Monday, August 29, 2022

Dean Baker on Industrial Policy

 a good essay on "industrial policy", otherwise known as planning -- :)

via Patreon

Dean Baker

There is much confusion surrounding the concept of industrial policy, starting at the definitional level. If we think of industrial policy as a set of policies designed to favor certain industries, then we are always doing industrial policy.

For example, the decision to have the government finance the construction of airports supports the airline industry, as well as air freight, just as the decision to build the highways 70 years ago supported the auto industry and the suburbs. We spend over $50 billion a year on biomedical research, which is a huge subsidy to the pharmaceutical and medical equipment industries.

In short, industrial policy is not an on-off switch. We are always practicing industrial policy; the only issue is which industries we choose to favor and how we structure the mechanisms.

Recent legislation approved by Congress, the CHIPS Act and the Inflation Reduction Act (IRA), have been seen as big steps in advancing industrial policy. While there is much positive in these bills, there are three important areas where the legislation falls short:

1) The ownership of intellectual property

2) The price of clean energy products supported through the IRA

3) The false promise of manufacturing jobs

These are taken in turn.

Ownership of Intellectual Property

The treatment of intellectual property in these bills, and in fact in policy more generally, is badly misguided. The government is quite explicitly funding research in a wide range of areas. However, it will allow the companies benefitting from this research to claim ownership of patents and other forms of intellectual property based on the research it has funded.

This is an absurd subsidy that could redistribute a huge amount of income upward in the decades ahead. It would be comparable to the government paying a company to build a factory, and then giving it ownership of the factory. While the absurdity of this sort of giveaway in the case of a physical product is apparent to anyone, for some reason, it seems natural that we have the government pay for research and then allow companies to gain patent monopolies or other forms of protection to control the product and sell it at a monopoly price.

There is a huge amount of money at stake in this. In responding to the pandemic, Operation Warp Speed gave Moderna close to $900 million to develop and test a coronavirus vaccine. It then allowed Moderna to keep control of the vaccine, adding tens of billions of dollars to its market capitalization and creating at least fiveModerna billionaires.

This sort of outcome should outrage anyone who cares about inequality. The idea that we only pay companies once for their work is not radical. If we pay for the research, then companies should not also be able to get control of the output.

Ideally, all the results of publicly funded research would be in the public domain. This means that anyone could produce a product based on the results, or build on the research to produce a better product. There are other rules that could still allow some further gain by those who did the work, such as compulsory licensing, or an agreement to accept shorter patent monopolies, but keeping the research in the public domain would be the simplest and most equitable route.[1]It would also be important to prohibit non-disclosure agreements by companies working on taxpayer supported research.

Keeping the Price of Products Low

While we want to keep down the price of all products wherever possible, this is especially true of the items being developed to slow climate change. In principle, we would like solar panels, electric car batteries, and other green products to sell at the lowest possible price.

Patent monopolies and other forms of protection push prices in the opposite direction. In many cases, the cost associated with patent monopolies can be a very large share of the price. This is especially true with prescription drugs where the patent is responsible for close to 80 percent of the price of protected drugs on average, and in some cases more than 99 percent.

The share of the price associated with patent protections with items like solar panels or batteries is likely to be considerably lower, since these products do involve a complex manufacturing process and more physical material than drugs. Nonetheless, patents and related protections could still raise the price of these items by 20 to 30 percent. Furthermore, locking up technologies behind patent protection may slow innovation, since other companies will have less access to it.

Since our goal in promoting clean technology is to have it adopted as widely as possible, as quickly as possible, we should very much want to see prices lowered by having all research in the public domain. If the price of solar panels would fall by 25 percent by eliminating any intellectual property claims, this would have the same effect in increasing demand as an additional government subsidy to purchasers of 25 percent of the sale price. This is a big deal.

The False Promise of Manufacturing Jobs

Much of the discussion around both the CHIPS bill and the IRA highlighted provisions in the bills that would lead to more manufacturing in the United States. The view that we should be seeking out jobs in manufacturing specifically, rather than jobs in other sectors of the economy, rests on a misunderstanding of the current nature of manufacturing jobs.

