For most of the past 50 years, there’s been a consensus among economists that “industrial policies” are counterproductive. Nothing has occurred in recent years that would lead a reasonable person to alter that view. And yet as Noah Smith recently pointed out, neoliberalism is rapidly losing ground to advocates of regulation, subsidies and protectionism:

The really important thing about Biden’s policies, though, is that they don’t even gesture halfheartedly in the direction of “free trade”. The idea of free trade never carried much water with the general public; now, it carries essentially no water with the political class or the intellectual class either. The free-trade consensus is dead as a doornail. . . . 

These fights over the nature of industrial policy will be fierce, and sometimes even bitter. But we shouldn’t let them obscure the larger point, which is that both parties now agree on the need for industrial policy, and on many of its broad contours. It appears that America has found its new economic policy consensus. What remains to be seen are the results — how effectively the new policy regime can be implemented, and how well it achieves its goals. It’ll also be interesting to see how the economics profession contributes to the effort (a topic for another post).

I would like to believe that the economic profession would stick to its principles, but I fear that influential policymakers will always be able to find economists who tell them what they wish to hear. (At least it won’t be Larry Summers.)

Almost everywhere in the world, nationalism and statism are on the rise. Not long ago, economic development in a developing nation containing 1.4 billion of our fellow human beings would be regarded as good news, now Smith seems to almost relish the fact that our policies have damaged the Chinese economy:

Overall, the outcomes were negative for the U.S., which was hurt by the [Trump] tariffs and which didn’t see a reshoring boom. But China was hurt more, both by the tariffs and by the export controls. As industrial policy, Trump’s policies failed; as economic warfare, they showed promising signs of effectiveness.

Smith seems to be saying that while we suffered, Trump’s policies “showed promising signs of effectiveness” because China suffered even more. That’s an incredibly bleak vision.

I find it sad that there are fewer and fewer people willing to defend free trade with China. Warren Buffett and Charlie Munger recently warned that economic nationalism could lead to war with China, but they are in their 90s. I fear that the world of economics is entering a new dark age, similar to the first half of the 20th century. We are forgetting all of the lessons learned so painfully by previous generations. Buffett and Munger are among the few people left who are old enough to recall that dark era.

Smith referred to the bipartisan nature of the new statism. But there are important differences. While both the extreme left and the extreme right are increasingly skeptical of free markets, their views on identity politics differ. Both engage in identity politics, but the left favors women, minorities and gays, while the right favors straight white males. This leads to some strange bedfellows. Here’s Politico, referring to a controversial column in the left wing American Prospect that praised Tucker Carlson:

In fact, for progressives, the debates like the fracas over the Carlson column could, perversely, be seen as a side-effect of good news. Instead of a furious argument over internal dissent against political tactics, it was a furious argument over (alleged) new external support for policy positions.

Even for folks who don’t buy the idea that the market-skeptical bits of Carlson’s schtick were at all genuine, it’s a situation that’s presenting itself more frequently as elements of the GOP move beyond Reaganite positions and instead talk up things like opposition to monopolies, support for living family wages or protectionist treatment of embattled stateside manufacturing.

The challenge is that the rising GOP populists whose views on economic issues might appeal to progressives also often have social views that are way more extreme than the average Chamber of Commerce lifer. Sometimes, in fact, those social views may even be their motivator for their hostility to businesses. Witness the fulminations about “woke capitalism.”

For students of history, this is nothing new. The same dynamic occurred in the 1930s, when both the far left and the far right turned against what is now called “neoliberalism,” or “globalization.” Leftists in America were intrigued by fascists such as Mussolini in much the same way that some progressives are now intrigued by the economic views of people like Tucker Carlson and Josh Hawley. Juan Peron (pictured above) adopted these ideas in the late 1940s, and turned Argentina into a developing country.

The far left and the far right both oppose free markets for the same reason. They have a vision as to which groups should benefits from wealth creation, and they fear that the free market won’t deliver the outcome that they favor.

Noah Smith and Tucker Carlson have almost diametrically opposed views on most political issues. It’s a pretty safe bet that both of these individuals will not get the US industrial policy that they would prefer. When the government starts running the economy, the outcome will depend upon which side is in power. (FWIW, Smith’s vision is easily the lesser of evils.)

History suggests that free markets are the least bad option. They aren’t perfect, but the truly disastrous economic policy mistakes always come from misguided government intervention.