Ezra Klein writes:

In April, Brian Deese, the director of Biden’s National Economic Council, gave an important speech on the need for “a modern American industrial strategy.” This was a salvo in a debate most Americans would probably be puzzled to know Democrats are having. Industrial strategy is the idea that a country should chart a path to productive capacity beyond what the market would, on its own, support. It is the belief that there should be some politics in our economics, some vision of what we are trying to make beyond what financial markets reward.

Trying to build clean energy infrastructure is a form of industrial strategy. So is investing in domestic supply chains for vaccines and masks and microchips. For decades, the idea has been disreputable, even among Democrats. You don’t want government “picking winners and losers,” as the adage goes.

The argument, basically, is this: When governments bet on technologies, or companies, they typically bet wrong. Markets are more efficient, more adaptable, less corrupt. And so governments should, where possible, get out of the market’s way. The government’s proper role is after the market has done its work, shifting money from those who have it to those who need it. Put simply, markets create, governments tax, and politicians spend.

It’s remarkable, the assumptions that lurk beneath what’s taken for common sense in Washington. Consider the phrase “winners and losers.” Winners at what? Losers how? Markets manage such questions through profits and losses, valuations and bankruptcies. But societies have richer, more complex goals. To criticize markets for failing to achieve them is like berating a toaster because it never produces an oil painting. That’s not its job.

So I won’t say markets failed. We failed. Growth slowed, inequality widened, the climate crisis kept getting worse, deindustrialization wrecked communities, the pandemic proved America’s supply chains fragile, China became more authoritarian rather than more democratic and then Vladimir Putin’s war revealed the folly of relying on countries we cannot trust for goods we desperately need.

No one considers this success. Deese, in his speech to the Economic Club of New York., declared the debate over: “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’” [Continue reading…]