Historically, manufacturing had been a source of relatively good-paying jobs for workers without college degrees. Jobs in manufacturing paid substantially more than jobs in other sectors, after controlling for factors like age, education, and location. This is no longer true. The manufacturing wage premium has fallen sharply in recent decades, so that it is now close to zero.

Trade has been a big factor in the reduction of the manufacturing wage premium. The country lost millions of jobs to imports in the 90s and 00s. The jobs that remained often paid far less than the jobs that were lost. A big part of this story was the decline of unionization in manufacturing. In 1980, close to 20 percent of the manufacturing workforce was unionized. This had fallen to just 7.7 percent by 2021, only slightly higher than the private sector average of 6.1 percent.

Furthermore, there is little reason to believe that the return of manufacturing jobs will mean a substantial increase in unionized manufacturing jobs. From the recession trough in 2010 to 2021, the manufacturing sector added back over 800,000 jobs. However, the number of union members in manufacturing actually dropped by 400,000 over this period.

In short, our trade policies had a devastating impact on manufacturing workers and workers without college degrees more generally, but reversing these policies now will not help the problem. We want these workers to be able to get good paying jobs, but they are no more likely to find them in manufacturing than in any other sector. (It is worth noting that manufacturing employment is still more than 70 percent male.)

There is an issue about the need to have more domestic production for national security reasons, as well as protection against events like the pandemic. This point is true, but often exaggerated. Clearly there is a national security issue when most of our semiconductors come from Taiwan when a conflict with China could quickly choke off this source of supply. However, we could be reasonably comfortable importing semiconductors from Canada, Mexico, and many other countries.

The pandemic did disrupt imports from our trading partners, but we also had many domestic factories shut down during the pandemic. Furthermore, if we think of the range of potential disasters, certainly there are many areas in the United States where production could be stopped for extended periods by hurricanes, floods, or other extreme weather events. What we really need are diverse sources of supply, not just domestic production. A focus on domestic production that doesn’t recognize the need for a diversity of sources, will not create resiliency.

Conclusion – Better Industrial Policy Would be Good, but We Need to Approach it With Clear Eyes

There is much that is good in the recent legislation that has been touted as industrial policy. However, these bills have not been well-structured from the standpoint of reducing income inequality. They also won’t necessarily help to make the economy more resilient in the ways many have claimed.

Industrial policy cannot just be a mantra, whereby calling something industrial policy implies better outcomes. It has to be carefully designed to meet specific goals. If we want to reduce inequality and speedup the adoption of clean technology, we can do much better than the CHIPS Act and the IRA climate provisions.

[1]There would need to be some agreement on sharing research costs and findings internationally, but we already have this problem with the existing IP system. Patent obligations and related protections have been a major source of conflict in the negotiation of recent trade agreements

Monday, August 22, 2022

Louis Menand: American Democracy Was Never Designed to Be Democratic

American Democracy Was Never Designed to Be Democratic

The partisan redistricting tactics of cracking and packing aren’t merely flaws in the system—they are the system.

Louis Menand, 

The New Yorker

To look on the bright side for a moment, one effect of the Republican assault on elections—which takes the form, naturally, of the very thing Republicans accuse Democrats of doing: rigging the system—might be to open our eyes to how undemocratic our democracy is. Strictly speaking, American government has never been a government “by the people.”

This is so despite the fact that more Americans are voting than ever before. In 2020, sixty-seven per cent of eligible voters cast a ballot for President. That was the highest turnout since 1900, a year when few, if any, women, people under twenty-one, Asian immigrants (who could not become citizens), Native Americans (who were treated as foreigners), or Black Americans living in the South (who were openly disenfranchised) could vote. Eighteen per cent of the total population voted in that election. In 2020, forty-eight per cent voted.

Some members of the loser’s party have concluded that a sixty-seven-per-cent turnout was too high. They apparently calculate that, if fewer people had voted, Donald Trump might have carried their states. Last year, according to the Brennan Center for Justice, legislatures in nineteen states passed thirty-four laws imposing voting restrictions. (Trump and his allies had filed more than sixty lawsuits challenging the election results and lost all but one of them.)

In Florida, it is now illegal to offer water to someone standing in line to vote. Georgia is allowing counties to eliminate voting on Sundays. In 2020, Texas limited the number of ballot-drop-off locations to one per county, insuring that Loving County, the home of fifty-seven people, has the same number of drop-off locations as Harris County, which includes Houston and has 4.7 million people.

