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"In the 1960s, there were fears that the US would be overtaken by the Soviet Union. I can still recall the late 1980s, when pundits insisted we needed an industrial policy to avoid being overtaken by Japan."

In the early 1980s, I moved out of research and into corporate work doing mainly regulatory affairs and drug safety in the biopharma industry. I was at an annual meeting of the biotechnology group where I worked and most of the speakers were covering a wide range of international issues (as an aside, I recommended we invite a very young Paul Krugman who came and gave a nice talk on international trade and economics). Clyde Prestowitz spoke at the meeting and at that time he was at the Commerce Dept in the Reagan administration and an outspoken "worrier" about Japan and gave a very gloomy talk about how Japan's industrial policy was endangering the US. While Japan was buying up a lot of US real estate, the economic takeover never happened. Nor is it like to happen with China either.

One more anecdote, though the actual reference must be somewhere in my paper archives. Japan's Ministry of International Trade and Industry was busy trying to set policy for companies. The relatively small motorcycle company, Honda, was starting to manufacture automobiles and the recommendation was for them to leave this sector to the then giants, Datsun and Toyota. The CEO ignored that advice and of course Honda became one of the premier auto manufacturers in the world.

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Good comment. Back in the 1990s, Krugman did a great job exposing the fallacies of the neo-mercantalists.

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The Ministry of International Trade and Industry actually prohibited Honda from exporting cars to the USA, using a regulation allowing exports only by makers who exported by a certain date. Honda beat the deadline by welding together golf carts (IIRC) sufficiently to meet the regulatory definition of a car, and shipping it over. Honda's Accord became the #1 selling car model in the USA.

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I’ll continue shouting this from the rooftops wherever I read someone repeating that the sanctions on Russia are tough. They’re not. They’re highly targeted and circumscribed. If the phrase “secondary sanctions” doesn’t appear in a discussion of sanctions, then I know the author is unaware of by far the strongest tool in our sanctions arsenal. We are only gradually and belatedly beginning to use secondary sanctions.

https://www.ft.com/content/be8f3264-ac16-4fd9-b1ba-4e5e6fba466b

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Yes, but that supports my point. Economists are not good at predicting the effect of industrial policies. In March 2022, experts were almost unanimous in claiming that the sanctions would severely hurt Russia, even though secondary sanctions were not in place. In addition, there are significant political problems with sanctioning countries like Turkey and India.

In any case, Trump will soon be president and he'll hand Putin a victory.

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Given the sex-divide between support for Trump and Harris, I could see a number of women saying that they will vote for Trump, or are undecided, as a safety measure, when actually they plan on voting for Harris.

I'm still thinking this will be the election when the prediction markets are proven to be fallible. Though it is a very stressful nailbiter. I'll feel gutted if a person guilty (in my mind) of at least two counts of felony murder of US citizens is elected to the presidency again.

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Wow, are you the one who inspired the Julia Roberts ad?

https://www.youtube.com/watch?v=P3aC84YZLlU

[I think you’re whack here, to be clear. But that you “predicted” this is impressive…]

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No. This was an easy, but unfortunately wrong, "prediction".

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In the two other elections Trump was significantly underestimated by the polls, but surely this election he's overestimated.

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Polls change their algorithms when they've been proven wrong. They underadjusted the last two times. There's no reason to think they'll continue underadjusting.

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They did indeed change in 2020, to little effect.

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https://www.nbcnews.com/politics/2024-election/steve-kornacki-polls-off-2020-trump-biden-harris-rcna176619

"As you can see, Trump’s margin with noncollege-educated white voters ended up being higher than the polls suggested. But his current 27-point advantage is almost equal with that 2020 result. "

And if you scroll down, the polls undercounted Biden's margin with black and hispanic voters.

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"Given the sex-divide between support for Trump and Harris, I could see a number of women saying that they will vote for Trump, or are undecided, as a safety measure, when actually they plan on voting for Harris."

A lot of men will find it very difficult to find a woman to date or marry unless they have a lot of money. This will be the modern-day version of Lysistrata (Spike Lee's take on this in 'Chi-Raq' was quite compelling). Very few of Trump's male supporters are in any position to emulate him.

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I was thinking more of already married women. If a woman feels any sort of even just potential threat from her husband or male partner she's far more likely to lie or fudge when responding to a poll.

From August 2020: https://www.pewresearch.org/short-reads/2020/08/20/key-takeaways-on-americans-views-of-and-experiences-with-dating-and-relationships/

"Distance, debt and voting for Donald Trump top the list of reasons singles looking for a relationship wouldn’t consider a potential partner"

By middle age the numbers of men and women are approximately equal. Over a population this should lead to an equal balance of interests. Prior to that, on average, it should prefer women's interests (with more males than females from birth until middle age). To the extent this isn't seen it is likely due to ingrained patriarchical power structures. (More men than women leads to dating and marriage society leaning toward women's average preferences, while more women than men lead to the opposite. Some wiggle room for the relative proportions of homosexual activity. And of course this varies based on milieu.)

