Industrial Policy Reimaged: Can Government Improve Free Markets

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[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. There’s a notable shift occurring in the constituencies of both Republican and Democratic voter bases, reflecting a broader reevaluation of traditional political ideologies. Republican Senator Marco Rubio’s recent opinion piece in National Affairs, titled Industrial Policy, Right and Wrong, underscores this shift by challenging longstanding conservative views.

[00:00:32] Senator Rubio argues that the traditional embrace of free market principles has contributed to the decline of American manufacturing. Senator Rubio’s concerns with the current administration’s industrial policy are based on his view that they’re misguided, driven by a progressive agenda that neglects the interests of American workers, and are essential industries.

[00:00:53] Instead, Senator Rubio proposes redirecting industrial policy towards supporting the common good, focusing on job creation, industry stability, and national security. But does Senator Rubio’s argument withstand historical and factual scrutiny? Can an industrial policy directed by temporary majorities provide lasting solutions?

[00:01:16] And what lessons can free market advocates glean from his arguments to address legitimate concerns about the disruptions caused by capitalism? Joining me today is Colin Grabow, the Associate Director at the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. His research primarily focuses on examining domestic trade protectionism, with a keen interest in policies such as the Jones Act and the U.S. sugar program. Mr. Grabow recently penned an insightful article for Cato titled, What Senator Rubio Gets Wrong About Manufacturing and Industrial Policy. In this piece, he dissects eight myths that form the foundation of Senator Rubio’s arguments. We will delve into the transformations taking place within the U.S. manufacturing sector and explore how shifts in productivity and changing consumer demands have contributed to the discontent that Senator Rubio addresses in his controversial piece. When I return, I’ll be joined by Cato Institute’s Associate Director, Colin Grabow. All right, we’re back. This is Hubwonk.

[00:02:20] I’m Joe Selvaggi, and I’m now joined by Colin Grabow, Associate Director at the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. Welcome back to Hubwonk, Colin.

[00:02:30] Colin Grabow: Thanks for having me on, Joe.

[00:02:32] Joe Selvaggi: All right, well, I’m thrilled to have you on because I was intrigued by your recent piece in Cato.

[00:02:37] It was entitled, What Senator Rubio gets wrong about manufacturing and industrial policy. I’ll say, this was in response to a piece that, Senator Rubio, Florida Senator Rubio wrote in National Affairs that was entitled Industrial Policy, Right and Wrong. and why I thought it was important to cover this is it seems his article and your response to it seems to capture a debate that’s emerging.

[00:02:56] Really, it’s without a party. Both voices on the left and the right, Republicans, and Democrats are all in this election season, starting to whisper about the value and the importance and the need for a quote-unquote industrial policy. So, so, let’s, for the benefit of our listeners who haven’t read either your piece or Senator Rubio’s piece, at a very high level, sketch out for our listeners what the case, Senator Rubio makes for a quote-unquote industrial policy.

[00:03:25] Colin Grabow: Yeah, well, I’ll first note that I don’t want to put words in his mouth, so I’ll just quote what Senator Rubio himself, posted to Twitter just, shortly before our conversation, just, I think, 30 minutes ago. He said, as a recap, my argument is that markets are efficient, but don’t always work in the best interest of our country, especially when adversaries like China skew global markets in their favor with theft and subsidies, that’s not good for America.

[00:03:53] Obviously, his essay was quite long in National Affairs, my kind of summary of it. Is that he believes U. S. manufacturing has collapsed. In fact, he flatly states that it has collapsed in his essay, I think twice, to the detriment of our economy and our national security, while China has risen with attendant economic and national security benefits.

[00:04:14] And to reverse this trend, he believes the U. S. needs to take a page out of China’s playbook. but it’s also, it’s not purely about China. I think Rubio clearly believes the United States needs to be more self-reliant as a matter of national security and needs to produce more of what it consumes, and therefore we need national policy to correct the free market and bias us more back in that manufacturing direction.

[00:04:38] Joe Selvaggi: So at a high level, the U. S. economy is not where it should be. Its manufacturing has collapsed and to use China as an example, a more engaged, government intervention into free markets is preferable to, let’s say, What classic free market people would say, less government is in general better.

[00:04:55] Is that the broad stroke of this?

[00:04:57] Colin Grabow: Yeah, I think he believes that unbridled capitalism does not get us where we need to be to compete with China and assure our national security. That’s a fair summary of where, of his perspective.

[00:05:09] Joe Selvaggi: If only, unbridled capitalism was where we lived, but let’s move on from that assertion and go into it.

