Industrial Policy on Parade

Veronique de Rugy  – October 23, 2022 @ American Institute for Economic Research

It’s no longer news that industrial policy is making a comeback. Too bad, that. In the zombie parade of bad policies that the left and the new right are now staging, this one is particularly baffling. Industrial policy has been tried on large scales – think the Soviet Union – and on smaller scales, including in the US and many other countries.

The fact that past industrial policy attempts were abandoned due to grotesque failure to achieve their goals seems to make no difference to those who are intent on reviving this practice. Indeed, we need not look as far back as the 1980s for evidence of the folly of trusting government to guide industrial development; we have a contemporary example. And this example is detailed by none other than the New York Times, which recently reported that, after years and billions of dollars, California’s effort to build a high-speed train has been a disaster.  A tidbit:

Now, as the nation embarks on a historic, $1 trillion infrastructure building spree, the tortured effort to build the country’s first high-speed rail system is a case study in how ambitious public works projects can become perilously encumbered by political compromise, unrealistic cost estimates, flawed engineering and a determination to persist on projects that have become, like the crippled financial institutions of 2008, too big to fail.

This effort qualifies as industrial policy because the government claims to know better than private markets what is the best means of transportation and worth high-jacking resources to produce bureaucrats’ preferred outcome. But as usual, government officials – spending other people’s money – miss the obvious.

There’s a reason why trains in the U.S. trains are far less popular than planes. There’s a reason why travel by rail make more sense in small countries, and along the densely populated northeastern coast of the U.S. But politicians and intellectuals, enamored of the notion that trains are more friendly to the planet than are planes, ignore these realities in pushing for an industrial outcome that will likely never be profitable. For a walk down failed-rail-project memory lane see this piece by Phil Klein.

Building a high-speed rail connecting Los Angeles and San Francisco was always going to be challenging due to California’s geography. And of course, most of you will not be surprised to learn that this large-scale government project is in fact failing, in large part because of the perverse incentives that pervade such a government project. From conception to planning to building, the incentives consistently encourage waste and error. Again, legislators aren’t funding this boondoggle with their own money. Nor will they be personally accountable for cost overruns, failure to deliver, or what are certain to be many technical problems.

The cost overruns here are almost comical for something that literally hasn’t been built yet. In 2008, the train’s cost was projected to be $33 billion. Fourteen years later the final plan is projected to cost $113 billion – a mere 242 percent more than the sum used to peddle the scheme to the general public.

In addition, decisions on construction are unduly – but not unsurprisingly – influenced by special interests rather than by good economic sense. As the Times writes: “political deals created serious obstacles in the project from the beginning.” Here’s more:

A review of hundreds of pages of documents, engineering reports, meeting transcripts and interviews with dozens of key political leaders show that the detour through the Mojave Desert was part of a string of decisions that, in hindsight, have seriously impeded the state’s ability to deliver on its promise to create a new way of transporting people in an era of climate change.

As if the project wasn’t difficult enough to deliver on, legislators decided to create costly detours to serve political friends:

Political compromises, the records show, produced difficult and costly routes through the state’s farm belt. They routed the train across a geologically complex mountain pass in the Bay Area. And they dictated that construction would begin in the center of the state, in the agricultural heartland, not at either of the urban ends where tens of millions of potential riders live….

Mike Antonovich, a powerful member of the Los Angeles County Board of Supervisors, was among those who argued that the train could get more riders if it diverted through the growing desert communities of Lancaster and Palmdale in his district, north of Los Angeles.

Even the SNCF engineers from France who came to work on the project eventually gave up:

There were so many things that went wrong,” Mr. McNamara said. “SNCF was very angry. They told the state they were leaving for North Africa, which was less politically dysfunctional. They went to Morocco and helped them build a rail system.

Morocco’s bullet train has been in service since 2018.

The report is worth reading in its entirety. It is the most ridiculous and clichéd story of why industrial policy fails. Such projects are often taken over by special interest groups (remember Alaska’s bridge to nowhere) that bloat the cost, and in extreme cases lead the project to failure.