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Agreed. Just like with monetary policy, analysts see a “tightening” of sanctions (for example, as measured by number of sanctions) and think the sanctions are strict. Subsequently, if exports to Russia through third-party countries skyrocket, they mistakenly reason from a quantity change and conclude that sanctions don’t work without considering the significantly higher prices Russia is incurring:

http://jpkoning.blogspot.com/2024/10/a-glass-half-full-take-on-caucasus.html?m=1

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I know Trump is currently favored in a number of prediction markets, but as Nate Silver has been emphasizing, it's still extremely close (and he wasn't favored when he actually won in 2016).

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There's been lately this talk about how controlling for sanctions makes Acemoglu's result about "democracy implies growth" go away. It's hard to square that with "sanction do not work" narrative.

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I would not claim they have precisely zero effect. For instance, Russia is getting a lower price for its oil from India than it got before the sanctions.

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Also, in some corners, some analysts were predicting that sanctions on Russia would erode the dollar’s status as a reserve currency. However, that prediction did not pan out.

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Good point.

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Since they stole 300b in Currency Reserves from the Russians the BRICs have really taken off. I wonder why?

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Singapore is a dirigiste economy.

And a city-state, and that makes almost every policy a de facto macroeconomic policy, with effects on imports and export.

Subsidize worker training, when many industries are exporters. Building industrial parks, land-forming the huge Jurong Island, for state-owned petro-chemical complexes built with state capital. Singapore-owned airport and airlines. Much more.

Singapore has a public policy of running permanent current account trade surpluses, and also of importing labor who live in barracks and similar conditions (the workers were ring-fenced in during the C19 hysteria).

Singapore is probably the most pro-business government on the planet and subsidizes business accordingly. This may be good idea, especially for a city-state.

Certainly, state-subsidized enterprise and protectionism has worked for Singapore.

However, Singapore, unlike most nations, is of a manageable size, and has a strong Han Chinese component. I am not sure the Singapore model would work in the US, due to political problems and the general unwieldy-ness of large nations. Likely not.

The US needs a simple fix, like higher general tariffs and border controls, but no industrial policy per se.

But anyone who thinks Singapore represents free trade or free enterprise is deeply deluded. Some right-wing think tanks say so, as it fits their narratives.

I actually agree that governments should be pro-business. Very pro-business, like Singapore.

But there is no such thing as global free, fair, or foul trade. Michael Pettis and Dani Rodrik are interesting scholars in this field.

International trade is always in large part an artifice of government regulations, taxes and subsidies.

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“Does the field of foreign policy even have a model?” Well, Realism sort of does, but it’s a bad one.

Putin acts like Muscovite autocrats have been acting since before NATO, the founding of the US or even Anglo settlement of North America, and “Realists” tell us the problem was US policy and NATO expansion. NATO is the solution, not the problem. As the Swedes, Finns, Estonians, Latvians, Lithuanians and Poles have all rationally concluded.

Sanctions were way over-sold, and some of the Russian-phobic boycotts were stupid and counter-productive, but increasing the friction in Russian economic efforts is a reasonable way to help Ukraine.

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There is a curious mixture of hubris and naivete when Westerners make foreign policy.

Plans to convert Iraq and Afghanistan into democracies, and constantly referring to various Islamo-fascists as "moderates."

Russia is Russia and not like Western Europe. China is China, and is not adapting Western values regarding human rights, free speech or even economic rights or models.

The idea that the Western liberal democracy is an ideal...is hardly universal.

Side point: The globalist commercial community is always Nevill Chamberlain. They always prefer peace and commerce (sensibly, from their point of view), regardless of human rights or impending threats. It was the same with the Nazis, pre-WWII.

Today the word is "escalation" whenever Ukraine or Israel take actions to defend themselves.

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These are governments, not people. People have cultural preferences too, but we all, all of us, come from small tribes. Tribes in which a few may have dominated at times, but in which all members had to get along to some extent, had to be able to accept others speaking their piece.

You've got people in China and Russian pushing back against official statements and policy, and you've got people in the West bludgeoning people to get in line. It is all prehistoric tribal political variations writ large. There's nothing especially unique to Iraq/Afghanistan, Russia, China, or the West. The current status quo is merely just that, the status quo.

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> Putin acts like Muscovite autocrats have been acting since before NATO

That sounds like a vindication of realism. Realism is actually disproven by Mearsheimer predicting a "back to the future" of a reunited Germany being rivalrous with France again, as if nothing had changed.