[00:05:15] What I like about your paper is you break it down. I think you, you distill out the eight myths you identify in Senator Rubio’s, piece. But I think it’s also eight myths that, in general, people who don’t follow economics or microeconomics, macroeconomics, trade policy, industrial policy, those people who sort of know it in vague terms, these are myths everyone shares, both on the left and the right.

[00:05:36] So let’s take them each at a time and then just offer some real information. You do a lot of research in this area. let’s put some numbers and some ideas of where you consider the myths and have our listeners for themselves. either accept it or reject it. So, let’s start at the beginning.

[00:05:50] I think you made it very clear that about two times in his piece, Senator Rubio had characterized his U. S. manufacturing as having collapsed. your piece cites many other papers that challenge that. Share with our listeners, has it collapsed and if it hasn’t, why might someone perceive it to have collapsed?

[00:06:09] Colin Grabow: So, I think, so, to give a very short answer, no, it has not collapsed. Let me address that head-on. The United States is a manufacturing giant. we account for a, greater share of global manufacturing output than traditional manufacturing powers like Japan, Germany, India, and South Korea.

[00:06:26] Take all those, we put out more manufacturing output in those four countries combined. Combined. in 2022, the United States exported one, I think, roughly 1.6 trillion worth of manufactured goods. this includes tens of billions of dollars for things like medical instruments, integrated circuits, aerospace, and Autos.

[00:06:47] In 2021, we’re the world’s fourth-largest steel producer, it’s second-largest automaker, and its largest aerospace exporter. If U.S. manufacturing was its own country by GDP, I think we’d be something like the, it would be like the eighth largest economy in the world, so it would be top ten. But you’re correct, that there’s nonetheless this perception among many that the U.S. manufacturing sector is not doing well, so what explains this? How do we have these? Why do these perceptions not line up with the facts? I think it’s very much rooted in employment. Employment has declined in manufacturing. At its peak back in 1979, I think there was something like 20 million people employed in manufacturing today.

[00:07:31] We’re around 13 million. So, it’s significantly smaller. And then also, as a percentage of GDP, in fact, I was at a, think tank hearing event earlier this week, in which a member of Congress, said something like, decades ago, manufacturing was a priority. 35 percent of our GDP and, now it’s like 10 to 15%.

[00:07:52] And I think that alarms people. So, it’s a story, ultimately, how you reconcile these two things is that it’s a story of U. S. manufacturers doing more with less. Yes, there are fewer people employed, but they’re producing, our actual output is at or near record highs. Yes. I’ll give you just one example, the U.S. steel industry output is something like, I think it’s 8 percent higher now, or a few years ago it was 8%, in 2017 it was 8 percent higher than it was in 1980, yet employment has declined by 79%. It’s gone from almost 400,000 to just a little over 80,000. So I think that’s what’s good.

[00:08:31] That’s the story of manufacturing in the United States. Lots of output, but, its prominence in the U. S. economy, relative prominence is smaller, and in terms of employment, it’s declined.

[00:08:41] Joe Selvaggi: So we don’t want to trivialize the pain of, let’s say, a steel worker who’s been displaced by this automation, but at the same token, what you’re saying is, we’re producing things that are of higher value and produced in a more automated way.

[00:08:55] So the worker that remains in the steel factory is, I guess by your estimate, five times more productive. They’re able to make five times the wage or, certainly a greater wage, and that sort of job that is gone has gone to automation, but it’s, if manufacturing has gone elsewhere, it’s to places where the cost of labor is substantially lower.

[00:09:16] So, I don’t think anybody would want a job that pays what, let’s say, a very poor country that still does manufacturing. By hand, would want, right?

[00:09:26] Colin Grabow: Yeah, so, I, again, I think the story is largely one of automation and productivity, improvements, but that’s not the whole story. Yes, there are manufacturing jobs that have gone overseas.

[00:09:36] For example, textiles. people aren’t making socks, in the United States anymore. Maybe they are. They’re very high-end specialty socks. But, your T-shirts and things like that. It’s gone to Central America and other in Southeast Asia and other places like that. I’m not sure how much we should mourn the fact that we’ve lost those jobs and your kids won’t be able to grow up to work in a textile mill.

[00:09:55] Also, another trend that I think is often overlooked is one of dematerialization. Just a lot of things have disappeared or become digitized or just become smaller. For example, it wasn’t that long ago people had CD collections. I don’t own any CDs anymore.

[00:10:11] It’s all on your hard drive or in the cloud, somewhere. Same thing with DVDs or a DVD player. I got rid of mine, a few years ago. Or a road atlas, there’s no point to that thing. And even some of the things we have, like, the laptop I’m talking to you on, this is much smaller and consumes less materials than the big bulky desktop I used to use when I was in college.

