"The Bitter Fruits of a Finance-Oriented Economy"
It’s quite true that even in America we have and have always had an “industrial policy.” That said, even if a country didn’t “do” “industrial policy” that would still be a policy and it would have consequences and there would be alternatives. I think the buzzword should probably be stricken from the lexicon since it’s so loaded and instead we can just talk about “bananas” or, you know, “economic policy.”
For example, economic policy in the United States has led to a situation in which finance has been increasingly important to the overall economy:
I think America’s self-image in the sixties was as the country where the General Motors and Boeing and General Electric are. By the past fifteen years, that had changed to a self-image as the country where Microsoft and Google and Apple are. But to a large extent the real change is that we became the land of Citigroup and Bank of America and Wells Fargo. And this has had consequences:
However, Maxine suspects that the longest term and most severe damage from the finance casino will not be from government deficits required to shore up too-big-to-fail banks and insurers. It will be from two powerful, long-standing price distortions that have distorted the composition of our labor force and the mix of human capital within it. The first distortion is the past diversion of some our best technical and mathematical minds away from physics, engineering, biology, chemistry, and, yes, even economics, to financial modeling, risk analysis, and all the other marvelous tools of speculation and gaming. Over the last 20 years or so, the financial sector has been diverting our future scientists and mathematicians into creating new derivatives aimed at managing risk (ha!) and into developing creative investment instruments aimed at obscuring risk.
The second long-term distortion is similar to the first. Maxine is thinking of all those bright, young, energetic people who came out of some of our best universities and opted to go to work for investment banks, not in technical jobs, but as traders, ratings specialists, analysts, again to support the conversion of trillions of dollars into chaff. Many of them might have gone on to graduate degrees in chemistry, biochemistry, physics, engineering, biology or medicine. Graduate work in psychology, sociology, English, history, political science, public health would have added more value than destroying wealth across the globe. Instead of a workforce that gained diverse skills that might one day transform the world in positive and substantive ways, we have a surfeit of MBAs with concentrations in finance and empty houses on overgrown lots.
The question of whether we should put the set of policies that led to this dynamic in the ontological category of “industrial policy” or the ontological category of “free market outcomes” isn’t actually important. The economy is what it is. The question is whether we can do better.