Should the U.S. adopt an “industrial policy”?

At the recent National Conservatism Conference in Washington, the crowd voted overwhelmingly in favor of a resolution calling for the United States to adopt an “industrial policy.” In so doing, the conservative crowd agreed with Sen. Elizabeth Warren who, as John has noted, also wants the U.S. to adopt such a policy.

The idea is for the government, through a set of policies — taxes, spending subsidies, regulation, and tariffs — to protect factory jobs against the forces of globalization and technological change. Japan and Germany (especially) are held out as models.

James Pethokoukis of AEI takes a critical look at the concept. He finds no merit in it.

In Pethokoukis’s view, the global forces that are eating away at manufacturing jobs cannot be checked. Japan and Germany haven’t done it. According to Pethokoukis:

[A]ll advanced economies have seen long-term declines in manufacturing employment. Going back to 1990, according to a Congressional Research Service analysis, American manufacturing employment fell by 25 percent. That’s actually a lower percentage than in Japan, 31 percent, and about the same percentage as in Germany, 24 percent.

If American elites have somehow failed the working class, then elites everywhere made the same mistakes.

Even if the manufacturing share of the American economy rose, much of the work would be done by robots, not humans. The age of mass industrial employment is over, says Pethokoukis — persuasively, I think.

One must also take into account the disadvantages of an industrial policy. The most obvious one is distortion of markets. Such a policy would tend to push labor and capital away from their most productive uses. In addition, opportunities for regulatory capture would abound.

Pethokoukis believes that the push for an industrial policy, to the extent that it comes from Republicans and conservatives, is mostly about virtue signaling (my term). The goal is to signal to previously Democratic constituencies that the GOP is on their side.

This may be smart politics, in the short term. However, if implementing an industrial policy is as bad an idea as Pethokoukis contends, doing so will leave these constituencies disappointed and more bitter than they already are.

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