Senator Marco Rubio is out with yet another call for industrial policy. His recent piece in the New York Times is called “We Need a More Resilient American Economy.”
The piece is vague and full of debunked clichés, which would be too long even to list in this column. That said, there are a few points worth making here.
First, Rubio laments what he asserts has been policymakers’ hand-off approach over the past few decades. But the current size and scope of our government say otherwise. Second, even if we assume, for the sake of argument, that he is right and that the government has been too lax about demanding that the private sector prioritize (as he puts it) resiliency over efficiency for the sake of being prepared for a pandemic such as that of COVID-19, Senator Rubio’s proposed solutions aren’t going to cut it. Finally, it cannot be too often said that the lack of government’s preparedness for this pandemic is evidence of a massive government failure. And to the extent that the private sector wasn’t prepared, a lot of this ‘failure’ is the consequence of the many government regulations that got in the way. More importantly, unlike the private sector, the government will not learn from its mistake or improve its resiliency.
Let’s examine the senator’s case in some detail.
First, he alleges that policymakers left too much leeway to private companies to pursue profits at the expense of the common good:
Over the past several decades, our nation’s political and economic leaders, Democratic and Republican, made choices about how to structure our society — choosing to prize economic efficiency over resiliency, financial gains over Main Street investment, individual enrichment over the common good.
Any prudent policymaker should recognize that both efficiency and resiliency are values we should prioritize and seek to balance. But that’s not what we have done in recent decades. Those choices, from offshoring to building an economy based on finance and service, have produced one of the most efficient economic engines of all time. But a pendulum can swing too far in one direction. And when an economy lacks resiliency, it can be devastating in a crisis.
It’s astonishing that a senator first elected during the Tea Party rebellion supposes that the details of American society are, or should be, ‘structured’ by Washington. Moreover, he is hopelessly vague. What does he mean, for example, by prizing “financial gains over Main Street investment?” Who is the “we” here? Does he mean that policymakers have allowed the corporate world to structure its activities the way it did without constraints? Or does he mean this has happened because of policymakers’ incentives? Does Rubio distinguish between policymakers consciously arranging for the corporate world to be structured as it is, from policymakers simply keeping aloof and allowing whatever structures the market creates to emerge? And what exactly does he mean by “resiliency?” What does he mean by “efficiency?” How precisely is resiliency at odds with efficiency? Not clear at all, but what is sure is that this vagueness does most of the work for his poorly designed argument throughout the piece.
But assume, as seems likely, that Rubio is arguing that policymakers have been too lax. This argument is laughable, considering the scale of our regulatory regime, the size of government’s spending, annual deficits, and ballooning debt. The senator might respond by insisting that he means that policymakers have been too lax in the particular areas that matter for whatever it is he thinks “the economy” should accomplish. For instance, he might accuse policymakers of having cut taxes on corporations in ways that reduced incentives to invest in R&D. But if so, how would he explain that for the longest time the U.S. has had one of the most punishing corporate tax codes in the OECD? (Rubio has a weird and misguided obsession with stock buybacks, which he repeats in this column.) It is also hard to argue since every line in a federal budget has been going up in nominal terms. Some lines may have seen their rate of growth reduced but that doesn’t mean that spending has been cut.
But even leaving these questions aside, I would really be curious to know what Rubio thinks the ‘right’ outcome should be. My hunch is that he observes patterns that he does not like, calls these patterns “market” or policy failures, and then creates a whole argument around them. Put differently, he observes only what he identifies as the costs of the current economy without bothering to ask if and how these costs are, or might be, connected with benefits. John Tamny rightfully scolds Rubio for ignoring the bounty produced by the very financial system that the senator decries. And, of course, the senator makes no efforts to think realistically about what the world would look like under this scenario (not what he wishes it would look like).
Rubio, in short, demonstrates that as a policymaker he is the opposite of prudent.