Virtually all of these “reforms” will likely make it harder for some people to vote, and thus will depress turnout—which is the not so subtle intention. This is a problem, but it is not the fundamental problem. The fundamental problem is that, as the law stands, even when the system is working the way it’s designed to work and everyone who is eligible to vote does vote, the government we get does not reflect the popular will. Michael Kinsley’s law of scandal applies. The scandal isn’t what’s illegal. The scandal is what’s legal.

It was not unreasonable for the Framers to be wary of direct democracy. You can’t govern a nation by plebiscite, and true representative democracy, in which everyone who might be affected by government policy has an equal say in choosing the people who make that policy, had never been tried. So they wrote a rule book, the Constitution, that places limits on what the government can do, regardless of what the majority wants. (They also countenanced slavery and the disenfranchisement of women, excluding from the electorate groups whose life chances certainly might be affected by government policy.) And they made it extremely difficult to tinker with those rules. In two hundred and thirty-three years, they have been changed by amendment only nine times. The last time was fifty-one years ago.

You might think that the further we get from 1789 the easier it would be to adjust the constitutional rule book, but the opposite appears to be true. We live in a country undergoing a severe case of ancestor worship (a symptom of insecurity and fear of the future), which is exacerbated by an absurdly unworkable and manipulable doctrine called originalism. Something that Alexander Hamilton wrote in a newspaper column—the Federalist Papers are basically a collection of op-eds—is treated like a passage in the Talmud. If we could unpack it correctly, it would show us the way.

The Bill of Rights, without which the Constitution would probably not have been ratified, is essentially a deck of counter-majoritarian trump cards, a list, directed at the federal government, of thou-shalt-nots. Americans argue about how far those commandments reach. Is nude dancing covered under the First Amendment’s guarantee of the freedom of expression? (It is.) Does the Second Amendment prohibit a ban on assault weapons? (Right now, it’s anyone’s guess.) But no one proposes doing away with the first ten amendments. They underwrite a deeply rooted feature of American life, the “I have a right” syndrome. They may also make many policies that a majority of Americans say they favor, such as a ban on assault weapons, virtually impossible to enact because of an ambiguous sentence written in an era in which pretty much the only assault weapon widely available was a musket.

Some checks on direct democracy in the United States are structural. They are built into the system of government the Framers devised. One, obviously, is the Electoral College, which in two of the past six elections has chosen a President who did not win the popular vote. Even in 2020, when Joe Biden got seven million more votes than his opponent, he carried three states that he needed in order to win the Electoral College—Arizona, Georgia, and Pennsylvania—by a total of about a hundred thousand votes. Flip those states and we would have elected a man who lost the popular vote by 6.9 million. Is that what James Madison had in mind?

Another check on democracy is the Senate, an almost comically malapportioned body that gives Wyoming’s five hundred and eighty thousand residents the same voting power as California’s thirty-nine million. The District of Columbia, which has ninety thousand more residents than Wyoming and twenty-five thousand more than Vermont, has no senators. Until the Seventeenth Amendment was ratified, in 1913, senators were mostly not popularly elected. They were appointed by state legislatures. Republicans won a majority of votes statewide in Illinois in the 1858 midterms, but Abraham Lincoln did not become senator, because the state legislature was controlled by Democrats, and they reappointed Stephen A. Douglas.


The Act of Coming Out

Even though the Senate is split fifty-fifty, Democratic senators represent forty-two million more people than Republican senators do. As Eric Holder, the former Attorney General, points out in his book on the state of voting rights, “Our Unfinished March” (One World), the Senate is lopsided. Half the population today is represented by eighteen senators, the other half by eighty-two. The Senate also packs a parliamentary death ray, the filibuster, which would allow forty-one senators representing ten per cent of the public to block legislation supported by senators representing the other ninety per cent.

Many recent voting regulations, such as voter-I.D. laws, may require people to pay to obtain a credential needed to vote, like a driver’s license, and so Holder considers them a kind of poll tax—which is outlawed by the Twenty-fourth Amendment. (Lower courts so far have been hesitant to accept this argument.)