[00:10:33] So these are other factors that I think help explain what’s going on in manufacturing.

[00:10:38] Joe Selvaggi: Part of the, let’s say consequence of fewer people working in actual manufacturing jobs, Senator Rubio, also in his article, draws a line between the decline in actual manufacturing jobs to a decline in marriage rates and childbirth rates.

[00:10:53] This seems to be quite a leap. Of course, they’re correlated because both are, going down. but to assert that one is caused by the other, you characterize that as myth number two, that there’s some of that the loss of manufacturing jobs, is undermining our culture, our marriage rates, and our birth rates.

[00:11:11] What do you have to say about that?

[00:11:13] Colin Grabow: Yeah, so, the underlying argument there is a respectable element to it. It’s not hard to understand that if manufacturing workers lose their jobs, that their marriage prospects and their ability to afford children declines. But with that said, there are a few things to point out.

[00:11:27] First, that’s true of all workers. That’s not something unique to manufacturing workers. All workers, experience, job churn, job loss. That’s not a unique feature of manufacturing. And then furthermore, the job losses that have resulted from trade are relatively modest in the context of the U.S. economy. I think the best estimates are something that somewhere around a million jobs were lost due to competition from China, the so-called China shock. It’s also keep in mind that in the U.S. each year, tens of millions of jobs are lost and gained. Job loss is just a normal part of a well-functioning economy.

[00:12:07] An economy with no job loss is an economy that’s trapped in amber, that’s completely sclerotic, with no improvement in our standard of living. I think our focus here in these conversations needs to be about, what are the barriers that, once these workers lose their jobs, what are barriers that stop them from reentering the workplace?

[00:12:26] That is the problem that we need to identify and remedy. Maybe is it the high cost of housing and more prosperous places? There are places where there are jobs, but just moving there is difficult because of things like, again, the high cost of housing, and maybe a lack of child care.

[00:12:41] What’s going on? That’s, I think, where the conversation needs to be. Furthermore, as I point out, my response to Rubio, notions that, well, if we reindustrialize, this will solve some of those issues. well, look at China. China’s the world’s biggest manufacturer and they have a falling, they have falling child birth rates and marriage rates. So, let’s also step back and recognize that declining birth rates are a feature across the developed world. Actually, I think it even extends beyond the developed world to many developing countries as well. And then lastly, I pointed out earlier, there was something like a million jobs lost due to trade.

[00:13:19] And I think overall in manufacturing, again, back in the 70s, we’re like 20 million, we’re at 13 million. I think since 2000, it’s gone down by like 5 million, something like this. Well, it’s hard to explain broad societal trends based on a few in a country of close to 350 million people based on a few million workers, I think.

[00:13:39] So, well, I don’t want to say that, it’s had no effect whatsoever. I think we need to keep the larger context in mind as well.

[00:13:47] Joe Selvaggi: Indeed. And again, if you’ve lost your job, if we follow the other principles, it’s more likely you lost your job to another American company than it is to China, right?

[00:13:56] Let’s face it, either automation or another U. S. economy, competing with other Americans is a lot harder than competing with China, right?

[00:14:02] Colin Grabow: Yeah, that’s a great point that’s often overlooked is that we often see a factory that closed and we assume, oh, well, production went to China, went to Mexico, something like that.

[00:14:12] Well, a lot of those, rust belt factories that closed, auto, autos being, or steel being classic examples, well, a lot of them, they just, they move south. they went down to Alabama or South Carolina, someplace like that. Steel, I think, last couple of years, a new steel plant opened in Arkansas.

[00:14:28] So, as you put it, there’s actually a very good chance you just lost your job to another American. Right.

[00:14:34] Joe Selvaggi: Well, I’ll say, one of your next myths is about the fact that Senator Rubio concedes that It’s also a good idea. President Biden thinks industrial policy is good, but he gets it wrong. In other words, President Biden believes in an industrial policy that helps good industries and good companies, but Rubio disagrees with what he perceives as good and has his own version of what’s good.

[00:14:55] He characterizes Biden’s industrial policy as corrupted by, I want to get it right, aligned with special interests and progressive ideologies. That’s why his industrial policy is not so good. Rubio says he would favor the right industries. Again, I set up the question pretty well. What could be wrong with that logic, right?

[00:15:12] Take that away there.

[00:15:14] Colin Grabow: Yeah, so Biden is also pro-industrial policy. The problem is he’s doing it wrong. He is too beholden to these progressive, ideologies and special interests, as you point out. I will dispense with that. I can do it right. Well, let’s just say for the sake of argument, he can.

