Arnold Kling writes wisely about industrial policy. Three slices:
The story I want to introduce here is the potential for industrial policy to misallocate resources. The attempt by government to use powerful carrots and sticks to increase domestic factory capacity and to move toward renewal energy sources could work out very well. You can read Noah Smith for the enthusiastic case.
I think it is going to be a disaster. From my perspective, which is that of a free-market economist, everything about the CHIPs act, the Inflation Reduction Act, and their ilk, sets off alarm bells.
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But industrial policy is uniquely positioned to misallocate talent. For one thing, while venture capitalists can be counted on to cut their losses as initiatives fail, government subsidies become entrenched. Consider the ethanol mandates, for example. By increasing corn production, these mandates probably cause a net increase in carbon emissions. But they are too popular in Congressional farm districts to ever be repealed.
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The demagogues who bash free trade are getting their way. Trade barriers and government subsidies will soon make “Made in America” synonymous with made inefficiently.
The big winners of the new industrial policy will not be working-class Americans. They will be lobbyists loitering in the halls of Congress, earning huge salaries playing the game of dialing for dollars to take from your pockets to give to favored businesses.
China’s economic model—which has leaned strongly into industrial policy and top-down investments directed from Beijing—”is broken” and has left the country “drowning in debt and running out of things to build,” Lingling Wei and Stella Yifan Xie explain in a must-read feature published in Sunday’s Wall Street Journal. The red flags include well-known factors such as China’s demographic issues (a direct consequence of another government-led attempt at engineering society: the one-child policy) and less obvious failings caused by malinvestments. One example of the latter is “a high-speed rail station in Danzhou, a city in China’s southern province of Hainan, [which] cost $5.5 million to build but was never put into use because passenger demand was so low.” Another: “Guizhou, one of the poorest provinces in the country with GDP per capita of less than $7,200 last year,” has 11 airports, more than China’s four biggest cities.
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More attention should be paid to the weaknesses in China’s economic model, which are becoming more difficult to ignore on both sides of the Pacific. China’s leaders have bet heavily on the misguided notion that government-directed investment is the key to greater economic growth. American officials should be in no rush to follow Xi down a path that requires curtailing liberty to chase a little temporary stimulus.
Mixing politics and banking is a risky exercise. It can also prove calamitous. The most recent example concerns the decision in July of the NatWest-owned Coutts private bank to close the account of one of Britain’s most well-known political figures, Nigel Farage.
Coutts claimed that the Brexit leader’s account had been closed because the amount invested had fallen below the financial threshold required by the bank’s customers, but it turned out that Farage’s political views had also played a significant role in the decision to de-bank him. In internal Coutts documentation acquired by Farage, Coutt’s reputational risk-assessment committee described him as someone “considered by many to be a disingenuous grifter” and “seen as xenophobic and racist.” His supposed views were thus deemed “at odds with our position as an inclusive organization.”
Worsening the situation was a breach of client confidentiality by NatWest’s CEO, Dame Alison Rose. At a dinner, she intimated to a BBC journalist that Farage’s account was closed for purely commercial reasons. Britain’s national broadcaster (not known for its friendliness to conservatives) apparently didn’t bother to check the veracity of the claim. They simply ran with it.
Kimberlee Josephson reveals some of the opportunity costs of the proposed new merger guidelines. A slice:
A vertical merger occurs when a firm acquires the assets and competencies of another firm within or adjacent to an industry’s supply chain. A soft-drink company, for example, may acquire a bottling plant, or a retail company may purchase a warehouse facility. It should also be pointed out that whatever makes up a firm’s supply chain may change and evolve over time. This was certainly the case for Dyson and the adoption of battery-powered components.
An example of a vertical merger that Khan felt necessary to intervene in, despite the rest of the agency’s reservations for doing so, was the Meta-Within transaction. Meta sought to acquire Within Unlimited, a Virtual Reality fitness app, rather than develop a fitness product in-house. Meta’s interest in the startup’s product was obvious given that all things VR-related may be of use for the Metaverse. What is not obvious is why Khan wanted to stop a small startup from benefitting from a big buyout, or how a fitness app acquisition would be a detriment to consumer interests. Khan’s interference further exposed her bias against Big Tech and Meta’s merger was an embarrassing loss for FTC.
Nevertheless, [FTC Chairwoman Lina] Khan sought to block another vertical merger just a few months later when Microsoft’s Xbox Game Studios announced plans to acquire the game developer Activision-Blizzard. Once again, Khan’s case lacked substance and reason since the merger would benefit gamers and help Microsoft better compete against Japan’s Sony Interactive Entertainment Studios, which holds 70 percent market share.
The delays and unnecessary expense Khan has caused with these cases are not only problematic for the parties involved, but also for taxpayer dollars and consumer interests. Yet, Khan shows no signs of backing off with her sights now set on Amazon, and she has requested an increase of $160 million for her FY 2024 budget.
GMU Econ alum Dominic Pino busts some myths about the current condition of rural America.
Transnational criminal organizations are ravaging Latin America. Economic growth in much of the region is shaky, and corruption remains a perennial problem. Just when it looked as if things couldn’t get any worse, Rep. Alexandria Ocasio-Cortezleft on a South American socialist sympathy tour.
For Americans, it’s not what the congresswoman took to the region that’s disturbing. It’s what she might bring back—and I’m not talking about Covid-19. “We have much to learn from our counterparts in these countries, including how to confront disinformation and violent threats to our democracies,” she said before setting off to Brazil, Colombia and Chile with 10 other congressional Democrats and staffers—including Sen. Bernie Sanders’s chief of staff.
Much to learn? Brazil is a nominal democracy, but its Supreme Court is now using a war on “disinformation” to justify a crackdown on free speech the likes of which hasn’t been seen since the 1964-85 military dictatorship. Let’s hope AOC left her notebook at home.
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There was lots of blah-blah-blahing about democracy. But all three governments visited have used elected office to try to strike down the rule of law and establish populist tyranny. Mr. Boric backed a new constitution that would have dissolved the unified Chilean nation. It was defeated overwhelmingly. Colombian President Gustavo Petro wants to destroy property rights and decriminalize crime. He’s less popular than President Biden.
Humanity hasn’t completely escaped covid hysteria. (HT Jay Bhattacharya)