But the House of Representatives—that’s the people’s house, right? Not necessarily. In the 2012 Presidential election, Barack Obama defeated Mitt Romney by five million votes, and Democrats running for the House got around a million more votes than Republicans, but the Republicans ended up with a thirty-three-seat advantage. Under current law, congressional districts within a state should be approximately equal in population. So how did the Republicans get fewer votes but more seats? It’s the same thing that let Stephen A. Douglas retain his Senate seat in 1858: partisan gerrymandering.

This is the subject of Nick Seabrook’s timely new book, “One Person, One Vote: A Surprising History of Gerrymandering in America” (Pantheon), an excellent, if gloomy, guide to the abuse (or maybe just the use) of an apparently mundane feature of our system of elections: districting.

We tend to think of a “gerrymander” as a grotesquely shaped legislative district, such as the salamander-like Massachusetts district that was drawn to help give one party, the Democratic-Republicans, a majority in the Massachusetts Senate in the election of 1812. The governor of the state, Elbridge Gerry, did not draw the district, but he lent his name to the practice when he signed off on it. (Seabrook tells us that Gerry’s name is pronounced with a hard “G,” but it’s apparently O.K. to pronounce gerrymander “jerry.”)

Gerry’s gerrymander was by no means the first, however. There was partisan gerrymandering even in the colonies. In fact, “the only traditional districting principle that has been ubiquitous in America since before the founding,” Seabrook writes, “is the gerrymander itself.” That’s the way the system was set up.

Partisan gerrymandering has produced many loopy districts through the years, but today, on a map, gerrymandered districts often look quite respectable. No funny stuff going on here! That’s because computer software can now carve out districts on a street-by-street and block-by-block level. A favorite trick is moving a district line so that a sitting member of Congress or a state legislator is suddenly residing in another district. It’s all supposed to be done sub rosa, but, Seabrook says, “those in the business of gerrymandering have a tendency to want to brag about their exploits.”


You might think that you can’t gerrymander a Senate seat, but the United States Senate itself is a product of gerrymandering. One factor that determined whether a new state would be admitted to the Union was which political party was likely to benefit. We have two Dakotas in part because Republicans were in power in Washington, and they figured that splitting the Dakota territory in two would yield twice as many new Republican senators.

For there’s nothing natural about states. Portions of what is now Wyoming were, at various times, portions of the territories of Oregon, Idaho, Dakota, Nebraska, and Utah. Before 1848, much of Wyoming was Mexican. Before that, it was Spanish. We don’t have Wyoming because people living within the territory felt a special affinity, a belief that they shared a “Wyoming way of life,” and somebody said, “These folks should have their own state.” To the extent that Wyoming residents feel stately solidarity, it’s because the federal government created Wyoming (and two more Republican senators), not the other way around.

In the case of the House, reapportionment takes place every ten years, after the census is reported. When this happens, most states redistrict not only for Congress but for their own legislative offices as well. This means, usually, that the party in power in state government that year draws district lines that will be in place for the next decade. Republicans, when they are running the show, try to make it harder for Democrats on every level to win, and vice versa. And why not? It’s human nature.

Even the census, on which apportionment is based, is subject to partisan manipulation. Was it at all surprising to learn recently that the Trump Administration tried to interfere with the 2020 census in order to reduce the population in Democratic districts? Trump officials must have calculated that they had little to lose. If they failed (which they largely did, after the Supreme Court suggested that the Administration was lying about its intentions and officials at the Census Bureau pushed back), no harm, no foul. If they succeeded and someone called them out on it, what was anybody going to do about it? Administer a new census?

The name of the game in partisan redistricting is vote dilution. In a two-party race, a candidate needs only fifty per cent plus one to win. Every extra vote cast for that candidate is a wasted vote, as is every vote for the loser. You can’t literally prevent your opponents from voting. Even the current Supreme Court, which has hardly been a champion of voting rights since John Roberts became Chief Justice, would put a stop to that. So wasting as many of the other party’s votes as possible is the next best thing. And, in most states, it’s perfectly legal. The terms of art are “cracking” and “packing.”

You crack a district when you break up a solid voting bloc for one party and distribute those voters across several adjacent districts, where they are likely to be in the minority. Once it’s cracked, the formerly solid district becomes competitive. This is sometimes called “dispersal gerrymandering.”