This experience is commonplace. My colleague Jack Salmon told me about the plans for HS2, a high-speed rail project in the U.K., that started in 2009 to link London to Birmingham, Manchester, and Leeds. The high-speed train was promised to reduce the time of the journey by 30 minutes. Salmon sent me the following information:

The first stage was predicted to be completed by 2020, and with a further connection to Scotland operating by 2030. In 2010, the new conservative-led coalition amended 50% of the planned route after rural conservative MPs made a fuss about noise pollution and property values. At the time, the cost was estimated at about £30 billion. In 2013, the cost of the project was revised up to £50 billion. In 2014, the cost was revised to £57 billion. By 2019, the Oakervee review estimated that the projected cost, in 2019 prices, had increased to £88 billion. Lord Berkley, deputy chair of the review, said that these estimates were very optimistic and could actually be as high as £170 billion. The route is now estimated to be completed by 2045, although this will likely be pushed back. By that time, this £30 billion gravy train could end up costing £1 trillion.

That’s the problem with industrial policy, and such gravy train projects. Politicians can’t help themselves and these projects are always highjacked by special interests.

READ MORE

Veronique de Rugy

Veronique de Rugy is a former writer with AIER. She is a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist.

Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.

She received her MA in economics from the Paris Dauphine University and her PhD in economics from the Pantheon-Sorbonne University.

Follow her on Twitter @veroderugy

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Organized Grime: Government Is Setting up a Protection Racket With the Press in the New Spending Bill

A punchline for months, the Feds consider paying off the media as needed in the infrastructure bill.

By Brad Slager |Nov 10, 2021 

When Biden’s highly touted and even more highly expensive Infrastructure spending bill, and his Build Back Better Act were initially floated the ridiculous breadth of them provoked gallows humor. Looking over the initial proposals generated numerous questions of what qualified in the bill, leading people to grimly declare items like season tickets, or their bar tab could be considered “infrastructure.” Looking over the Democrats’ social spending bill we see they continue to regard tax revenue as a no-limit debit card for their whims..........To Reads More.....

Five controversial policies tucked inside $1.2 trillion infrastructure bill passed by Congress

By Nicholas Ballasy November 9, 2021

The final $1.2 trillion INVEST in America Act passed the Democrat-led House in a late night vote on Friday. Tucked away inside the infrastructure bill are some controversial policies, including these five:

1. The cryptocurrency tax provision in the Senate version of the bill was the subject of scrutiny from Democrats and Republicans........

2. Under the "national motor vehicle per-mile user fee pilot" section of the bill, there is a pilot program to create a vehicle miles traveled system for taxing drivers based on their annual vehicle mileage.........

3. The bill includes a $118 billion bailout for the Highway Trust Fund...........

4. The bill includes a mandate for vehicle manufactures to install "drunk and impaired driving prevention technology" as a standard safety feature inside of new vehicles. 

5. The bill provides select cabinet secretaries with the authority to waive government cost-sharing rules with the private sector and fully fund select infrastructure projects with taxpayer dollars...........To Read More.....

• Democrat spending bill poised to push personal income tax rates to highest level in developed world

Biden's $50,000-per-year journalist tax credit estimated to cost taxpayers $1.6B

By Haris Alic - The Washington Times - Thursday, November 4, 2021 

The lucrative $50,000-per-year journalist tax break that Democrats have tucked within President Biden’s multitrillion-dollar social welfare bill is estimated to cost taxpayers more than $1.6 billion over the next decade.

A new analysis of the legislation by the Joint Committee on Taxation, a special congressional panel made up of 10 senior lawmakers from both chambers of Congress, found that taxpayers would be on the hook for more than $1.6 billion if the tax credit becomes law.
The credit would allow “local news” outlets to receive a quarterly tax credit, “equal to 50%” of a journalist’s wages up to a cap of $12,500-per-quarter.

Overall, eligible outlets could receive as much as $50,000 annually per journalist in tax breaks through the program in its first year. In subsequent years, the credit would drop to 30% of a journalist’s wages per quarter. Democrats propose to let the tax credit expire after five years unless Congress votes to renew.......To Read More....

 Robin's Take - Another outrage!  Democrats trying to pay back "journalists" for being grossly partisan hacks protecting them at every turn while doing all they can to harm the right

What’s in Third Version of Biden’s Big Government Spending Bill

Christian Mysliwiec / @cmysliwiec / October 28, 2021

Nov. 4 Update: What’s in the Third Version of Biden’s Big Government Spending Bill?