[00:15:30] That, Senator Rubio and his fellow travelers, those he associates with, all have special insights, that they are immune from the pressures of special interests. Well, how can we maintain that? control of the presidency and Congress are constantly in flux, and not even just from a party perspective, but just from a personality and ideological one.

[00:15:51] Biden, President Biden was Obama’s vice president. President Obama belatedly but finally championed free trade. He endorsed the Trans-Pacific Partnership and did a lot of work to try to get that passed. He signed a few bilateral free trade agreements. Biden has done very little on trade.

[00:16:09] These are both Democrats, but, with different outlooks, on trade policy. And, furthermore, even if an industrial policy can be well crafted, what’s to ensure that it stays that way and remains well managed when new legislators enter office? What’s to ensure that they will, keep the same policies in place?

[00:16:27] Once Rubio constructs this industrial policy machinery, the folks that follow on from him, will maintain that and won’t, divert course. I see no reason to think that won’t be the case.

[00:16:38] Joe Selvaggi: Right, we have to, he has to either live forever or, and never lose an election, or face the consequence of someone else having, their hand on the rudder as well.

[00:16:46] Going further into that discussion, he characterizes who, and which industries he would help as only being those that are essential, leaving the rest of the economy alone. I suppose speaking to, let’s say, more free market advocates, I would characterize myself that way, he wants to assure someone like me that he’s not going to touch all industries, only the essential ones, which begs the question, How does one determine, which are essential and which should be subject to free market forces?

[00:17:09] What would you say about that?

[00:17:11] Colin Grabow: Yeah, that, it’s an excellent question. In his essay, Senator Rubio says, I just want, we’ll limit these interventions to essential industries, and I think that sounds fairly reasonable. But, Well, you also note that in his essay, Rubio, when he starts to list examples of some of these industries, he says, well, the mining industry, oil and gas, metallurgy, agriculture, chemistry, medicine, and he says, et cetera.

[00:17:35] So that’s not even a comprehensive list. and, that’s a That’s the nontrivial part of the U. S. economy right there. And let’s further keep in mind that Senator Rubio is a guy that, in past years, he’s notorious for, his support of the sugar industry and the protectionism that supports that industry there in Florida.

[00:17:55] And he’s described that as a national security interest, issue before, saying that, if we didn’t have this kind of protectionism, that basically our sugar, farms would get paved over by shopping malls and we can’t feed ourselves. So given that kind of underlying mentality, where’s the limiting, what’s the limiting principle to all this?

[00:18:12] Where do we draw that line? How do we delineate this? and it’s not obvious to me. I’ll also just point out one other thing, I think you can make a pretty good case, At the very least, Rubio’s outlook, dovetails very nicely with the U. S. sugar industry. And yet, we also have to assume this is a guy that’s going direct industrial policy while not being captured by special interests.

[00:18:31] I have my doubts about that. So yeah I think we can all get in a room and agree, yes, we should, support essential industries, but then I think we’d have a really tough time coming up with exactly what constitutes essential, and I don’t think Senator Rubio in his essay does a good job of spelling out what exactly that entails or what the criteria are to be used to judge and evaluate these things.

[00:18:53] Joe Selvaggi: Yes, and quickly, I think we can imagine everything, every worker, every industry, every business being essential, which leads me to another myth you have. Again, I’m going to I know in broad strokes say, there are a lot of people even on the right, but there are certainly on the left who romanticize China’s power to be able to manage its economy.

[00:19:11] In other words, if they consider everything essential and they get involved, it looks like they’re going gangbusters. isn’t this a, a success story about, command economies? if China has been able to do it successfully, why can’t we? What would you say to, those who say, China is indeed an example of.

[00:19:27] What can be done if the government gets more involved in industry?

[00:19:31] Colin Grabow: Yeah, well, you refer to this so that other people might see this as a success. I think we first have to step back and ask ourselves, well, what’s success? what are the criteria that we’re using to evaluate this? it’s true. I think that some of China’s industries are larger than would otherwise be the case without certain government interventions through things like Cheap financing, for example, I believe state-owned enterprises in China are directed that when they go to buy ships, they buy Chinese-built ships, and I’m sure that applies to other goods as well.

[00:20:00] I can believe that, but we also need to recognize that when the government directs resources to less productive ends than markets, When that takes place, which I think is what takes place, I do think the markets are better at allocating resources than the government, but there’s a cost to that. and in the real story in China, from my perspective, is not the central planning.

