“Making manufacturing great again”
New York Times’ Paul Krugman writes:
Suddenly, investment in manufacturing has surged.
The numbers are stunning.
It’s being driven by two major pieces of legislation: the misleadingly named Inflation Reduction Act, whose actual core is subsidies for green energy, and the CHIPS Act (“creating helpful incentives to produce semiconductors” — call in the acronym police!), which is supposed to protect national security by promoting domestic production of, um, chips.
The ultimate impact of these policies will almost surely be much bigger than these numbers suggest. For one thing, planning and beginning work on new manufacturing plants takes time, so there’s probably even more spending in the pipeline. For another, these numbers count only construction — basically, factory buildings. Filling those buildings with machinery and investing in R&D to make the most of the new capacity will probably add hundreds of billions to the total business spending.
Biden’s industrial policies, by contrast, are largely focused on creating demand for U.S.-manufactured products, for example by subsidizing the purchase of electric vehicles. And business investment, while far less sensitive to tax rates than legend has it, is very responsive to demand.
And so we’re having a huge manufacturing revival.
So why should we consider Biden’s industrial-policy-driven manufacturing boom a good thing? Mainly because it’s part of an urgently needed transition to renewable energy that may be our last chance to avoid climate catastrophe. And the surge in U.S. manufacturing investment in particular partly reflects protectionist aspects of the legislation that are a bad thing in terms of economic efficiency — but were essential to the political deal-making that made it possible to tackle climate change at all.