Congressional Democrats have released a third version of their big government socialist Build Back Better Act. Compared to the previous draft, the newest version adds another 450 pages, resulting in a 2,135-page plan for a reckless tax and spending spree. We asked analysts from The Heritage Foundation to examine what is in the updated bill text. Here are their responses:

Version 3 Updates

• A federal takeover of family leave policies, which would provide the highest benefits to those with the highest incomes.
• Imposing government price controls that would allow for less access and fewer choices to life-saving treatments. 
• A massive increase in the state and local tax deduction, from $10,000 to $72,500, which would simply be a subsidy for high income earners in high tax states. 
• A new tax subsidy for union politics. 
• A tax subsidy for the news media.
• A significant tax increase on nicotine products, which will burden low and middle income Americans.

This third version of the bill includes significant changes to federal policy, including creating expensive new entitlement programs. But make no mistake, more changes will be coming. .........To Read More....

• House Passes Infrastructure Bill as Democrats Pave Way for Huge Social Spending Package

Republican Betrayal on Fake Infrastructure Bill

Establishment Democrats and Republicans and their corporate media mouthpieces view the American taxpayer as an ATM to fund their priorities.

By Ned Ryun August 11, 2021

The so-called infrastructure bill that 19 miserable, loathsome Republican senators just helped to pass shows the utter worthlessness of a corporatist Republican Party out of touch with its constituents. Most of these senators are from red states, and many of them are people Trump bailed out in 2016 and 2020 (including McTurtle) and helped to get reelected. They just gave their voters, and the American people, the middle finger. One can’t help but think they’re either incredibly stupid or incredibly corrupt; probably both if we’re being honest. 

Not only does this bill add anywhere from $256 to $400 billion to our roughly $30 trillion national debt, it has very little to do with anything accurately labeled “infrastructure.” Only $110 billion of the $1.2 trillion is for highways, roads, bridges and major projects. If you throw in the monies for airports, ports, and assorted other items, you might get to 23 percent of this monstrosity designated for actual infrastructure. 

The other 77 percent of the bill’s funding reads like a far left wish list that paves the way for the Green New Deal. That’s why this bill should be dubbed the Gateway to the Green New Deal Bill and not infrastructure. Take for example that nearly 20 percent of the entire bill, $213 billion, is allocated for retrofitting two million homes and buildings to make them more sustainable, whatever that means. Or the $20 billion for racial equity and environmental justice. Or the mileage tax, as in yes, they want to explore taxing you for every mile you drive in your car.........To Read More....

 

 

Senate Republicans Greenlight Outsourcing of U.S. Manufacturing Jobs with Infrastructure Bill Passage

John Binder 10 Aug 2021

A group of 19 Senate Republicans helped greenlight outsourcing of American manufacturing jobs with the passage of the so-called bipartisan infrastructure bill that provides giant carve-outs for industries to bypass “Buy American” rules.  On Tuesday, 19 Senate Republicans joined Senate Democrats in a 69-30 vote to pass the Infrastructure Investment and Jobs Act. Those Senate Republicans include:

Dan Sullivan (R-AK), Shelley Moore Capito (R-WV), Mike Crapo (R-ID), Roy Blunt (R-MO), Richard Burr (R-NC), Deb Fischer (R-NE), Lindsey Graham (R-SC), Rob Portman (R-OH), Thom Tillis (R-NC), Lisa Murkowski (R-AK), Jim Risch (R-ID), Chuck Grassley (R-IA), Bill Cassidy (R-LA), Kevin Cramer (R-ND), Roger Wicker (R-MS), Mitch McConnell (R-KY), John Hoeven (R-ND), Susan Collins (R-ME), and Mitt Romney (R-UT)

As Breitbart News reported, the bill allows the heads of federal agencies to issue waivers to corporations to work around Buy American requirements if they consider the requirement “inconsistent with the public interest,” does not meet “satisfactory quality,” or if they believe buying American will increase costs for the projects.

The bill reads:.......To Read More...

With Republicans Like These, Who Needs Democrats?

The Republican Party at the national level is no longer a viable alternative: it is too corrupt, too weak, and too enamored of the trappings of power. 

