By Gita Gopinath After ending last year with unexpectedly strong vaccine success and hope that the pandemic and economic distress it caused would recede, we woke up to the reality of new virus variants and the unpredictable, winding road that it can lead the world down. Something similar has happened with the discourse on inflation. […]
Terms like “progressive” can be defined in a variety of ways. One common theme is that progressives are relatively optimistic that governments can solve economic problems.
We normally think of conservative Republicans as being on the other end of the spectrum, opposed to government meddling in the economy. President Trump is a bit unusual in that he is a Republican who is skeptical of the free market. He used a combination of subsidies, bullying and tariffs to try to bring back manufacturing jobs.
Overall, this approach was not successful. Some manufacturing jobs were created (in 2017-18) in companies supplying the booming fracking industry, but large subsidies given to firms like Foxconn were not effective, and the trade war negatively impacted manufacturing in 2019, even before Covid-19.
None of this was a surprise to a Chicago school economist like me. But what did progressives expect to come out of the Trump administration’s industrial policy”? After all, progressives believe that activist governments can solve problems.
This Ezra Klein tweet caught my eye:
I’m sure that progressives would deny any responsibility for failures such as the Wisconsin Foxconn plant. They might argue that Trump didn’t know how to do industrial policy. That’s a fair point; Foxconn is not their fault. But a similar fiasco occurred under the Obama administration.
Governments simply are not very good at creating economic growth. Some of the more famous cases of industrial policy are not what many people assume. The most successful parts of the Chinese economy are the private firms, not the big state-owned enterprises. Some of the most successful Japanese firms got that way by ignoring the recommendation of government bureaucrats. Germany has one of the world’s most successful manufacturing sectors, without relying heavily on subsidies and tariffs. (They do have good technical training programs.)
When I first heard that the Trump administration planned to bring back jobs though a mix of subsidies, bullying and tariffs, I was immediately skeptical. The fact that many progressives seemed nervous that he might succeed tells us a lot about the way they believe that economies work. There was no need for them to be “nervous” that Trump would bring back manufacturing jobs with subsidies.
This also explains why I’m not a progressive.