This article by Andy Grove calling for industrial policy to revitalize our economy has been making the rounds in the econ blogs. I am surprised that so many bloggers haven’t taken their kid gloves off with this article. Here’s Rajiv Sethi:
I am not entirely convinced myself, and suspect that he may be underestimating the likelihood (and consequences) of cascading retaliatory actions and a collapse in international trade. But the argument must be taken seriously, and anyone opposed to his proposals really ought to come up with some alternatives of their own.
And here’s Mark Thoma:
I am not convinced either, but the problem of where good jobs will come from in the future is an important concern. If the new jobs that are created are not as good, on average, as the jobs being lost, anything could happen.
These are extremely mild semi-rebukes, and ideas like Groves has offered deserve stronger denunciation than that. To get a sample of the weakness of his argument look no further than how seriously he deals with the possibility that the tariffs he calls for will lead to a trade war (emphasis mine):
The first task is to rebuild our industrial commons. We should develop a system of financial incentives: Levy an extra tax on the product of offshored labor. (If the result is a trade war, treat it like other wars — fight to win.)
This a serious problem with his proposed policy and his defense amounts to glib sloganeering. What does it mean to fight a trade war to win? To impose tariffs so economically damaging to our trade partners that they kowtow and agree to accept a status quo where we have more protectionist policies than they do? This certainly doesn’t sound like a recipe for getting out of a global economic slump.
With all do respect to Sethi and Thoma, “I am not convinced” does not sufficiently convey the obvious wrongheadedness of Grove’s proposal, and they should call out this thoughtless defense of protectionism for what it is: a really terrible idea that is wrong and dangerous.
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Monday ~ July 5th, 2010 at 1:47 pm
RickRussellTX
“What does it mean to fight a trade war to win?”
It means that the speaker doesn’t understand economics. The obsession with domestic manufacturing and small business development is a poison that is robbing us of international competitiveness, a fact that even domestic manufacturers recognize.
Thanks to the excellent Scott Lincicome (http://lincicome.blogspot.com/) for that link.
RR
Monday ~ July 5th, 2010 at 3:30 pm
Rebecca Burlingame
After reading the article I could not help but think of the well trod roads of thought that lead to both protectionism and supposed need on government’s part to “just do something”. Even as people understand the circumstances and actions leading to the Great Depression, it is hard to rationalize away from such solutions now.
I could appreciate Andy Grove’s arguments for a return of manufacturing. It was only the solution that I disagreed with. I believe solutions for this in the developed world involve separating the service-based economies that drag down manufacturing economies, so that business in the developed world can once again compete with business in the developing world, which will probably never have those same high costs for individual employees for many reasons.
By service economies, I do not mean those directly related to manufacturing which may increase total costs by say, possibly 10 percent. I am referring to the service-based costs (ultimately) related to healthcare that increase employee costs exponentially in the developed world. If people can reclaim service economies with human skill, businesses, governments and individuals no longer have to go bankrupt and the developed world will still have a chance with the developing world in the 21st century.
Tuesday ~ July 6th, 2010 at 12:29 am
RickRussellTX
“I am referring to the service-based costs (ultimately) related to healthcare that increase employee costs exponentially in the developed world.”
Unfortunately, I see no resolution this problem. Western society is far too willing to spend a million here and a million there to stretch out 3 or 5 or 7 years of low-quality life at the end. Until we’re willing to say, “Yes, we will focus our health care efforts on the young and middle-aged who stand to benefit from them” and “Yes, we will allow and help people with serious age-related degenerative diseases make a dignified exit”, I don’t see that there are savings to be had.
Required reading:
http://www.nytimes.com/2010/06/20/magazine/20pacemaker-t.html
http://www.cbsnews.com/stories/2009/11/19/60minutes/main5711689.shtml
http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande
Saturday ~ July 10th, 2010 at 6:59 pm
jeannine powers
Henry C. Carey, adviser to Abraham Lincoln, and perhaps the leading American System economist, wrote extensively exposing the failure of the British free trade approach and demonstrating the success of the American System. The following comes from Henry Carey’s book, The Harmony of Interests, written in 1851.
One looks to increasing the necessity for commerce; the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level. One looks to pauperism, ignorance, depopulation, and barbarism; the other in increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of elevating while equalizing the condition of man throughout the world.
“Such is the true mission of the people of these United States…. To raise the value of labour throughout the world, we need only to raise the value of our own….
Quaint huh?Like the Geneva conventions.
Saturday ~ July 10th, 2010 at 11:13 pm
Tim
This critique of Grove makes the same error as others I’ve seen. This recasts Grove’s argument as one of Protectionism, and then dismisses it in the glorious names of Free Markets and Global Trade. Grove is portrayed as an obsolete artifact of the 19th century who just “doesn’t get” the complexities of the 21st century.
But it is Grove’s critics that are the ones that don’t get it. Grove is not talking about protectionism. He is addressing the offshoring of American jobs, enabled thru the offshoring of American knowledge and technology. And the tax he refers to is not an import tariff. He plainly says, “Levy an extra tax on the product of OFFSHORED labor.”. That’s OFFSHORED, not OFFSHORE.
The decision to incurr such a tax would be entirely up to the corporations that are offshoring the jobs and technology. The default position is “pay no tax”. The company only incurrs the tax as the result of its own actions to offshore the jobs and technology.