing to one of its threats.
A major threat to the health of democratic capitalism is the growing support for industrial policy in both political parties.
To be clear, industrial policy is not always bad, and is not something to be avoided in principle. …
… First, successful industrial policy has a clearly defined goal. Second, successful industrial policy should not attempt to balance multiple competing goals. Third, it should be a priori plausible that the policy will be achievable. Fourth, the policy should not be part of a partisan political agenda — it should have bipartisan support or be inherently nonpartisan. Finally, the broader ecosystem necessary for success — technological capability, workforce skills — should be in place before the policy is executed.
A recent example of successful industrial policy is Operation Warp Speed. Its goal was clear: the development, manufacture, and distribution of Covid-19 vaccines. It was not trying to achieve multiple, competing goals. When President Trump announced the program in May 2020, success was far from certain — but success was a plausible outcome. …
… Operation Warp Speed was industrial policy: It was government intervention in the economy to override market outcomes with the goal of promoting a politically favored industry. But it was deployed responsible. And the increase in GDP that results from the policy far outweighed its cost to the taxpayer. It paid off.
In passing the CHIPS and Science Act and Inflation Reduction Act (IRA), President Biden broke with the decades-old bipartisan consensus against industrial policy by using it to reshape the composition of industry and of employment in the economy. These laws — especially the IRA — are not targeted interventions in the economy to achieve well-defined, narrow outcomes. Instead, they have expansive goals: To revive domestic manufacturing employment, advance and increase the domestic clean-energy sector, increase the “resilience,” and advance the U.S.’s strategic competition with China.
The goals are far from clear. How will we know when we have revived domestic manufacturing? How will we know when we produce enough of the world’s cutting-edge semiconductors to be sufficiently resilient? How will we know whether we have succeeded in slowing the pace of climate change?