[00:20:23] That’s not new. China’s been doing this For decades, you can go back to the Great Leap Forward, when they directed, I think they had millions of farmers that had, smelters in their backyards to try to boost steel production because that was the key to industrialization. Of course, that was a failure, and farmers were out trying to make steel, so feeding people led to lots of starvation.

[00:20:43] What’s really interesting about China in recent, more recent decades has been the move away from central planning and letting market forces play more of a role. I think that is what has undergirded their prosperity. So to me, that’s the key lesson there. And then lastly, for all the strides China has made, let’s keep in mind, this is a country whose per capita GDP, I believe is something like one-sixth that of the United States.

[00:21:10] So, I think we should all be pretty leery about using a country that’s significantly poorer than us as a role model.

[00:21:16] Joe Selvaggi: Yes, indeed. I think they produce just a little bit more than we do as a country, but they do it with a billion more people, so that should give people a sense of the relative productivity of the two different countries.

[00:21:25] But let me push back. Last time you were on the show, you were on once before, we talked about the Jones Act and all the negative externalities, all the unintended consequences that follow from this, perhaps, well-intentioned law. I don’t know if you can see that, but, hasn’t China, you mentioned shipbuilding, hasn’t been able to invest in shipbuilding and ensure that they have now a very robust shipbuilding industry in China?

[00:21:46] Colin Grabow: Yes, it’s undeniable China is the world’s leading, shipbuilding country. I think they account for roughly half of all, delivered tonnage, in recent years. But then you have to step back and think of the alternative, right? What happens absent, Chinese industrial policy? Should we believe that the world’s largest country, the world’s largest manufacturing power would be a bit player or irrelevant in shipbuilding?

[00:22:11] I’m skeptical of that. If for no other reason, this is a path we’ve seen other Asian countries take. If you go back to the 1960s, Japan was the world’s leading shipbuilder. It was then replaced by South Korea, and now it seems to be China’s turn to replace South Korea. But furthermore, I can even believe that Chinese policies have made China’s shipbuilding industry bigger than what would otherwise be the case.

[00:22:39] But then we have to back up and again, ask ourselves, okay, that may be good for the shipbuilding industry, but what about China’s economy as a whole? Is that a useful, direction or allocation of resources? And I think there’s a lot of reason for doubt and there’s been academic. Work suggests that there is a fair amount of waste involved there.

[00:22:58] And then lastly, you may push back on me and say, well, okay, but then they get these ships set at cheaper rates, which is good to grow your economy, helps carry your exports, and whatnot. Well, that’s true. Everyone is out buying ships. Lots of people, say, in Europe and whatnot, they’ll buy Chinese-built ships.

[00:23:15] So. The Chinese are subsidizing, Europe, European and other people’s consumption of ships, which helps their industries. So I think you can make an arg a plausible argument. It’s been good for China’s shipbuilding industry, but I’m skeptical of the notion it’s been good for China’s economy overall.

[00:23:31] And then I’m also skeptical of the notion that absent, these industrial policy measures China would have, a very minor or modest shipbuilding industry.

[00:23:41] Joe Selvaggi: That’s a good point. The subsidies, and I think you referenced another paper where it effectively says what China’s put into shipbuilding, yeah, in subsidies, it really doesn’t get out at all in, in sort of profit, but the subsidy actually goes to ship consumers, which is the rest of the world.

[00:23:55] So China’s paying for the rest of the world to have cheap ships. and calling it industrial policy.

[00:24:00] Colin Grabow: Well, then, and one other thing I’ll add Joe, is, well, we can’t point to the United States and go, we’re not doing industrial policy in our shipbuilding industry. Well, of course, we did a whole podcast on the Jones Act, which is industrial policy.

[00:24:11] We have, protectionism that mandates Americans use U.S.-built vessels in domestic trade. We also have, tax credits, for people to encourage the purchase of U. S. ships. We have, the federal government provides financing for the purchase of U.S.-built ships, so let’s not pretend that, well, the reason China’s doing so well is because we haven’t tried, oh, yes, we very much tried industrial policy for shipbuilding.

[00:24:32] We’re just not doing it very well.

[00:24:34] Joe Selvaggi: Well, Dee, this is a good segue to my next myth, which you say that Senator Rubio characterizes, again, something that would appeal, I think, to both you and me, deregulation as industrial policy, as to say, when we make rules simpler or that’s industrial policy as well.

[00:24:51] I would agree. I think deregulation in general and lowering taxes is encouraging, but I wouldn’t call it industrial policy, would you? In a sense, industrial policy implies that it’s directed at a particular outcome in a particular firm, right? It’s not, let’s deregulate everything. It’s rather, let’s help out my favored industry.

