Stories to Watch: Industrial Policy
Timothy Taylor on transmission capacity; River Page on conflicting goals; Larry Summers on manufacturing; the WSJ on wind power subsidies; Mark Mills on electric vehicles
additional transmission is likely to mean more outside competition from electricity produced elsewhere–which can be a good thing for rate-payers, but harder to justify to shareholders. In general, shareholders of publicly-regulated utilities are not likely to lobby the company or the regulators for a dramatic expansion of transmission lines, because such a step would involve taking on a lot of debt and probably (given regulated prices) will not improve shareholder returns. But unless regulators provide them with incentives to do so, public utilities aren’t likely to expand transmission lines. Along with the various practical hands-on issues of dealing with the costs and permissions needed to expand transmission lines, these institutional constraints are likely to be another complicating issue.
Renewable energy in the Southwest has to find its way to the electric vehicles in the Northeast. We have the demand subsidies in place for the EVs. But we still have the supply restrictions of NIMBYism and price regulation for utilities.
In 2009 Obama’s Secretary of Commerce, Gary Locke, announced that the Economic Development Agency (EDA) had awarded Pensacola, Florida a grant of $2 million dollars to attract tech businesses to the Panhandle city. The grant was estimated to create 670 jobs and attract $27 million in private investment. The project, a “tech campus” set in the middle of the city's rapidly gentrifying downtown, was finished in 2012. When I moved to Pensacola in 2016, it was a green field that homeless people hung out at. When I moved in 2022, it was being used as a practice field for youth soccer. The “tech campus” has yet to attract a single tenant, a single job, or a single dollar of private investment.
Of course, if you use the intention heuristic (judge a policy by its intentions, not by its results), this was a success. Concerning the latest iteration of industrial policy, Page writes,
The convoluted details of this program demonstrate a clear commitment to DEI principles, naked political patronage, and are littered with self-erected barriers to the programs own success.
I am aware that we have a much-ballyhooed increase in manufacturing plant construction going on in the United States, and that that figure has shown almost a hockey stick level of growth. I'm also aware that of the 30 categories of business investment, that category is one of the very smallest, and that it constitutes less than 2% of total business investment. The idea that we can build an economy on growing our manufacturing sector is just not realistic and it is potentially counterproductive. I would just note that there are about 100 times as many workers in steel using industries as there are in the steel industry as evidence of the potential costs of domestic content requirements motivated by the desire to create capacity.
He throws cold water on a lot of popular misconceptions about the U.S. economy. I recommend the whole speech. Pointer from Timothy Taylor.
The WSJ editorial board writes,
Governors in the Northeast are lobbying the White House to bail out their states’ offshore wind projects, which have hit a gale of ballooning costs.
“Inflationary pressures, Russia’s invasion of Ukraine, and the lingering supply chain disruptions resulting from the COVID-19 pandemic have created extraordinary economic challenges,” wrote Govs. Kathy Hochul (N.Y.), Ned Lamont (Conn.), Phil Murphy (N.J.), Maura Healey (Mass.), Wes Moore (Md.) and Dan McKee (R.I.) to President Biden last week.
At no time in modern history has the government committed so much in money and mandates to a single goal as it has now to cars and how they’re fueled. This is industrial policy on a scale never before witnessed in America, outside of wartime.
…A conventional engine is a thermo-mechanical machine, with anywhere from hundreds to a thousand parts, which is paired with a very simple fuel-storage system: a steel tank with a single-part electric pump. In an EV, by contrast, the electric motor is indeed simple, with a couple of moving parts, but it’s paired with a battery that is a half-ton electro-chemical machine with thousands of parts and welds, wiring, complex power electronics to control power flows and ensure safety, and a cooling system.
Counterintuitively, in fact, the total EV ecosystem involves more labor per vehicle, though most of the increase is found in the manufacturing supply chain.
Have a nice day.
substacks referenced above:
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The trouble is that sometimes, what some people are calling an industrial policy is really just an attempt to mitigate the fallout from the previous round of de-industrial policy.
If you impose costly regulations on a domestic business sector but still allow imports from an unregulated foreign competitor, then all you have done is implement the deindustrial policy of a regulatory arbitrage which transfers production abroad and implodes local employment in those bankrupted sectors while doing nothing to affect levels of consumption or the global aggregate amount of whatever harms the regulations are purported to be trying to prevent.
For example, if California had merely imposed costly requirements on Californian pig farmers, but let in unregulated pork from Iowa, then Californians would still eat the same amount of pork, and the source pigs would still be treated the same way as before, and all that would happen is that Californian pig farms and farmers would go extinct. That's why they also had to ban imports from other states. If they had done this in two steps, perhaps after realizing the dumb error they made in step 1, then the attempt to domestically "reshore" the mistakenly purged industry is, sure, technically "industrial policy" in the sense that every policy affecting an industry is an industrial policy. But it's counter-de-industrial policy.
Came up for the title and subtitle for my first book:
US and EU "Green" Industrial Policy: What happens when an unstoppable force (Government Grift) meets an immovable object (The Laws of Physics and Economic Reality)