When you pack, on the other hand, you put as many voters of the other party as possible into the same district. This arrangement means that their candidate will usually get a seat, but it weakens that party’s power in other districts. From a civil-rights point of view, districts in which members of minority groups are in the majority might seem like a good thing, but Republicans tend to favor majority-minority districts because they reduce the chances that Democratic candidates will win elsewhere in a state.

Partisan redistricting is why Republicans won five of Wisconsin’s eight congressional seats in 2020 even though Biden took the state. Biden carried the Fourth Congressional District, which includes Milwaukee, by fifty-four percentage points. Was that district packed? Not necessarily. The tendency of Democrats to concentrate in densely populated urban areas naturally tends to dilute their votes statewide. But partisan redistricting helps explain why Republicans won sixty-one of ninety-nine seats in Wisconsin’s State Assembly and ten of the sixteen contested seats in the State Senate. Wisconsin is justifiably considered a major success story by Republican redistricting strategists.

Partisan gerrymandering is also why, for most of the past half century, the State Senate in New York was Republican and the State Assembly was Democratic—a formula for gridlock, backroom dealing, and the inequitable distribution of resources. Seabrook explains that New York’s districting was solidified under a handshake agreement that gave each party control of the process for one legislative chamber. The parties therefore created as many safe districts for their candidates as possible. Seabrook calls New York a “criminal oligarchy” and notes that, between 2005 and 2015, at least thirty state officials were involved in corruption cases.

Eight years ago, by constitutional amendment, New York established a bipartisan independent redistricting commission and made partisan gerrymandering illegal. This cycle, the commission deadlocked, and the Democrats, who have a supermajority in both houses of the legislature, tried to build a loophole in the law and drew their own maps. The State Senate and congressional maps were promptly thrown out as illegal partisan gerrymandering by the New York State Court of Appeals, and a lower court presented new maps, which govern the 2022 elections. The result is that New York Democrats now find themselves competing with one another for the same seats. The new district lines may force one candidate to move in with his mother, in order to maintain residency. Chaos? Just business as usual in New York State government.

Understanding the gerrymander helps us understand what Jacob Grumbach, in “Laboratories Against Democracy” (Princeton), describes as a country “under entrenched minority rule.” Grumbach is a quantitative political scientist, and his data suggest that, although some state governments have moved to the extremes, public opinion in those states has remained fairly stable. What explains the political shift, he thinks, is that all politics has become national.

“The state level is increasingly dominated by national groups who exploit the low-information environments of amateurish and resource-constrained legislatures, declining local news media, and identity-focused voters,” Grumbach maintains. These national groups aim to freeze out the opposition, and redistricting is a powerful tool for that. “Antidemocratic interests need only to take control of a state government for a short period of time,” Grumbach points out, “to implement changes that make it harder for their opponents to participate in politics at all levels.”

Partisan redistricting often favors rural areas. Obviously, the Senate and the Electoral College do this, too. One thumb on that scale is what is called prison gerrymandering. There are more than a million incarcerated convicts in the land of the free. Except in Maine, Vermont, and D.C., none can vote. But in many states, for purposes of congressional apportionment, they are counted as residents of the district in which they are imprisoned.


Seabrook says that seventy per cent of prisons built since 1970 are in rural areas, and that a disproportionate number of the people confined in them come from cities. Counting those prisoners in apportionment enhances the electoral power of rural voters. It’s a little like what happened after Emancipation. A Southern state could now count formerly enslaved residents as full persons, rather than as three-fifths of a person, and was reapportioned accordingly. Then it disenfranchised them.

Changing the Senate would require a constitutional amendment, and there is little chance of that. There is a movement under way to get states to pass laws requiring their Presidential electors to vote for whoever wins the national popular vote, which is a way of reforming the Electoral College system without changing the Constitution. This, too, is a long shot. Elected officials have no incentive to change a system that keeps electing them.

Suppose, however, that we went over the heads of elected officials and appealed to our lifetime-tenured Supreme Court Justices, who, wielding the power of judicial review (not mentioned in the Constitution), can nullify laws with the stroke of a pen and suffer no consequences? The Justices are not even required to recuse themselves from cases in which they might have personal involvement. No other democracy in the world has a judicial system like that, and for a good reason: it’s not very democratic.

