With the passage of four large spending bills over his first two years — the American Rescue Plan, the Infrastructure Investment and Jobs Act, the Chips and Science Act and the Inflation Reduction Act — President Biden has inaugurated something of an economic policy revolution. Their near 2,000 pages of programs and initiatives contain a profound shift in how the federal government intervenes in the economy. We now have the closest thing the United States has had to a real industrial policy in decades.
Sign up for a weekly roundup of thought-provoking ideas and debates
Industrial policy refers to government efforts to not just boost economic growth generally, but to promote the development of particular industries and economic sectors, making choices about what the economy ought to look like. Critics often call this government meddling that subverts the wisdom of the free market, but Democrats — and a few Republicans — have cast off whatever reluctance they had about it.
For decades, the only real industrial policy we had was in the defense industry, where government tells private companies exactly what we want them to make, then showers money on them to do it. While spending bills have always contained plenty of pork projects and tax credits, there has seldom been a coherent strategy behind them.
With the passage of these bills during Biden’s first two years in office, that’s starting to change.
Follow Paul Waldman's opinionsFollow
“We made a colossal mistake in the country for the last 50 years, where we offshored America’s productive capability,” Rep. Ro Khanna (D-Calif.) told me. “We lost factories, we lost jobs, we atrophied our manufacturing base, we started to decline as a manufacturing power.”
Khanna has been touring the country to promote economic development in distressed areas, especially places Democrats don’t usually go. He noted that more and more members of his party now recognize that the decline in manufacturing was not only an economic problem, but also “it had a deep social cost, hurting the social cohesion of this nation.”
There’s an obvious political benefit in this for Democrats, especially if the projects are visible to voters. When I asked whether Democratic losses in small towns and rural areas played a part in the design of these bills, in that they direct money to such left-behind places, Khanna brought up the White House chief of staff and two members of the Council of Economic Advisers.
“I know for a fact it was on the top of the minds of people like Ron Klain, people like Heather Boushey, people like Jared Bernstein — I personally have had that conversation with all three of them,” he said. “And I’ve discussed it with the president himself.”
The highest-profile industrial policy projects are probably in the Chips Act. Though that law was signed only four months ago, the Semiconductor Industry Association claims it has already spurred $200 billion in private investment in 16 states. Some of those projects are happening in places where manufacturing has declined, such as a new Micron Technologies plant outside Syracuse, N.Y., and an Intel factory near Columbus, Ohio. But the bills also have specific place-based strategies meant to lift up entire areas that have fallen behind.
It’s “a geographical intervention,” says Mark Muro of the Brookings Institution, who recently co-wrote a report examining the place-based programs in the bills. For instance, the American Rescue Plan set up a program for regional coalitions of businesses, nonprofits and universities to apply together for grants whose funding will be spread around an entire local economy. The winners included a robotics partnership in the Pittsburgh area, an effort to improve agricultural technology around Fresno, Calif., and a biotech hub in Oklahoma.
The rationale is that we suffer from inequality not only among individuals but also on the level of entire regions. “There’s a reason that we’re seeing growing distrust of technology companies and more broadly, economic elites. That economy seems to be taking place far from where people are,” Muro told me. “I don’t think you can run a successful economy where 10 metros on the coast dominate.”
And those metro areas are overwhelmingly left-leaning, so Republicans don’t have to work too hard to convince people in the places left behind to believe the Democratic Party is indifferent to their economic plight. Which means Democrats have to work harder to show those people that government spending can improve their local economies.
The political effects will be finite; it isn’t as though Biden will win Wyoming in 2024 because the state received $4,500 per resident in infrastructure funds, the second-highest per capita total of any state. But Khanna talks about aggressive government spending to lift up manufacturing in evangelical terms.
“I think that is the best chance this country has of having a shared common purpose,” he told me. “It has the potential of crossing the deep divisions we have as a country.”