 By Lucretia August 10, 2021

Senator Kevin Cramer (R-N.D.) was challenged recently by a caller on the “Jay Thomas Show.” The caller asked Cramer to reveal the identity of the Capitol Police officer who shot and killed unarmed Air Force veteran Ashli Babbitt, on January 6. Cramer claimed he did not know the name of the officer, nor did he believe the public had any right to know that officer’s name because he had not been found guilty of any wrongdoing. 

Such pandering to the ruling class and its railroaded investigation is embarrassing enough, as the available evidence (to say nothing of the evidence that the government refuses to release) indicates that the officer recklessly—through the broken window of a locked door—shot an unarmed woman who posed no threat to anyone. 

But Cramer went further. The public has no right to know, he asserted, “because the person that [sic] shot her is a police officer shooting a criminal not complying with officers’ telling her ‘stop, don’t come through that window, we have guns drawn, don’t do it.’” ..........To Read More....

 

Nineteen Republican Senators declared that they need to be primaried

August 11, 2021  By Andrea Widburg

The Senate had before it a 2,700-page bill that purports to allocate $1.2 trillion in taxpayer funds to repair America’s infrastructure. Of course, that’s not the case. While a good chunk will repair roads and bridges, vast sums of the money will be used for a variety of leftist wish list items, including large chunks of the New Green Deal. A bill that bad ought to be laughed out of the Senate. Instead, not only did all the Democrats vote for it, so did 19 alleged Republicans.

Of course, it’s a dead certainty that none of the Democrats and Vichy Republicans read the bill. Just as with Obamacare, they were going to pass it to see what was in it. Still, we know some of what’s in the bill and it’s not good. Here are a few examples.

The bill begins the process of installing devices in all new cars turning each car into a breathalyzer. I happen to hate drunk drivers as much as the next person but to have that level of government in one’s car is disturbing.

The bill implements a test system that allows the government to track every mile you drive in real-time. Then, you’ll be taxed on miles. This is, of course, a regressive tax because it will fall harder on lower-income people than on rich people.........To Read More....

Here’s are the 19 Vichy Republicans, every one of whom should be primaried:

1. Roy Blunt, Missouri
2. Richard Burr, North Carolina
3. Shelley Moore Capito, West Virginia
4. Bill Cassidy, Louisiana
5. Susan Collins, Maine
6. Kevin Cramer, North Dakota
7. Mike Crapo, Idaho
8. Deb Fischer, Nebraska
9. Lindsey Graham, South Carolina
10. Chuck Grassley, Iowa
11. John Hoeven, North Dakota
12. Mitch McConnell, Kentucky
13. Lisa Murkowski, Alaska
14. Rob Portman, Ohio
15. James Risch, Idaho
16. Mitt Romney, Utah
17. Dan Sullivan, Alaska
18. Thom Tillis, North Carolina
19. Roger Wicker, Mississippi

 

To Read More....

An Ivy League Analysis Just Destroyed Biden's Biggest Argument for the Bipartisan Infrastructure Bill

Here's why the plan would create zero jobs, on net. 

 

Brad Polumbo Monday, August 9, 2021

The bipartisan infrastructure legislation moving through Congress could end up on President Biden's desk before we know it. The $1 trillion bill has reportedly cleared major hurdles in the Senate and will soon land before the House of Representatives. The president would almost certainly sign the bill, which has his support, and its bipartisan passage would represent a political victory for the Biden administration.

At least, at first.

The promised long-term economic benefits from the sweeping $1 trillion expenditure will likely never materialize, according to a new Ivy League analysis. This runs directly against the president's promises that it would create jobs and stimulate the economy. Indeed, Biden has insisted that the government spending plan will "create millions of good-paying jobs."

"This bill makes key investments to put people to work all across the country," the president said.

It's going to put Americans to work in good-paying union jobs building and repairing our roads, bridges, ports, airports."

He additionally claimed that the plan is a "blue-collar blueprint" for economic opportunity because, supposedly, 90 percent of the jobs created "will not require a college degree."

This rhetoric is likely to appeal to many Americans. But the aforementioned analysis, by the Wharton Business School, pours cold water on the president's rosy promises. In stark contrast to "millions" of good jobs created, the Ivy League analysts project that the plan would have a net zero effect on employment, wages, and economic growth over both the medium-term (by 2031) and the long-term (by 2050).

