White House Economists Defend Industrial Policy in New Paper



Jordan Fabian
Fri, July 14, 2023

(Bloomberg) -- The White House began offering a more detailed defense of its industrial policy against critics who doubt its effectiveness, saying it will deliver clear benefits for the US economy.

Officials from the National Economic Council and Council of Economic Advisers wrote in a new paper that hundreds of billions of dollars President Joe Biden approved for infrastructure, the energy transition and domestic semiconductor manufacturing are essential for keeping the US competitive, and that those fields suffered from decades of private sector neglect.

“The administration is taking strategic action in cases where markets on their own have not delivered. We are unlocking the potential for these industries to thrive, while keeping costs low for families,” the officials wrote in the paper, which was obtained by Bloomberg News.

The White House has sought to rebrand and promote Biden’s economic policies as “Bidenomics,” in an effort to reverse the president’s poor approval ratings on his handling of the economy ahead of the 2024 election.

Republican critics argue Biden’s agenda will drive up the national debt, stymie growth and fuel inflation. Some economists say there’s little evidence massive government spending in certain sectors will make the US economy more efficient and resilient.

The full benefits of Biden’s climate, health, tax, chips and infrastructure laws will not be seen for years, making it difficult for Americans to feel their effects. But the White House has argued the laws are already helping lift the economy, and some measures like factory construction have already risen.

“What we invest in and how we invest paves the way for whether and how the economy benefits families, communities, and business all across the country,” said Investing in America Cabinet chief economist and CEA member Heather Boushey, a co-author of the paper. “This modern American industrial strategy lays the foundation for good jobs and decades of sustained—and sustainable—equitable growth.”

White House economic advisers wrote that “public investment can attract more private sector investment, rather than crowd it out.” The paper cited more than $500 billion in commitments from companies on new US semiconductor and electronics manufacturing and also clean energy, electric vehicle and battery projects as evidence the approach has bolstered domestic industries.

“This is particularly true in sectors that are central to the long-term economic and national security interests of the United States—from our infrastructure, to semiconductors, to clean energy and climate security,” the paper said.

Private investors in the past have been too risk averse to fund research and development on their own in technologies to accomplish goals like hastening the transition away from fossil fuels, they argue.

The paper also offered a defense of elements of Biden’s signature legislation, such as “buy American” and prevailing wage provisions. Critics have said those policies could hamper underlying projects and products by making them more expensive compared to their competition.

The White House said that those types of policies are crucial for shoring up and expanding an American middle-class hollowed out by de-industrialization. Building up key industries could protect the US against future supply-chain shocks and counter China.

“When it comes to the US-China relationship, economic resilience and national security go hand-in-hand. We continue to have significant bilateral trade, but we also need to build more secure value chains and ensure appropriate safeguards,” the officials said.