But, precisely because they have no stake in the electoral status quo, the Justices might decide that gerrymandered vote dilution triggers, among other constitutional provisions, the equal-protection clause of the Fourteenth Amendment. It seems pretty clear that your right to vote isn’t very “equal” if someone else’s vote is worth more.

In 2016, the North Carolina Democratic Party, the watchdog group Common Cause, and fourteen North Carolina voters sued the state legislators who had led a partisan redistricting effort designed to create ten congressional seats for Republicans and three for Democrats. The case, Rucho v. Common Cause, was joined with a similar case from Maryland. In that one, it was Republicans who sued, contesting a redistricting plan that reduced the number of G.O.P. congressional seats from two or three to one. The North Carolina plaintiffs won in district court.

In 2019, however, the Supreme Court, in a 5–4 decision (Ruth Bader Ginsburg was still alive), vacated the lower court’s decision and ordered that the suits be dismissed for lack of jurisdiction. The Court’s opinion was written by Roberts, who has been a critic of expanded voting rights since his time as a special assistant to the Attorney General in the first Reagan Administration. Roberts did not deny that the partisan gerrymandering in North Carolina and Maryland was extreme; he simply ruled that federal courts have no business interfering.

Roberts invoked what is known as the political-question doctrine, arguing that the degree of partisanship in redistricting is a political, not a judicial, matter. It admits of no judicial solution. “Excessive partisanship in districting leads to results that reasonably seem unjust,” Roberts conceded. “But the fact that such gerrymandering is ‘incompatible with democratic principles’ . . . does not mean that the solution lies with the federal judiciary.” The matter was deemed “nonjusticiable.”

It might seem shocking that the Court could take cognizance of an undemocratic practice and then decline to do anything about it. But Rucho should not have been a surprise. In 1986, the Court said that gerrymandering could violate the Constitution, but it has never struck down a partisan gerrymander. The Warren Court’s famous one-person-one-vote cases, highly contentious in their day, culminated in Reynolds v. Sims (1964), which held that legislative districts for all state offices, including State Senate seats, “must be apportioned on a population basis.”

These cases made malapportionment illegal, but not gerrymandering. In fact, Seabrook thinks, the one-person-one-vote rule is responsible for what he calls “the Frankenstein’s monster of the modern gerrymander.” As long as district populations are equal, you can crack and pack all you like; you just need the right software, and the Supreme Court will look the other way.

There is one major exception, however. Federal courts will strike down a gerrymander intended to dilute the votes of racial minorities. You can redistrict by political party, in other words, but not by race. That is plainly barred by the Fifteenth Amendment and the 1965 Voting Rights Act. In Cooper v. Harris, from 2017, the Roberts Court invalidated a North Carolina districting plan on the ground that it grouped voters to weaken the minority vote.

Shouldn’t this approach extend to state voting regulations as well? Houston has a large nonwhite population (but will likely have only one drop box); Southern Blacks have a tradition of voting after church services on Sundays (but may no longer be able to do so); and nonwhites are more likely than whites to have to stand in long lines in order to vote (and thus be grateful for some water). Are these new regulations really race-neutral?

In 2021, in Brnovich v. Democratic National Committee, the Court upheld a new Arizona law making it a crime for anyone other than a postal worker, election official, caregiver, or family or household member to collect and deliver an early ballot—targeting a practice common in minority communities. The Democratic National Committee sued, claiming that the law had a disparate impact on, among other groups, Native American Arizonans, many of whom live on reservations that are distant from a polling place. The Court held that the restriction was legal. “Mere inconvenience,” it said, “cannot be enough” to demonstrate that a group’s voting rights have been violated.

Is the motive for redistricting partisan, or is it racial? In a nation in which race is often a determinant of party identity, this will be a tricky needle to thread. Still, the Court isn’t wrong to point out that there is a political solution to the movement to restrict voting rights. Under the Constitution, although the states prescribe the “Times, Places and Manner of holding Elections,” Congress “may at any time by Law make or alter such Regulations,” and thereby make voting easier. What do you think the chances are of that happening? ♦