Despite these meager results, the legislation would still add a whopping $351 billion to the national debt. For context, that's roughly $2,449 in new debt per federal taxpayer.......To Read More....

 

 

Here's the Pork Buffet Traitor GOP Senators Signed Off On With This Infrastructure Deal

Matt Vespa Aug 07, 2021

This is what we sent GOP senators to do, huh? They side with the Democrats and the Biden administration to pass a pork-filled bill and give this White House a huge legislative win. Is that what we voted for in 2020? And these clowns wonder why the base is enraged and willing to back unconventional candidates to shake up this town. It’s why Donald Trump won in 2016. It’s why he was able to dominate what was considered a deep field with regards to being traditional ‘Reagan conservatives.’ Seventeen Republican senators decided to back this $1.2 trillion dollar infrastructure deal boondoggle. It’s over 2,600 pages long. Did they read what’s in it? Probably not, but ‘Oilfield Rando’ who was mentioned in last week’s episodes of the Triggered podcast, analyzed and reviewed the pork buffet in this bill. Oh, and it’s only the first 666 pages or around 25 percent of the bill. Make yourself a drink for this one. Rando makes notes of which projects were most definitely tailored to buying votes on the GOP side of the aisle, like the $100 million Denali Commission provision that probably secured Sen. Lisa Murkowski’s (R-AK). Here are some of the items thus far (via Oilfield Rando):

• $550 million for the Technology and Innovation Deployment Program
• $127.5 million for Training and Education
• $550 million for the Intelligent Transportation Systems Program
• A federal program that "enhances American productivity through the integration of advanced communications technologies into the transportation infrastructure and in vehicles
• $405 million for the University Transportation Systems Program
• Grants to colleges and universities for transportation research and development
• $132.5 million for the Bureau of Transportation Statistics
• The BTS director is by law Mayor Pete's senior advisor
• $350 million for the Wildlife Crossings Pilot Program
• $50 million for the Prioritization Process Pilot Program
• Could have just taken a Lean Six Sigma course?
• $500 million for the Reconnecting Communities Pilot Program
• New pilot program to study the feasibility and impacts of removing an existing transportation facility that “creates a barrier to community activity”
• $150 million for Planning Grants
• $350 million for Capital Construction Grants
• Annual listing of "socially disadvantaged businesses enterprises"
• With federal in-person inspections to verify the business owners are "socially disadvantaged"
• […]
• $75 million for studying how to enact income-based road usage taxes
• Also studies using third parties (big tech) to collect road use data and fees. 
• Also a public awareness campign to warm us up to it. 
• $50 million for a per-mile road usage fee pilot program
• Volunteer drivers will test a per-mile road usage fee nationwide. 
• Tracking methods will include third-party on-board diagnostic (OBD-II) devices, smart phone applications, telemetric data collected by automakers, motor vehicle data obtained by car insurance companies.
• The advisory board for the program must include "advocacy groups focused on equity".
• High Friction Surface Treatment Application study
• The study will assess using bauxite on roads (has been done forever), and also incorporate renewables into pavement design.
• $100 million for digital construction management systems
• A new "Center of Excellence on New Mobility and Automated Vehicles"
• New mobility means Byrd scooters.
• Transportation Resilience and Adaptation Centers of Excellence
• These centers will "support climate vulnerability assessments informed by climate change science"

And remember this is just 25 percent of the bill. Look, I’m not anti-infrastructure. We need a bill that addresses our roads and bridges. It’s a government appropriation that should happen—and it should be big. I’d actually be okay with a $1.2 trillion bill if it wasn’t so covered in crap. Like with anything in DC, there’s what should happen, and what’s going to happen. .............To Read More....

Hidden on Page 508 of the Infrastructure Bill Is a Plan to Make It Too Expensive to Drive a Car

Taylor Penley August 4, 2021 The cost of living is on the rise, calls for yet another wave of pandemic restrictions have begun and now, buried deep in the so-called bipartisan infrastructure bill, the left has laid out yet another idea to bring Americans to their knees.  Make no mistake: The suffering is intentional, goal-oriented and not bound to stop anytime soon.  Still, one proposal in the 2,702 page infrastructure bill seems especially cruel — cruel enough to make it too expensive for many Americans to even drive a car.........To Read More....