Whether that turns out to be true, if these programs are effective and Democrats start clawing back ground they’ve lost in distressed areas, it could generate powerful momentum for more active government intervention in the economy. And one of these days, even Republicans might want to get on the bandwagon.
Sign up for a weekly roundup of thought-provoking ideas and debates
Industrial policy refers to government efforts to not just boost economic growth generally, but to promote the development of particular industries and economic sectors, making choices about what the economy ought to look like. Critics often call this government meddling that subverts the wisdom of the free market, but Democrats — and a few Republicans — have cast off whatever reluctance they had about it.
For decades, the only real industrial policy we had was in the defense industry, where government tells private companies exactly what we want them to make, then showers money on them to do it. While spending bills have always contained plenty of pork projects and tax credits, there has seldom been a coherent strategy behind them.
With the passage of these bills during Biden’s first two years in office, that’s starting to change.
Follow Paul Waldman's opinionsFollow
“We made a colossal mistake in the country for the last 50 years, where we offshored America’s productive capability,” Rep. Ro Khanna (D-Calif.) told me. “We lost factories, we lost jobs, we atrophied our manufacturing base, we started to decline as a manufacturing power.”
Khanna has been touring the country to promote economic development in distressed areas, especially places Democrats don’t usually go. He noted that more and more members of his party now recognize that the decline in manufacturing was not only an economic problem, but also “it had a deep social cost, hurting the social cohesion of this nation.”
There’s an obvious political benefit in this for Democrats, especially if the projects are visible to voters. When I asked whether Democratic losses in small towns and rural areas played a part in the design of these bills, in that they direct money to such left-behind places, Khanna brought up the White House chief of staff and two members of the Council of Economic Advisers.
“I know for a fact it was on the top of the minds of people like Ron Klain, people like Heather Boushey, people like Jared Bernstein — I personally have had that conversation with all three of them,” he said. “And I’ve discussed it with the president himself.”
The highest-profile industrial policy projects are probably in the Chips Act. Though that law was signed only four months ago, the Semiconductor Industry Association claims it has already spurred $200 billion in private investment in 16 states. Some of those projects are happening in places where manufacturing has declined, such as a new Micron Technologies plant outside Syracuse, N.Y., and an Intel factory near Columbus, Ohio. But the bills also have specific place-based strategies meant to lift up entire areas that have fallen behind.
It’s “a geographical intervention,” says Mark Muro of the Brookings Institution, who recently co-wrote a report examining the place-based programs in the bills. For instance, the American Rescue Plan set up a program for regional coalitions of businesses, nonprofits and universities to apply together for grants whose funding will be spread around an entire local economy. The winners included a robotics partnership in the Pittsburgh area, an effort to improve agricultural technology around Fresno, Calif., and a biotech hub in Oklahoma.
The rationale is that we suffer from inequality not only among individuals but also on the level of entire regions. “There’s a reason that we’re seeing growing distrust of technology companies and more broadly, economic elites. That economy seems to be taking place far from where people are,” Muro told me. “I don’t think you can run a successful economy where 10 metros on the coast dominate.”
And those metro areas are overwhelmingly left-leaning, so Republicans don’t have to work too hard to convince people in the places left behind to believe the Democratic Party is indifferent to their economic plight. Which means Democrats have to work harder to show those people that government spending can improve their local economies.
The political effects will be finite; it isn’t as though Biden will win Wyoming in 2024 because the state received $4,500 per resident in infrastructure funds, the second-highest per capita total of any state. But Khanna talks about aggressive government spending to lift up manufacturing in evangelical terms.
“I think that is the best chance this country has of having a shared common purpose,” he told me. “It has the potential of crossing the deep divisions we have as a country.”
Whether that turns out to be true, if these programs are effective and Democrats start clawing back ground they’ve lost in distressed areas, it could generate powerful momentum for more active government intervention in the economy. And one of these days, even Republicans might want to get on the bandwagon.