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The crucial point is not Russian, it is autocrat. The nature of regimes makes a difference in their behaviour, one of my many points of disagreement with Realism.

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The Iberian peninsula was run by autocrats for decades after the 1930s, but I don't believe invaded their neighbors. East Germany was a dictatorship, but didn't try to invade West Germany. The United States is a democratic republic, but has invaded lots and lots of countries (including both Canada & Mexico a ways back).

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Capacity also matters. It is true that Russian nationalism and Russian imperialism cannot easily be separated. But Russian autocracies have a track record. I do not believe a Russian democracy would have the same patterns. https://www.lorenzofromoz.net/p/the-latest-iteration-of-continuing

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I wouldn't say that Russia's strategy of expansion "keeps failing". A country doesn't get to be the largest in the world that way. Instead the one big failure they haven't recovered from is the collapse of the Soviet Union at the end of the cold war.

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Keeps failing Westwards. The Soviet Union was smaller than the Russian Empire. The Russian Federation is smaller than the Soviet Union.

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My first thought was about how every country want to be a net exporter. But, of course this is an impossibility, net export must equal 0 in the aggregate, at least until Elon builds his Mars colony.

"The world’s far too complex to be managed by experts."

I think I need to print this in 1 foot letters and frame it.

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This perhaps does not quite count as a model of foreign policy, but it is a pattern.

https://hwfo.substack.com/p/global-peace-by-us-president

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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."

Adam Smith got it right 250 years ago.

"But Olson reckoned very few goods, if any, are truly strategic."

Well, there is at least one truly strategic good: oil

You can't successfully prosecute a war of conquest without plentiful access to it. It's unfortunate that Russia has a lot of oil within its borders.

The people who are constantly telling us that China is a threat but seem silent about Russia, seem to forget this. China must import all of its oil and it knows this; they are very unlikely to be stupid enough start war in which they will be easily cutoff from the resource that would allow them to fight it. Russia on the other hand can fight wars of its choosing because no one can cut if off from its oil supply.

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I've been arguing for some time that Russia is far more of a threat than China. I thought people would wake up with the Ukraine invasion, but when pundits have their minds made up, facts aren't enough to cause them to change their minds.

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Russia's poor performance makes it appear less of a threat.

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The biggest threat is nuclear, where it has an order of magnitude more weapons than China. There has already been one close call.

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Why does the OOM of nuclear weapons matter at all?

Once you cross the threshold of “plenty”, that is, which surely China has as well.

Genuinely curious why you believe this matters.

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Not quite how it looks from Australia. Nuclear issues aside, Europe should be able to easily counter-balance Russia, having much greater population and wealth.

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Excellent! Another great post!

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An excellent piece.

My main problem is your “aside” that you favor a carbon tax.

While I agree that this is far less harmful than all the other policies proposed in the name of “climate change”, unless it replaces some other worse tax, why is a carbon tax a good idea?

The only legit reason would be the threat of AGW catastrophe - i.e. global temperatures increase 2 to 3 degrees, and then accelerate upwards from there. But given that most of the leftists advocating for “climate change” action don’t even support rapid expansion of nuclear energy, why in the world should we take their claims seriously.

And unless one imposes - and enforces - the carbon tax worldwide, why should we expect it to have much of a positive impact? And since you don’t believe in nation-building, how exactly would this be enforced worldwide?

Given your excellent stance against industrial policy, it is surprising to see you advocate one that is almost sure to be ineffective at addressing its stated goal.

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"The sad truth is that policymakers do not know how to fix regional problems. [...] In contrast, I think we do know how to fix Illinois (be more like Indiana.)"

Does not the sad truth hold for Illinois and Indiana as well? Illinois is considerably more productive per capita than Indiana, and this hasn't changed in at least 25 years https://ssti.org/blog/useful-stats-capita-gross-state-product-1998-2018 (1998-2018 and more readily available recent figures show the same).

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Here I was thinking about Illinois's population loss and fiscal crisis, which occur despite it's high productivity.

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Bangladesh is more free-market than Pakistan? I wasn't previously aware of that generalization. I know India & Bangladesh sided with Russia in the Cold War (against Pakistan, the US & China) and many Bangladeshis have pro-Russian sentiment now as a result. I also wouldn't have been able to guess off the top of my head whether the contemporary Netherlands is more free-market than Germany.

This argues that strategic bombing of German factories actually did win the war https://www.astralcodexten.com/p/your-book-review-how-the-war-was as it forced them to disperse factories inefficiently and invest heavily in airplanes & anti-aircraft weapons.

> But Olson reckoned very few goods, if any, are truly strategic. Instead, there are only strategic needs: feeding a population, moving supplies, producing weapons. And no amount of pounding, literal or figurative, seems able to alter the target countries’ ability to meet those needs, one way or another.

