Scott Lincicome, writing his Capitolism column, makes crystal clear that “Chinese industrial policy is an anchor, not an engine.” Two slices:
Now that the Trump administration has taken an equity stake in domestic mining company Lithium Americas, it’s a safe bet the United States will continue to stray from traditional market capitalism for the foreseeable future. As to why we’re going down this road, the most common answer is—along with Jonah Goldberg’s accurate (IMO) view of the president’s motivations—that this new “American state capitalism” is a response to China’s version of the same. Chinese industrial policies, so the theory goes, have quickly moved the country from an economic nuisance (albeit a large one) to an existential threat, dominating various industries and all but demanding the U.S. government adopt similar policies—subsidies, tariffs, equity infusions, and more—just to keep up. The new Lithium Americas deal follows this script to the letter.
Readers of Capitolism know that, while I agree certain Chinese policies and their effects raise real challenges that demand serious policy responses, the bipartisan approach to countering Chinese state capitalism with American state capitalism is flawed on multiple levels. Most obviously, we’re not China: Policies that might “work” in a still-developing autocracy with 1.4 billion people won’t necessarily “work” here in our smaller, wealthier, messier democracy, and Washington has plenty of untapped alternatives proven to produce desired results at a much lower fiscal, economic, and social cost.
Recently, however, another rather important flaw has emerged: Chinese industrial policies aren’t even “working” over there—maybe even for the industry that’s supposedly their biggest success story.
A big problem with industrial policy—in China, the United States, or anywhere else—isn’t that it never produces a globally competitive “winner” company or industry, but that it will typically produce far more “losers” and do so at a great cost. As we discussed in 2023, research has shown this to be the case in China, too, with failures greatly outnumbering success in key industries like aircraft and semiconductors and accompanied by broader economic harms—resource misallocation, corruption/graft, overcapacity, financial instability, etc.—that “hinder rather than accelerate China’s economic development.”
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The obvious counter to these and other hidden costs—including the stuff not produced in China because finite resources were wasted on “zombie” EVs parked in weedy graveyards—is that BYD and a couple other Chinese brands are (so far, at least) leaders in the global EV market and poised to dominate it in the future. Other observers, it should also be noted, are more optimistic about China’s domestic automotive industry in general, seeing any current struggles as a small blemish on a much larger success.
Even so, it would remain the case that EVs are at best an exception to China’s industrial policy rule. As already noted, deep dives into other government-supported sectors—from Branstetter and others—reveal a Chinese government picking many more losers than winners, with supported companies and state-owned champions performing worse than their more market-oriented counterparts in China and still years behind the technological frontier (i.e., where the United States typically is). Just this week, for example, Bloomberg reported that Chinese tech champion Huawei’s most advanced AI chip “can only offer 6% the performance of Nvidia’s next-generation VR200 superchip,” while others doubt Huawei’s products are even as good as Nvidia’s scaled-down “H20″ chip. (One reason why is that Huawei must use Chinese-made chips that are well behind what Nvidia’s products use, thanks to the latter enjoying “a collaborative effort by the whole western community and industry.” Lessons abound!) Even Chinese industries that are globally successful often have problems similar to those facing EVs—or, as this recent Financial Times dive into China’s solar industry documents, even worse issues.
Then there are the broader economic costs arising from China’s state capitalist model—costs that new International Monetary Fund (IMF) research reveals to be mind-bogglingly large. As simply a budgetary matter, the paper estimates that the “equivalent fiscal cost of industrial policy through cash subsidies, tax benefits, subsidized credit, and subsidized land for favored sectors (including both private and state-owned firms)” was annually around 4 percent of China’s GDP between 2010 (when Chinese industrial policy really cranked up) and 2023. Overall, that would mean government spending of around $7 trillion over the period examined—a price tag, the authors note, that could be an understatement due to the other, less-visible government support provided to favored companies.
Steven Koonin reports on yet another case of “climate change bias.” Two slices:
The climate fearful attending Climate Week last month in New York City no doubt shuddered when discussing a recent National Academies of Sciences, Engineering and Medicine report on the effect of greenhouse-gas emissions. Taking a cue from the Brothers Grimm, it depicts dire consequences for the nation’s climate, health and welfare.
The academies’ study—which was put together in less than two months—was obviously meant to bolster the scientific basis for the Environmental Protection Agency’s 2009 finding that greenhouse-gas emissions threaten the nation’s well-being. The study therefore plays down or ignores evidence undermining that conclusion. This agenda is evident from the first sentence of the preface, which invokes the terrible flood of the Guadalupe River in Texas in July. The report doesn’t mention that similar events have been recorded since the late 19th century and show no detectable trend to the present, even as emissions have soared.
Assessments of climate science often minimize, or even ignore, natural variability to make recent climate trends or weather events seem unusual and hence a consequence of greenhouse-gas emissions. The National Academies’ report is no exception. It describes a recent acceleration of global sea-level rise observed by satellites without mentioning a comparable acceleration during the 1930s. There are similar failures in the report’s coverage of U.S. heat waves (which aren’t more common in recent decades than they were in the decades around 1900) and of North Atlantic hurricanes (which show no long-term trends in frequency or intensity).
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I helped oversee National Academies studies in engineering and physical sciences for six years. Those reports lived up to the claim to provide “independent, objective analysis and advice.” But the academies have long had problems of bias and advocacy on climate matters. The government would do well to stop funding their climate studies until they get their house in order.
