Bidenomics is not just about spending money anymore.
No, it’s about a new economic paradigm, according to a recent speech at the Brookings Institution by National Security Advisor Jake Sullivan. He describes the Biden approach as a “modern American industrial strategy.”
The phrasing reflects the left’s fondness for putting the adjective “modern” in front of an old idea to make it sound shiny and new. “Modern monetary theory” is the phrase for the persistent notion – or temptation – that you can spend gobs of money you don’t have without consequence. “Modern” industrial policy is presumably superior to “antiquated” industrial policy, but both suffer from the same conceit that government – with all its inefficiencies and the inevitable inconsistencies and compromises that come with legislative sausage-making – can see the future better than market players.
Now, it’s true that government partnerships with the private sector – and in extreme circumstances, government direction of the economy – can be useful.
During an existential struggle like World War II, economic freedom and efficiency understandably took a backseat to production for a great military struggle.
There are some industrial-policy success stories, for instance, Japan after the war until its economic model slammed into a wall, producing decades-long stagnation.
In the U.S., the cooperation between NASA and SpaceX has been fruitful, and Operation Warp Speed was an example of government creatively supporting the private sector to pursue an important goal in emergency conditions.
But the counterexamples are extensive. The industrial policies that (along with generous American aid) helped Western Europe emerge from wartime ruin eventually became a source of stagnation. In the U.S., the 1970s were a time of all manner of trade restrictions, quotas and other rules meant to prop up favored industries and fine-tune the economy. The period was a veritable golden age of industrial policy, and it came a cropper.
Yes, the government can and should set the overall conditions for the economy and ensure we have adequate supplies of strategically sensitive goods even if supply chains come under pressure, but there are limits to how much it can usefully direct economic development. Government is always operating from a knowledge deficit compared to the businesspeople, entrepreneurs and investors who are taking risks every day, pushing the envelope of innovation, and subjecting themselves to the discipline of the market, which will harshly punish them if they are wrong and richly reward them if they are right.
Few would have predicted in the 1990s, when the internet was coming into its own, that the future of tech would be such companies as Google, Facebook, Apple and Amazon. The U.S. Commerce Department didn’t create those firms, nor could have done so even if specifically directed to.
It is true that Sullivan is setting out a vision that runs counter to the former so-called Washington consensus in favor of deregulation and free trade. But he’s inveighing against a libertarian ideal that’s never been realized in the United States and never will be.
If the Washington consensus had been strictly adhered to, government spending wouldn’t have run out of control such that the U.S. is hard against a $31.4 trillion debt limit. A new study just found that regulation, much of it environmental, has vastly increased since the late 1990s, and the cost of complying has increased by about $1 trillion since 1970.
Basically, Biden is spending a massive amount on infrastructure and green initiatives in an economy where green regulation has made it increasingly difficult to build anything, certainly not in a cost-effective or timely manner. What the new industrial policy gives with one hand, the old industrial policy – and its attendant red tape – takes away with the other.
The alleged climate crisis supposedly justifies whatever irrationality or cost is imposed on the economy.
If this, as one can expect, doesn’t work as planned, no worries. There will always be the occasion for a new, modern industrial policy to take the place of the old.
Rich Lowry is on Twitter @RichLowry.
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