That's false. Germany really did starve the places it occupied in WW2, and the US managed to not only strategically damage German logistics but completely cripple the Japanese merchant fleet via submarine warfare & sea mines. Starvation was happening for Japanese troops as early as their first campaign against US troops on Guadalcanal.

> But that’s no reason to be despondent. Cultural change can happen more quickly than you might think.

Not necessarily for the better. Nobody knows how to steer culture, and as Robin Hanson has been arguing the forces of selection that long operated on it (and people like Henrich write about) are now greatly weakened so that instead we have accelerating drift.

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I agree that policies like bombing have some effect. And yet in the end, we still had to beat the German's on the battlefield, which wasn't easy (even with help from the Russians.)

But I'd stand by the claim that things like sanctions often disappoint their proponents. BTW, I seem to recall that our bombing campaign in Vietnam was much more intense than in WWII.

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Serbia would be an example of a country bombed into defeat.

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Scott,

Not sure I buy your trade deficit argument.

While there is certainly nothing wrong with trade deficits driven by marginal return on capital vs. available savings disparities - as was the case for Korea after embracing a market economy (and being dirt poor, hence low savings)- it is an entirely different matter when the trade deficit is driven by a fiscal deficit (mostly consumption). South korea did not have a (meaningful) government deficit in its high growth phase.

I am also puzzled by how the economist consensus is so sanguine about US growth when fiscal deficits are monstrous...

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I completely agree that the US budget deficit is a big problem. I also agree that this might contribute to the trade deficit. But that doesn't make the trade deficit a separate problem--it's the budget deficit that is the problem.

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“ But that doesn't make the trade deficit a separate problem--it's the budget deficit that is the problem.”

👆👆👆

Would that everyone understood BOTH points here.

I still find Trump and Trumpists a lot less worse than Harris and Dems, but this is the single biggest thing BY FAR that Trump-Vance have wrong.

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Policy makers permit the nonprofessionals to preempt the field. Take the Senate Banking Committee Monetary Policy Report to the Senate in 1981:

"The Committee's admonition against short-run money supply fluctuations echoes the views of extreme monetarists such as Beryl Sprinkel, the Under-Secretary of the Treasury for Monetary Affairs. In testimony before the Joint Economic Committee, on April 8 Mr. Sprinkel recommended that the Federal Reserve completely ignore interest rates and focus exclusively on the adjusted monetary base or adjusted bank reserves. These extreme monetarist prescriptions would have a disastrous effect on our financial and economic system if they are taken seriously by the Federal Reserve."

Wasn't Volcker supposed to be targeting reserves?

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And when they call for Pigou taxation of negative externalities and progressive taxation of consumption for redistribution, it's called mainstream economics. :)

Sumner's notion of "industrial policy" is far to expansive. It's basically just Pigou subsidization of positive externalities such as reduced risk of supply disruptions in wartime (Chips), and second best subsidies for zero CO2 emitting technologies so long as the negative eternality of the CO2 emission themselves are missing (IRA) and "infant exporter" subsidies when the subsidized industry is expected to become a world class exporter with a significant market share (Boeing). Of course firms just looking for old fashioned protectionism will they to call such favoritism "industrial policy" (US automakers).

But even for this reduces scope, Sumner's criticism are well taken as industrial policy is almost never expected according to theory.

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Great summary of the arguments. Industrial policy takes many forms. Here in Scotland the disease is most virulent in the form argued by Mariana Mazzucato in the Entrepreneurial State - another undoubted expert!

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Scott, I have a question about the argument that trade fosters peace. I should say first that I'm a big fan of trade and would like the argument to be true. I am not sure we can confidently say that it is. Sure, there is a correlation between trade and peace, but that could just be because warring nations do not trade with each other. Has anyone actually tried to establish the correlation is causal?

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I don't know about empirical studies, but certainly trade provides at least some disincentive to invade other countries, relative to a no-trade economy. China is far more invested in (non-commodity) trade than Russia, and thus has more to lose from warfare.

Europe has become more peaceful since the EU was created.

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The "trade leads to peace" argument is a museum-piece now.

Russia integrated with Europe more and more and more, and sold gas and oil...and then invaded Ukraine on a tyrant's whim. 600,000 dead and we are still counting. Trench warfare, with drones.

Ever since Tiananmen Square (1989), China has become more oppressive domestically, and more belligerent internationally, even as trade globally exploded.

Even Japan is arming up, facing the Beijing threat. Those two nations do a lot of trade.

Also, consider what trade might do...induce Western liberal democracies, dependent of China/Russia goods, to go the Neville Chamberlain route.

Certainly, the are powerful global businesses with connections into those two countries, just like certain international businesses wanted to keep working with the WWII Nazis....

But the globalists are far larger today and ever talking about "de-escalating." Which means standing down.

Putin and Xi are rotten to the core.

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