Former “democratic socialists” Joshua Muravchik and Ronald Radosh, writing in the Washington Post, explain – very Hayekianly – that socialism and democracy are fundamentally incompatible with each other. A slice:
What, then, does the DSA stand for? In theory, democratic socialists would transform the economy from private enterprise to public ownership, but — unlike communists — only through persuasion and legislation, not violence and coercion. We each once adhered to this creed.
The problem is that more than a century of history plainly shows that socialism-via-persuasion is a chimera. While democratic electorates may create welfare states and mixed economies, they never opt for full socialism. Just as many other democratic socialists came to understand that they must choose between democracy and socialism, the two of us made peace with democratic capitalism.
Jay Cost explains what shouldn’t – but, alas, what nevertheless today does – need explaining: “By centralizing authority so heavily [in the executive branch], the United States has rejected a fundamental governing principle upon which it was originally founded: the separation of powers.” A slice:
As the French philosopher Montesquieu wrote in The Spirit of the Laws, a work that heavily influenced the Constitution’s framers, combining the executive and legislative means “there is no liberty, because one can fear that the same monarch . . . that makes tyrannical laws will execute them tyrannically.” Likewise, John Adams once noted, “Every project has been found to be no better than committing the lamb to the custody of the wolf, except that one which is called a balance of power.” (Emphasis in original.) As our country’s founders saw clearly, giving the president the right to create and enforce the law is a power highly liable to catastrophic abuse in ways that threaten the foundation of the republic itself.
Moreover, it is only in the legislature that all major factions in society can have their views taken into consideration. The president is just a signal individual who can, at best, reflect but a portion of the country. Those outside the president’s political coalition can do little except bide their time until their side is in control. But a properly functioning legislature is one where a diversity of interests can be brought meaningfully into the policymaking process. That can happen only in Congress. It is the only institution where a variety of views can be expressed, debated, and ultimately integrated into public policy that benefits the whole political community.
Marcus Falcone rightly criticizes governments’ urban planning. A slice:
Remember the joke that getting government help is like having it break your legs and give you a pair of crutches? In this case it’s more like getting both legs broken but getting just one crutch. When it comes to urban planning, the government creates problems and cannot even fix them.
Brian Blase’s and Niklas Kleinworth’s letter in the Wall Street Journal is superb:
“The Case for Extending ObamaCare Subsidies” (Letters, Oct. 4) suggests that a Covid-era credit is a lifeline for millions of Americans. Don’t buy it. The sweetened “credit” is the problem, not the solution, driving the high cost of healthcare. The zero-dollar premiums created by the Biden administration policy exacerbated structural problems in the Affordable Care Act.
For everyday Americans, the result is worse coverage and tens of billions in higher taxes annually. Many also have been enrolled in plans without their knowledge, leaving them surprised at tax time or without coverage that meets their needs.
ObamaCare isn’t a healthy insurance market. Only people who receive giant subsidies or expect large medical expenses enroll. For more than one-third of enrollees, taxpayers send insurers large checks for people who never see a doctor, get lab work or fill a prescription. This is twice the amount in a normal market and suggests massive fraud. A recent Paragon policy brief finds that the rise in zero-claim enrollees isn’t, as insurers contend, larger numbers of young, healthy enrollees signing up for plans.
Zero-claim enrollees, many of whom are unaware of their coverage, are part of the problem. There are more than 6.4 million Americans in fully subsidized plans who are ineligible. Unscrupulous brokers filled out applications so people could qualify for zero-premium plans. Meanwhile, insurers happily collected large checks from the government that covered the entire premium. Nearly half of 2025 enrollees took no action during open enrollment, as they were automatically renewed into their subsidized plan.
Unfortunately, Trump administration efforts to address the large-scale fraud have been held up by one Democratic-appointed judge. This makes it more important that the Covid credits expire, and with them, the fuel for the fraud.
ObamaCare’s underlying subsidies would persist without the sweetened deal. The government would still pick up more than 80% of the cost of the premium for the typical enrollee next year after Covid credits expire.
The real beneficiaries of extending the credits are insurers, who would rather receive payments from Washington than offer plans people must at least partially pay for. Hard-working families who get coverage through the workplace shouldn’t have to bail them out to prop up this already oversubsidized market.
The hankering for schemes and systems and comprehensive organization is the wistfulness of an immature philosophy which has not come to terms with reality, no less when the conservators of vested interests would stabilize the modern economy in statu quo by protective laws and monopolistic schemes than when the revolutionist makes blueprints of a world composed of planned national economies “coordinated” by a world-planning authority. Neither takes any more account of reality than if he were studying landscape architecture with a view to making a formal garden out of the Brazilian jungle.
In the end, no banks, no government, no institutions could have created the American economic miracle of these years. America suddenly emerged a prosperous, scrambling, enterprising society not because the Constitution was created or because a few leaders formed a national bank, but because ordinary people, hundreds of thousands of them, began working harder to make money and “get ahead.” Americans seemed to be a people totally absorbed in the individual pursuit of money. “Enterprise,” “improvement,” and “energy” were everywhere extolled in the press.
The notion that the incomes of the more prosperous have somehow been achieved at the expense of the less prosperous has had a long and disastrous history. In its duration and consequences it is perhaps the most pernicious of all economic misconceptions.
We seem to be getting closer and closer to a situation where nobody is responsible for what they did but we are all responsible for what somebody else did.
