A 21st Century U.S. Industrial Policy
What can the U.S. government do to turn this economic crisis into future prosperity?
- Since the 1960s, a string of disastrous policy mistakes has left the U.S. economy unviable.
- The choice is between dynamic economic restructuring and potentially irreversible decline.
- If the U.S. government sticks to its current strategy of keeping the economy on life support with trillion-dollar-a-year deficits, then most of the remaining liquidity will be squandered.
- A little more debt and some of America's vaunted ingenuity could lock in another American Century.
- An investment in the industries of the future would create technological miracles that would permanently end the U.S. trade deficit, raise tax revenues and end dependence on credit.
In order to restructure the U.S. economy and return the country to the path of sustainable growth, the U.S. government should implement a new industrial policy that invests heavily in 21st century industries. Think Apollo, but on a much greater scale and with much more than a space race at stake.
Lessons from the Great Depression and Japan’s Great Recession suggest that Washington could easily finance a $3 trillion national industrial restructuring program over the next ten years.
An investment on that scale in the industries of the future would create technological miracles that would permanently end the U.S. trade deficit, raise enough tax revenues to balance the budget — and end the nation’s debilitating dependence on credit. A trillion-dollar investment in solar technology would yield limitless cheap energy.
A trillion-dollar investment in genetic research and biotechnology could extend the human life span by 20 years or more. There is a real possibility that this economic crisis could be turned into an unprecedented opportunity to advance humanity’s well-being.
Since the 1960s, a string of disastrous policy mistakes has left the U.S. economy unviable, while the forces of globalization are expediting its deterioration.
The country’s industries are not globally competitive. The private sector has grown dependent on debt that it can no longer service. Government finances are on course for bankruptcy. A continuation of the status quo is almost certain to end very badly.
The choice, then, is between dynamic economic restructuring and potentially irreversible decline. A little more debt and some of America’s vaunted ingenuity could lock in another American Century. This opportunity should not be allowed to pass. There may not be another.
The national industrial restructuring program could invest in a dozen advanced technologies — or only a few. But it would have to be designed to reshape the U.S. economy so that it once again becomes self-sustaining and, therefore, capable of meeting the following three criteria:
1. The United States must be able to produce enough goods or services to pay for what it consumes, in order to eliminate its trade deficit.
2. The U.S. economy must generate enough tax revenues to balance the government’s budget.
3. The U.S. economy must be able to expand while the ratio of credit-to-GDP is kept constant, in order to kick its destabilizing debt habit.
Consider, for example, a scenario in which the government invested $1 trillion each in solar energy, genetic engineering and biotechnology, and nanotechnology. The investments in sustainable energy would bring energy independence. Investments in biotechnology would yield medical miracles. Investments in nanotechnology would restore the United States’ industrial dominance in world markets.
New industries would bring in new taxes that would return the government’s budget to surplus. New technologies would generate exports and ensure a trade surplus for decades to come. And unlike much of the service sector today, these industries would not boom or bust depending on credit growth. They would produce real goods, real profits and real jobs.
An investment program on the scale outlined above could not fail to generate wide-ranging benefits.
A $1 trillion investment in solar energy could perfect photovoltaic energy generation, cover the Nevada desert (which is already government owned) with solar panels and replace the electricity grid from one end of the country to the other to accommodate direct current. The benefits would be innumerable:
- Energy: Cheap, clean and in limitless supply.
- Trade: Roughly 40% of the U.S. trade deficit can be attributed to energy imports. Eliminating these would be tremendously helpful in removing the global imbalances destabilizing the world.
- Government budget: Revenues would be expanded by taxing the domestically produced energy. Expenditures would be cut, as it would no longer be necessary to militarily secure foreign oil supplies.
- Enhanced national security.
- Domestic job creation.
Genetic engineering and biotechnology
A $1 trillion investment here would very likely yield a genetic revolution with consequences as great as those produced by the Industrial Revolution. The medical benefits should be enormous. In agriculture, a new Green Revolution could be anticipated. Benefits would include:
- Education: Large government grants to U.S. universities would increase their global dominance.
- Trade: The development of new products, including life-saving drugs, would bring U.S. trade back into balance.
- Government revenues: New industries would bring in new taxes that would quickly repay their cost of development and much more.
A $1 trillion investment in nanotechnology would develop industrial processes and molecular-engineered materials that would restore the United States’ competitive advantage in many types of manufacturing. Benefits:
- Education: The government investment in nanotech would advance U.S. universities’ capabilities in physics.
- Trade: The development and sale of completely new products would resolve the country’s structural economic crisis and balance its trade.
- Government revenues: New industries would yield new sources of revenues, making it possible for the government to recover their development costs.
The money is available now, but it won’t be forever. According to the Federal Reserve’s Flow of Funds statistics, the size of the dollar-denominated credit market is $53 trillion. If the government does not borrow and invest, much of that liquidity will be destroyed in the poor post-bubble investment environment.
Over time, if the government sticks to its current strategy of keeping the economy on life support (without curing its disease) with trillion-dollar-a-year deficits from now to eternity, then most of the remaining liquidity will be squandered — probably on bridges to nowhere — and this unique opportunity will be lost.
In other words, this is a “use it or lose it” situation. The better alternative is to use it. The Great Depression was not solved by economists, it was ended by generals. Japan’s Great Recession continues, but the prognosis is not good. There is a better way. Bold investment in economic restructuring is the exit strategy.
Editor’s Note: This feature is adapted from THE CORRUPTION OF CAPITALISM by Richard Duncan, published by CLSA Books. Copyright 2010 Richard Duncan. Reprinted with permission of the author.