 

Will Schumer ‘Go Pelosi’ on Masks? And Mysteries of the Democrats

By Lawrence Kudlow, Special to the Sun |July 31, 2021

Yesterday I offered to make bail for Senator Marsha Blackburn just in case the Senate goes Pelosi and Chuck Schumer orders a mask mandate subject to arrest if you fail to follow it. Hasn’t happened yet, but you never know.

I’m convinced Madam Speaker’s secret sauce to defeat Republican free enterprise principles is to just arrest all the GOP house members. It’s a terrific plan. Much better than cogent analysis with numerical facts. Just clean them out. Now, of course I’m just kidding. It’s a joke. Is it? We’ll see.

Next up is the infrastructure bill. I just want to raise a puzzling question: What is the environmental justice review. It’s in there. It’s not a permitting review, because outside of highways there’s no National Environmental Policy Act permitting reform. The environmental justice review could probably mean anything you want it to mean.

We’re talking total regulation of every nook and cranny in the economy in the name of environmental justice. There’s no telling how much that’s going to cost. I doubt the democrats ever want to clearly define this thing, and, by the way, while we’re on the subject of the environment, it’s worth reminding that U.S. carbon emissions have fallen 25% since 2005........To Read More....

 

 

Complicit’: Meet the 18 Republicans Who Sold Out on Radical Democrat ‘Infrastructure’ Plan Without Reading Bill

Sean Moran 28 Jul 2021

Eighteen Senate Republicans sold out to Senate Democrats, with 17 of them voting Wednesday night to advance a $1.2 trillion Democrat “infrastructure” bill and another signaling he would.

The Senate voted to invoke cloture, or advance, H.R. 3684, the legislative vehicle for the $1.2 trillion infrastructure bill. The vote featured Republican and Democrat support for the bill. The Senate voted 67-32 to invoke cloture on the bill, with seventeen Republicans in favor of invoking cloture on the bill.

All of them voted for this procedural vote without reading the bill—because it would have been impossible for them to read a bill that does not yet exist. The bill has still not been written despite months of negotiations.

The Senate Republicans who voted for the Democrat $1.2 trillion bill include:.........To Read More....

Industrial Policy Is a Bad Bet

Biden’s massive spending bills will lead to lower growth and more risk. 

Allison Schrager  April 19, 2021 @ City Journal.  Published with permission.  I recommend subscribing, it's free. 

  

How a society spends on innovation is the key to its future growth and prosperity. America’s remarkable economy, as with Great Britain’s in the eighteenth century, has come from its innovations, and those have come mostly from the private sector.

President Joe Biden’s $1.9 trillion Covid-19 stimulus and the $2 trillion American Jobs Plan aim to change that, by funneling corporate earnings to the government, so that it, rather than the private sector, can choose what to invest in—either directly or via subsidies to favored industries. In other words, this is industrial policy. If history is any guide, the result will be lower growth and more risk.

Innovation sparks economic growth, but it is also inherently risky. Many new ideas fail or cannot find a market. In the private sector, founders and investors shoulder the burdens of failure, but they also reap the benefits of success. When the government takes on innovation directly, however, we often assume that no risk exists; when government subsidizes the private sector, we assume that investors face less downside risk. But transferring risk to the government doesn’t make it disappear. Unlike investors, government officials don’t realize the risks that they have incurred. Instead, future taxpayers bear those risks, in the form of higher debt.

True, future generations might get potential upsides: better roads and bridges, modernized airports, perhaps a cleaner environment. But they’ll only enjoy this upside if government chooses the right projects that enhance growth. That’s the hard part. If it were easy, no one would ever lose money in the private sector. And just like the private sector, sometimes the government makes the wrong bets (such as Solyndra).

In the private sector, moreover, a multitude of investors and participants determines how capital is invested, but when government gets involved, those decisions become concentrated in fewer hands. For private actors, the risk of failure encourages discipline, forcing companies to respond quickly to information about what products work and what the market will pay. Government decision-makers largely lack these incentives, and in the case of government-subsidized markets, prices convey less information about which investments are really working. That’s why industrial policy has failed more often than it has succeeded.

We can see evidence of the market distortions that government subsidies cause in the market capitalization of electric-car maker Tesla—currently about $650 billion, or more than five times that of General Electric. Tesla benefits from many subsidies already, and the Biden infrastructure plan aims to divert even more to the electric-car industry. And by increasing the corporate tax rate to pay for part of these subsidies, the Biden plan will further distort the market by making the unsubsidized private sector even less attractive to investors.

