economics
Is It Time for an American Industrial Policy?
American Compass
Political Science, Duke University
0
0
Genesis
Response
Penultimate
Finale
May 22nd, 2020
I often propose a test to my students: ask yourself, who should decide things:
(a) private investors who can go bankrupt and are responsible for the risks they take....
OR....
(b) The state?
Lots of students say, "Well, the state, because it wants what is good for us in the long run. The market is just about selfishness."
I ask them, "Where is this state you speak of?" I suggest that when they say 'The state should have the power to direct resources, and the market should be suppressed,' they should remember to take out 'The state' and replace it with 'People chosen by parties and elected by voting dominated by large corporate interests.'
In fact, you should replace "The state" with "Donald Trump." Say it with me: "I think that corporate CEOs and professional investors should have all their funds taken away at gunpoint, and then all investment decisions, for the whole US population, should be made by Donald Trump. He wants what is best for all of us, and he has a longer-term perspective."
They have a hard time with that, because they haven't thought about it. The state they imagine is a unicorn, an imaginary creature with
(1) knowledge of the correct answer (no food pyramids, which the bumbling state used to give a generation diabetes because officials were factually mistaken about basic health needs).
(2) the incentive to act on that information (which is odd, because the elected officials in a democracy are focused only on reelection; most of them don't even read the legislation they are voting on).
(3) a longer time horizon than markets (which is frankly bizarre, given that in democracy the longest time horizon for the US House is two years, and that's in mid-November).
It comes down to this: The "state as magical unicorn" theory is widely believed. But when you try to find that creature, what you find is men and women who are doing their best, but who face electoral pressures and very short time spans to make decisions. There is no state, only busy, fallible officials. Plus, if they make a mistake, they don't pay. Taxpayers do. Private investors actually have to risk their own money.
But there's a deeper problem: why would any state do the things Oren Cass expects? Why would systems based on power protect the weak? Why would majority elections protect, or even have any concern about, minorities?
We have two bad choices: imperfect private investment (Mr. Cass is not wrong about those problems), or the whims of Donald Trump. I'd prefer decentralized private investment, because power is less concentrated. Industrial policy is the economic equivalent of monocropping: if one thing goes wrong, EVERYTHING goes wrong.
Finally: I expect when Mr. Cass says "the state" he means someone like himself. Highly educated, genuinely concerned about public welfare. People who favor the state always secretly imagine that the dictator will be the smart person they see in the mirror. That's not how it works.
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