Planet Money A controversial idea at the heart of Bidenomics
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Feb 23, 2024 Réka Juhász, a Professor of Economics at the University of British Columbia, dives into the polarizing world of industrial policy. She outlines its government-driven approach to boosting specific sectors, which has been deemed taboo by many economists. With Biden's ambitious plans for investing in microchips and clean energy, Juhász explores the potential successes and pitfalls of this controversial strategy. She unpacks historical lessons and examines the challenges of government intervention, posing the question: can this new wave of industrial policy truly reshape the economy?
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Industrial Policy's Shift
- Industrial policy, government promotion of specific economic sectors, was once a taboo idea in economics.
- Now, it's gaining traction, with the US planning to spend billions under Biden.
Defining Industrial Policy
- Industrial policy aims to change the economy's composition to achieve long-run goals.
- This could involve shifting from fossil fuels to renewables or boosting domestic production.
Market Failures
- Governments use industrial policy to address market failures, like positive externalities where firms don't reap full benefits.
- Another example is coordination failures where mutual benefit requires joint action.