The pandemic forced many businesses to adopt new technologies that could boost productivity for decades. Productivity gains don’t always come so fast. It took more than 100 years for the steam engine, a transformative technology, to show up in productivity estimates, for example. The pandemic’s acceleration of this process of technological adoption means that we could be poised for a big burst of follow-on growth and innovation. But government interventions on the scale of the Covid stimulus and infrastructure bill threaten to divert these energies into less productive investments.

True, the added government spending will provide short-term benefits to workers in the form of new jobs building roads, bridges, and airports or retrofitting buildings with green technology. But using industrial policy to create jobs can also generate long-term risks for those workers, by steering them away from gaining the skills and experience the market may need in the future. Research has shown that workers for the Depression-era Works Progress Administration were less likely to take higher-paying private-sector jobs when they became available because they preferred the security of a government guarantee. In the long term, that can lead to wage stagnation and a population less competitive in the global market.

Some infrastructure investments enhance growth. As we saw with Operation Warp Speed, the government’s vaccine-development effort, sometimes the government can support and enable private-sector innovation. This was clearly a smart risk to take since the need for a vaccine was clear. It’s one thing to subsidize vaccine manufacturers in an effort to get everyone back to work quickly; it’s another to assume control over a massive share of the economy’s investment decisions, just as we’re coming out of a pandemic and recession.

Biden has argued that his infrastructure plan will ensure that the U.S. can compete with China. China’s growth over recent decades makes its model of heavy state intervention seem tempting, at least at first glance. But China’s success owes more to how it opened up its low-wage labor to the global market and quickly adopted proven technologies to make that labor more productive. Industrial policy largely worked out for the Asian Tigers for similar reasons: their governments invested in technologies that had already found success in the market.

When it comes to innovation, the private sector remains the better bet.

Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.

Photo: photoman/iStock

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Here We Go Again

Biden’s infrastructure plan will fail for the same reasons that Obama’s did.

Milton Ezrati April 14, 2021 @ City Journal.  Published with permission.  I recommend subscribing, it's free. 

 

It will take a while for Congress to debate President Joe Biden’s $2.3 trillion infrastructure spending plan. It should take a while. The proposal is immense, in both its scope and its cost. But even before getting into the details, the plan contains a central flaw that will doom the whole effort: the use of corporate tax increases to finance the bill’s spending. This flaw not only jeopardizes the essential maintenance of all the new infrastructure the bill envisions; it will also discourage the follow-on private investment—what economists call “multipliers”—that is essential to the plan’s purposes. We know this because the same flaw doomed President Obama’s 2009 infrastructure plan.

Never known for his originality, Biden has closely followed Obama’s infrastructure playbook (except perhaps for giving his plan a greener theme). He is even relying on the same three justifications: that “shovel-ready” projects will immediately trim unemployment rolls; that a refurbishment of the nation’s infrastructure is long overdue; and that government spending will “jump start” a broader economic surge as the private sector invests in opportunities opened up by the federal effort.

“Shovel ready” was nonsense in 2009 and remains so in 2021. Public hearings and zoning decisions hold up projects for months, sometimes years, and environmental considerations sometimes take even longer. As in 2009, there will certainly be employment opportunities for bureaucrats, consultants, and lawyers in the short term, but not for the guys with the shovels. Consequently, the urgent need for overdue refurbishment will have to wait as well. The only structures that went up promptly in 2009 were billboards announcing Obama’s grand plans. Such billboards are already popping up now with Biden’s picture on them.

Predictions that the spending would “jump start” the economy also failed miserably in 2009. This problem was entirely of Obama’s own making. Having blamed the country’s problems on corporate greed and threatening to tax and regulate away what he referred to as excessive profits, he signaled to the business community that investments made in response to the federal infrastructure spending would yield limited returns. He didn’t even have to follow through on these threats, since at the time the U.S. already imposed the highest corporate taxes in the world. So instead of enjoying the expected follow-on private investment, Obama’s policy (with help from the tax code) encouraged businesses to expand abroad, where tax rates were lower.