[00:25:10] Am I right?

[00:25:11] Colin Grabow: Yes, exactly. As you point out, just the very name, industrial policy, suggests the promotion of particular industries. This isn’t, let’s promote, the U. S. economy writ large, it’s favoring certain industries because of national security reasons or whatever. And so it’s hard to mesh deregulation with this sector-specific approach.

[00:25:35] If, for example, we were to say, we’re going to reform the National Environmental Policy Act (NEPA), because that would be good. That’s good industrial policy. Well, the term just loses meaning because if you reform NEPA, that would apply to all sectors of the U.S. economy would benefit. And it’s hard for me to imagine saying, okay, well, this one sector is exempt or faces a different set of NEPA requirements than others. That’s just hard to contemplate. So I’m 100 percent for deregulation. In fact, I think that whenever the conversation, we have conversations about why is this particular industry, maybe not where we think it should be, or what’s holding that back, we need to look at the role of regulation and what obstacles may be in place that are imposed by the government before we start, getting involved in new government adventures, trying to promote that industry.

[00:26:22] Joe Selvaggi: Yeah. I often enjoy, having conversations with people, friends of mine who are on the, let’s see, solidly on the left. And we talk about local. Local industrial policy, if you want to call it that. Here in Boston, we love movies. We want movies to be shot here in Boston, and what we do to do that is we give them tax incentives, reduce their taxes, make it easy, streamline the deregulation, and make it easier to make a movie.

[00:26:42] I say, well, if we can accept that works for movies, why don’t we accept it for everything else, right? Like, why only movies? why not all industries? Is there a bad industry that we don’t want? why do we love movies? So, say more about, in a sense, the real secret here is Less regulation, less tax is beneficial to everyone and everything.

[00:27:02] Fair enough?

[00:27:02] Colin Grabow: Yes. I just, fundamentally, philosophically, I don’t think the government should be in the business of trying to, for lack of a better term, pick winners and losers. favoring certain sectors over others, absent some, perhaps absent some very compelling national security reason, which I certainly don’t think the movie industry, or the film industry falls under.

[00:27:25] I think, in that particular example, this is more about, hey, it’s pretty cool to see us, our city, our state, whatever, featured. And then you can see, the Hollywood actors move around and spend their money. and, so that has a certain appeal to people.

[00:27:36] But just as an economic proposition, I think my understanding of the literature on this stuff is, Pretty universally shows that it’s not a job creator. And, as you said, if we’re going to reduce taxes, well, let’s do it for everybody. and, they should all benefit from a low-tax environment.

[00:27:53] and, of course, it also concedes the argument that lower taxes are better. Beneficial, which I appreciate, but yeah, let’s extend that logic to everyone and just not, certain favored sectors. Of course.

[00:28:02] Joe Selvaggi: you mentioned just briefly, but I want to really dilate on this because I think people might be along with us for our argument all the way through these, myths so far, but they’re all going to have in that back of their mind, like, what about our strategic industries?

[00:28:15] Like, warships and bombers and missiles and all that kind of thing. don’t we have an interest in ensuring that at least those things that we might use in wartime are made in the U S and therefore should be protected and cultivated,

[00:28:29] Colin Grabow: Yeah, I think my answer to that is maybe.

[00:28:32] So for example, let’s go with the warship example. I don’t think, I think most people would agree. We probably don’t want to be in a position where, we say, well, it’s just. outsourced it to whoever’s the cheapest. Maybe that’s China, and then we’re dependent on China for all this construction of our naval vessels.

[00:28:48] It’s probably not a place we want to be, but maybe, South Korea, a treaty ally, maybe, and even then, it doesn’t make sense to buy all our ships from them, but maybe some of them, because when it comes to national security, yes, having, U. S. built ships, that’s a nice, that, that’s nice to have, but also say if you could buy, a ship for one third the price in South Korea.

[00:29:09] So your national, your defense budget goes further. So you can get, three ships for the price of one. Hey, that’s good for national security too. And there are some very important trade-offs that need to be weighed there. of course, this mentality of, well, we need to do it all ourselves.

[00:29:22] Well, this is, this ties in directly. this is the underpinning of the Jones Act, which we spent that episode on. The idea we need to be self-reliant in shipbuilding and shipping. And where has it gotten us? How are we doing there? And for those who didn’t listen to the episode, well, U.S. shipbuilding is doing terribly. last year, Just a single ocean-going cargo ship was delivered by a U. S. shipyard with the Jones Act in place because the industry has become so wildly uncompetitive. The number of ships in the fleet has been declining. The ships tend to be old because they’re so expensive because we have this mentality of self-reliance.

