I was busy with rabbit stuff today, so my next post will be delayed until tomorrow! In the meantime, have another episode of Hexapodia, my revitalized podcast with Brad DeLong.
In today’s episode, Brad and I discuss the question of whether and how to reindustrialize the United States. Brad wrote a whole book on this topic, in fact. Basically, there are three main reasons we might want to boost American manufacturing:
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Geopolitical and military reasons: Having a supply chain for defense manufacturing and dual-use manufacturing that isn’t dominated by China would allow us to actually fight a war against China, if we ever had to do that. And since China has shown themselves perfectly willing to use export controls to bully other countries (including ours), we should develop supply chains that China can’t dominate, in order to avoid being bullied.
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Economic growth reasons: Having a robust manufacturing sector, in addition to a robust service sector, may make our country richer, by adding agglomeration and clustering effects.
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Economic equality reasons: We might want good high-paying blue-collar manufacturing jobs to help revitalize the American middle class.
Brad and I basically think that #3 is a dead end here — it’s not going to work. Especially with the advent of AI and AI-driven robotics, most manufacturing is going to be mostly automated; there will be no way for America to be competitive using human hands in factories when robot hands work so much better. That means the era of mass semi-skilled blue-collar factory employment is simply over and done.
But that doesn’t mean that manufacturing can’t create jobs. They just have to be different kinds of jobs — for example, local service jobs created by the money that the automated factories bring in to a town. That’s called a “local multiplier” effect, and it’s very powerful and important. Of course, it’ll require that the people who run the factories live near them, so they can spend their money locally.
Which leaves geopolitics and security as the main driver of reindustrialization. We note that the one country that we know of that has ever successfully reindustrialized was Ukraine, which built a strong drone and robotics industry out of necessity in order to fight off the Russian invasion. It’s not necessarily the most optimistic example for us to look to, but it may be the most important.
Anyway, Brad and I then spend a long time discussing what, exactly, America needs to reindustrialize. We come to the tentative conclusion that America really lacks only two important things — land use, and bank loans.
Land use, of course, is what the permitting bill currently moving through Congress is meant to address, and it’s important for a whole lot of other things besides manufacturing.
Bank finance seems to be important for manufacturing for a whole lot of reasons (expect more blog posts about this in the near future), and this is one area where America really struggles compared to other countries. My idea is to use America’s moribund megabanks as pools of capital for reindustrialization by giving them selective exemptions from the Dodd-Frank restrictions enacted after the financial crisis of 2008. More on that later.