Biden now seems determined to recreate the same impediments to success. The White House has called for higher corporate taxes to “pay” for its infrastructure plans. Biden’s plan seeks to raise them by a whopping one-third, from 21 percent to 28 percent, and it will also impose a 21 percent minimum tax on companies that would otherwise take advantage of tax deductions or loopholes—precisely the kind that arise from large capital-spending projects. Effectively, Biden’s plan singles out for special punishment firms whose aggressive expansion would create the favorable multiplier effects that economists would otherwise expect from federal spending. And the tax hike would once again induce American companies to expand overseas. Nor would businesses have any incentive to repatriate foreign earnings, because the White House has promised that it would tax that money at the higher American rate.

The Biden plan has still another flaw. New roads and bridges need constant maintenance, as do recharging stations for electric cars and modernized homes and factories. The plan leans on corporate tax hikes to pay for the initial building but offers no provisions for how America will maintain all this new infrastructure. If the White House were to promise to reinstate lower business tax rates after a period of time, firms might then have the incentive and the wherewithal not only to maintain all these new things but also to expand on them. But instead, the White House is seeking to keep the higher tax rates in place—presumably to finance some other grand project while the infrastructure built over the next few years suffers its inevitable depreciation.

If the Biden plan becomes law, it will proceed in three stages. The nation first will see little, as it waits perhaps a year or two for the paperwork and approvals that allow the shovels to arrive at the projects. At that point, the U.S. economy will indeed see an economic boost, perhaps just in time for the 2024 election—but after that brief surge, the activity will quickly wind down, just as Obama’s infrastructure effort did. Unless your only focus is on winning the next election, this is a poorly structured deal.

Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. He is the author of Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live.

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U.S. Gets Ready To Go Full Venezuela On Economic Policy

April 01, 2021/ Francis Menton 

It was in 1998 — a mere 23 years ago — that Hugo Chavez first got elected President of Venezuela. From the start, his program was explicitly one of vastly increased government spending, which was supposed to make the economy grow, reduce income inequality, eliminate poverty and bring about social justice. Chavez called the social programs his “Bolivarian missions.” Among some 30 or so such “missions,” big ones included blowout spending on education, subsidized food, subsidized housing and healthcare.

In the early years, things seemed to be going swimmingly, at least if you believed the official statistics put out by Chavez’s government. Not only was there supposedly steady and mostly rapid economic growth (often over 5% per year, particularly 2004-10), but they also regularly crowed about how the redistributionist spending had greatly reduced the rate of poverty. Then, starting around 2013, it all started to fall apart. Today, eight years later, it continues to fall apart. More details on that later.

Yesterday, the Biden White House put out what they call the “American Jobs Plan.” It’s $2.3 trillion of new government spending, on top of the $1.9 trillion just passed, and several trillion more to come, all on top of a $4 trillion or so annual level of baseline federal spending. Yes, it’s blowout government spending, on the usual issues pushed by advocacy groups, which supposedly will shortly achieve all the usual promises of the left: economic growth, increased economic fairness, and social justice. In other words, it’s the Venezuela economic program, blown up to U.S. scale and then tweaked a little here and there to buy off the squeaky wheels of the moment.

As I pointed out in a post on March 8 addressing the previous $1.9 trillion (“Could This Be The Very Worst Piece Of Legislation Ever?”), that bill was touted as “Covid-19 Relief,” but in fact only about 5% of the spending was for anything that could be called actual public health measures related to the pandemic. The rest was “a grand orgy of vote buying and giveaways to left-wing interest groups.” 

Following the same playbook, this $2.3 trillion monster calls itself an “infrastructure” plan: But if you look for the numbers, you find that only a small minority of the money goes to anything you might think of as “infrastructure.” ....................

But let’s look at the big numbers. ..............To Read More.... 

• Scalise: Infrastructure Bill Uses Global Warming to Send Jobs to China2,135
•  Biden’s $2.5 Trillion Plan Will Harm Infrastructure, Drive Jobs Overseas

My Take -Be sure to read the comments, such as this about:

"According to the US government, the average Venezuelan lost 11 kg in 2017 because of food shortages. Worst comes to worst, Biden will be able to repackage his program as a weight loss campaign. Also, somehow in Chavez's quest for equality, his daughter became one of the richest people in South America. Apparently, she is a very smart business woman.