[00:29:56] Don’t go buy ships from other countries. So, self-reliance has value, but other things need to factor in here too. And I think a good compromise place that perhaps we can land is that, for certain products, yes, maybe it doesn’t make sense to buy from your adversaries, but what about your trusted friends and allies, like NATO partners, for example, and the fact that the Japanese and Chinese have some of the best shipbuilding industries in the world.

[00:30:21] To me, that seems like a resource to be harnessed. And the last thing I’ll say is, Understandable reasons people bring up the pandemic and say, well, what about that? we need to be self-reliant. Well, that’s one possible lesson, but two things. One is that another possible lesson is we should stockpile.

[00:30:37] We should be ready. So, let’s say China produces PPE, materials at the cheapest price. maybe the lesson there is you go load up, and stock up on stuff from them so that when the pandemic comes around, you’re prepared. You’ve got it on hand. So the other point to remember is that there’s actually been some literature on this that suggests that during the pandemic some countries we weren’t especially friendly with were not averse to supplying us with goods, because people like to make money.

[00:31:04] So we shouldn’t even take that as a given necessarily. It’s worth considering, I’m not sure these are automatic assumptions we should also make.

[00:31:12] Joe Selvaggi: And finally, I just wanted the last point that, Senator Rubio makes that you refute in your final myth is that he wants to reassure us that, he really is looking out for the best interests of Americans, so he wants to, leave the free market alone, but he wants to set, benchmarks and goals, where he thinks, rather than the free market deciding what should be produced, he’s got a better idea of, of, what the benchmarks are that would benefit all Americans.

[00:31:39] So, I hear this is a more familiar argument on the left, the Elizabeth Warrens and Bernie Sanders of the world saying, do we really need,17 kinds of deodorant? Let’s make what we need in the right amount, and, the free market can do its own thing within our parameters.

[00:31:52] What would you say to that?

[00:31:54] Colin Grabow: Yeah, and in Senator Rubio’s essay, he said something like, we won’t dictate to companies how to invest and compete. We’ll just tell them, here are the benchmarks you need to hit. and, for example, certain production benchmarks and who the accomplishments must benefit.

[00:32:09] And he says, for example, i. e. the American people. Well, that’s incredibly nebulous. I think that the American people obviously have a field day with something like that. I think anybody could justify something by saying, oh, this absolutely benefits the American people. So this is really no kind of benchmark.

[00:32:28] And what’s striking to me is this is the kind of language he uses. In a piece, this is a piece he obviously gave a lot of thought to and the best he can come up with is to benefit the American people. Imagine what kind of benchmarks will be set once lobbyists get their say when these things are hashed out in Washington back rooms.

[00:32:49] So this is just an absolute open invitation for people to manipulate this kind of industrial policy machinery, not to benefit the American people, but their particular industry, their particular company. and I have a hard time, with the notion that this is ultimately going to prove beneficial for the American people writ large.

[00:33:08] To me, that is not one of the lessons I take out of government interventions. this notion they’ll operate free of lobbyist influence and that they’re all only thinking of, the big picture and not narrow, special interests.

[00:33:20] Joe Selvaggi: Well, I don’t want to make this, show just talk about negative things that, Senator Rubio has said or negative things about industrial policy, though there are many.

[00:33:28] We could just have our audience put a negative sign next to everything Senator Rubio recommends and suggest that would be your preferred policy. Preference, what would you do again, I’d like to ask before we close out the king for a day question, which is, were you to be in charge or advising Senator Rubio or be King for a day?

[00:33:47] What do you think the federal government, could do proactively to ensure American jobs are plentiful? We are well paid, our industries are competitive and we prosper for generations. What would you recommend in general?

[00:34:03] Colin Grabow: Well, of course, the first thing we do is we repeal the Jones Act, as previously discussed, and then adopt, open and free trade more broadly and dispense with all other forms of protectionism.

[00:34:14] But more seriously, I think, well, I do in fact think the Jones Act would be good for U. S. manufacturing and for the economy as a whole, but are there plenty of other things that we can do? We need a sensible immigration policy that assures that the country’s manufacturers and other sectors can get access to the talent that they need.

[00:34:34] Reduce, barriers for talented immigrants and even unskilled immigrants to fill needs here in our country. We need a sensible tax policy that should be as flat as possible. Minimal number of distortions. We shouldn’t tax capital so much. We’ve made some progress there in recent years, so hooray for that.