Second, even if we assume that all the shortcomings with the current system are as real and as significant as the senator claims, his solutions are neither clever nor new. They are simply tired policies that big-government types who suffer from serious superiority complexes predictably propose whenever they think that they see something they don’t like. There are many good reasons to dismiss Sen. Rubio’s assertion that politicians and bureaucrats should be trusted to take over from the private sector more power to allocate resources. This is particularly true when he calls for harebrained policies like “the re-shoring of supply chains integral to our national interest — everything from basic medicines and equipment to vital rare-earth minerals and technologies of the future.”
A “Buy American” mandate is the opposite of prudent and, based on past evidence, I can predict that it will be terrible for both economic resiliency and efficiency. And, of course, re-shoring our incredibly complex supply chain sounds good until one realizes that the very notion of supply chains is false. And where is Rubio’s acknowledgement of the role that Trump’s tariffs (a protectionism in the same vein as the one he proposes) played in reducing the imports of medical supplies needed during this pandemic? But, I guess I shouldn’t be surprised since this is the same Rubio that favors sugar protectionism, which results in the doubling of the price of sugar in the United States compared to the world price, at great cost to many American producers and lower income consumers.
Finally, I do not share Senator Rubio’s faith in the government’s ability to bring greater foresight and long-term focus. Nor do I understand why he supposes that politicians and bureaucrats can “plan” better than what the competitive market process delivers.
Let’s not forget that if there is a core legitimate role for the federal government it includes dealing with situations like this one. But we were not prepared. In fact, I suspect that by now there are very few people today who would defend the way the CDC and FDA have handled this pandemic. This crisis has already made obvious the stupidity and distortions created by thousands of regulations imposed by all levels of governments – regulations that have made it very hard for the private sector to prepare for, and to respond to, this event.
And let’s talk about the federal stockpile. According to Rahm Emanuel:
As the current shortage of ventilators, gloves and masks makes clear, Washington needs to augment the stock of medical supplies. Mr. Clinton established a program along these lines in 1999, and George W. Bush expanded it dramatically in 2005. The reserve was never fully replenished after Washington went to war with previous pandemics.
The way I read this comment is that neither Presidents Obama nor Trump judged this stockpile to be important enough to replenish. Maybe they were surrounded by people who failed to tell them how important it is to do so. Nevertheless, such incompetence testifies to why we should not trust that this same government will use industrial policy to make our economy stronger and more resilient, or to figure out which drugs, or pharmaceutical ingredients, are essential and which aren’t.
This is also the same government that enacted a “stimulus bill” that was incredibly poorly thought through and will likely make the recovery even more difficult. Between an unemployment-benefit expansion that pays people more not to work than to work, to assigning to the Small Business Administration responsibility for the payroll protection program in spite of that agency’s incredibly long history of failing on such fronts, we have no reason whatsoever to think that government officials’ shortsightedness and hubris will miraculously be replaced, if an industrial policy comes, with long-run vision and wisdom.
Talking about shortsightedness, let’s talk about how representatives in Congress and the White House have managed to accumulate so much spending and debt during good times instead of planning for the inevitable bad times. It’s not as if they haven’t been warned about the risks of their spendthrift behavior. They have. Let’s talk about our representatives, those of both parties, being utterly unwilling to reform entitlement spending despite data showing the looming insolvency of these programs and the harmful impact on the fiscal landscape.
As a result, Americans have been asked to choose between their incomes and their lives to a degree that wouldn’t have been necessary if we had been better prepared. And now we are all locked up in our homes and told that we won’t be freed until the government sees a clear way out. (If that’s the case, alas, it will take forever because we still do not have enough tests or a cure.)
Is the private sector perfect? No, far from it. However, I trust that the consumers, entrepreneurs, business owners, investors, and innovators who make up that system will learn important lessons from the mistakes that might have been exposed during this pandemic and fill the gaps they identify. Do I trust the government to do the same? I don’t. Sorry.