Anyone who has seen the Hamilton play has heard the secret behind the United States economic success; have a strong central bank that provides capital to industry and then protect that industry with tariffs until it can compete internationally. It is a simple formula that almost all the industrialized nations have used (and unironically barred developing countries from implementing themselves, but that is for another section). This creates rich countries because industry creates increasing returns and innovation that benefits all sectors of the economy from agriculture to the service sector. However, the neoliberal quest for globalization and free trade has forgotten these lessons.
Our manufacturing employment has plummeted and while “real” output has increased. Most of the real output increases are because of the computer industry and even there the actual output hasn’t increased because of more throughput, but because real output accounts for the year to year technological improvements of computers and says a 20% faster computer is worth 1.2 computers from the year previous. This has led to a large trade deficit, the gutting of the middle class who have historically relied on good manufacturing jobs even without a college degree, and the increase in inequality as the high end service class reaps the benefits of low wages and cheap goods. And to top it off the capital class receives tax benefits because they are deemed the “job creators” even with little evidence that they have used their capital to create new businesses but plenty of evidence of them buying back their own stock because it is “the most productive use of their capital.”
The pandemic and the trade war with China have fully illustrated the dangers of outsourcing critical industries. In times of crisis it becomes difficult to source the materials and equipment needed to deal with the crisis and China has used their power as the world’s manufacturing hub to push forward their somewhat authoritative agenda (interestingly that was the opposite of what globalization and free trade were supposed to do, to be discussed in another section).
Furthermore, manufacturing countries have the advantage in technological advancements. The largest increasing returns are in the newest industries like 5G, electric vertical takeoff and landing aircraft, and computer processors. These are the drivers of growth in advanced countries and losing the manufacturing base even in periphery sectors hurts growth overall.
Fortunately, the solutions to these problems are simple and provide a myriad of economic benefits, but they also require quite a bit of political will. Durable goods, goods that last 3 or more years, which include cars, airplanes, household appliances, telecommunications equipment and computers have the highest profit margins and as a result can support a well-paid labor base without raising the cost of the goods dramatically. We should use tariffs to protect the local production of durable goods, especially in innovative technological sectors. The goal should be to create an additional 20 million good producing jobs (for reference the United States currently has only around 21 million good producing jobs), which includes mining and construction, with at least half of those jobs in manufacturing which would return manufacturing employment back to their historical levels.
Furthermore, we should provide subsides and low-interest loans to these good producing industries to encourage them to reshore and locate in the old middle class manufacturing towns. To fund these subsidies, we should revoke the preferential treatment for capital and the capital that was supposed to create jobs would finally do so. This means taxing capital gains at the normal income tax rate, removing the tax advantages of stock buybacks, dividends, and corporate debt, and expanding capital access for main street businesses and manufacturers. Most Americans work in the service industry and the service industry jobs that employ the most people also pay the least, and this is heavily weighted by educational attainment. Manufacturing jobs even the playing field by paying a wage competitive with higher end service jobs that usually need a degree even for workers who never went to college.
While we should protect durable goods with tariffs, we should leave agricultural products, raw material mining, intermediate goods, and non-durable goods unprotected. The more low cost raw materials and intermediate goods we can import the cheaper the material cost for the high-end manufacturing industry that transforms these materials into higher value goods which increases profit margins and wages. Nonetheless, while we shouldn’t protect the raw and intermediate producing industries with tariffs, we should subsidize them to ensure America always has a source for critical raw materials. Agriculture is already heavily subsidized (though that should be modified), but we need additional subsidies to ensure that the producers for raw materials like steel and aluminum can compete with imported materials.
These changes would restore the industrial sector to its rightful place as the driver of American economic growth, strengthen the neglected middle class, and end the preferential treatment of the capital class. Industry and innovation have been the drivers of American growth throughout her history and only recently with the promise of globalized free trade have we forgotten that. Furthermore, we should want to bring industry back not just for economic and social reasons but for national pride. These are the goods that Americans save for and interact with the most. As a country we should want to produce the AC units, refrigerators, and cars in every household. We should want the routers, computers, and phones that we send our most sensitive data through made by Americans and not a potentially nefarious foreign power. We should want to create and make the quantum computers and machine learning hardware of the future rather than just buy them from abroad. Industry and innovation are the engines of opportunity and growth, history tells us only through the creation of these increasing return activities can we break out of the cycle of low wages and income inequality.
- End the preferential treatment of capital
- Tax capital gains as normal income
- Increase main street businesses and manufacturers access to capital
- Revoke Rule 10-B and restrict stock buybacks
- End the preferential tax treatment for dividends and corporate debt
- Food System
- Replace subsidies for commodity crops witha general subsidy by farm acre
- Give subsidy for using lest pesticide and fertilizer (organic growing)
- Give a subsidy for good practices like crop rotation and cover crops
- Critical Supply Chain and Manufacturing
- Make 20 million more good producing jobs
- Protect durable good manufacturing with tariffs especially in cutting edge areas
- Subsidize capital expenditures for factories
- Subsidize labor cost as necessary
- Subsidize rather than tariff critical raw materials and intermediate goods