[00:34:58] But then also, beyond the federal level, I think a lot of attention needs to be paid to, for example, zoning policies and housing. The fact that some of our most prosperous, economic centers, are very costly to live in, and there’s a real barrier to workers, taking part in some of that prosperity.

[00:35:16] Places like the Bay Area, up at where you live, Boston, New York City, places like that, these are economic engines, and we make it difficult for people to partake in that. so I think we can’t overlook efforts on the state and local levels. I think if we had a better health care system be more efficient, that would be a massive de facto tax cut. So much of the compensation that workers receive is in the form of health insurance. There’s, if we could free up some of that money to put in people’s pockets, that would be, I think a potential engine of prosperity. So there’s a lot, there’s a lot that can be done.

[00:35:49] I don’t have all the answers. So, you check with some of my colleagues on these different areas that do. but there’s certainly no shortage of things that can be done to improve U. S. economic efficiency and make this a more attractive place to invest and do business. And I think that when we talk about Improving U.S. manufacturing, and improving the U.S. economy, that’s where the conversation should start.

[00:36:10] Joe Selvaggi: Indeed. It sounds like you summarized the topics of the last six months of Hubwonk podcast, so I appreciate the intentional or unintentional shout-out to earlier shows.

[00:36:22] Colin Grabow: You guys have your fingers on the economic pulse, what can I say?

[00:36:25] Joe Selvaggi: Well, and I think, again, our listeners, contrary to say the dominant narrative that there are these mustache-twirling capitalists preying on poor consumers, I think, you know, when you step back, you realize we’re all producers, consumers, we’re all participants in the market, we all benefit from cheaper, better, more abundant products, and rather than have an industrial policy run by I guess, people like Senator Rubio, instead, a free market really is run by you and me, by individual choices of individual consumers, each expressing our own preference and interpretation of value.

[00:36:57] That sounds very uncomfortable for those people with seven PhDs or in places of power that the man on the street gets to decide, but I think that’s the thesis of what you and I might recommend.

[00:37:08] Colin Grabow: Absolutely. I think, we all get votes. People think about voting as a political exercise.

[00:37:12] Every day we have to vote with our dollars for the kind of world that we want to live in, the kind of goods that we want to see on our shelves, the kind of economy we want. so, yeah, I think that’s often overlooked and underappreciated aspect of capitalism and the market, the free market.

[00:37:26] Joe Selvaggi: So for our listeners who’ve, it piqued their interest and they want to maybe even challenge your ideas or reread them or, access all the links in all your papers, where can our listeners find you and read more about your work?

[00:37:38] Colin Grabow: Sure. Well, if you just Google my name, Colin Grabow, why the first thing that will come up is my Cato page and all my work is right there.

[00:37:44] I would also invite people who are on social media that like, Twitter. It’s my, social media drug of choice to go to, you can find me at C P Grabow, C P G R A B O W. And then I also just invite people more generally to go to our website,, and I’m just one scholar. We have many other scholars here with all kinds of interesting insights on various topics, and I think listeners would enjoy a lot of what’s on our website.

[00:38:10] Joe Selvaggi: Well, I certainly enjoy your work and the work of Cato. you guys are, nonpartisan, so while you might get things wrong, you don’t get it wrong for the wrong reasons. You play, you call it like you see it, and that’s what I appreciate here on Hubwonk. Thank you very much for joining me today on Hubwonk, Colin.

[00:38:24] You’re a great guest.

[00:38:25] Colin Grabow: Well, thanks so much, Joey. I hope we can do this again.

[00:38:29] Joe Selvaggi: This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute. It would be easier for you and better for us if you subscribed to Hubwonk on your iTunes Podcatcher.

[00:38:41] It would make it easier for others to find Hubwonk if you offered a 5-star rating or a favorable review. Of course, we’re grateful if you share Hubwonk with friends. If you have ideas, comments, or suggestions for me about future episode topics, you’re welcome to email me at Please join me next week for a new episode of Hubwonk.

Joe Selvaggi discusses industrial policy, its aspirations, and limitations, with CATO Institute Associate Director Colin Grabow, in response to Senator Rubio’s thought piece advocating for a more active role for government in the economy.


Colin Grabow is a research fellow at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies where his research focuses on domestic forms of trade protectionism such as the Jones Act and the U.S. sugar program. His writings have been published in a number of outlets, including USA TodayThe HillNational Review, and The Wall Street Journal. Prior to joining the Cato Institute, he performed political and economic analysis for a Japan-based trading and investment firm and published research and analysis for an international affairs consulting firm with a focus on U.S.-Asia relations. Grabow holds a BA in international affairs from James Madison University and an MA in international trade and investment policy from George Washington University.