I'll take your word, but point out that over the past forty years a kind of triumphal consensus about Western democratic capitalism being the best way to run economies has led to apparent deterioration by a variety of measures including political satisfaction. 1/

Perhaps China is a weird outlier, but in a real world of mimetic humans, the subtleties of your regressions will be outweighed by salient successes and failures. Subtleties of research programs are not laurels enough to rest on. /fin

Yes! We can't, and wouldn't want to, do the things China did in the ways it did. 1/

That doesn't mean we can't acknowledge it has had some extraordinary successes, see if we can't understand the bases for those successes, and find ways to adapt those techniques that would be consistent with our own values and political systems. drafts.interfluidity.com/2024/09/04/i... /fin

I did not claim political regimes are inconsequential to development. I claimed that "democracy" and "autocracy" are way, way too course-grained to think about the ways political regimes are consequential to development. 1/

"Drugs are good for curing cancer" is a dumb, useless claim. Yet it is still true that certain particular chemotherapy agents are very good for curing certain particular cancers! So, the dumb, useless claim is true in a sense. It's still useless. Taking aspirin for your brain cancer won't help. /fin

As I said, this is a dispute we can have another time. I asked you to stipulate, for the sake of argument, that "running an economy hot" is good policy. Unemployment leaves its scars, so do inflations, there's a dispute to be had. 1/

But we agree, I think, that IF running an economy hot is wise, and running an economy risks (does not require, but risks) inflation, there's a time-inconsistency for governments under most contemporary democratic institutions. 2/

"And, of course, there is a third alternative: GDP=Potential GDP, inflation on target." This I think is pure theology, mere cult. What is "target"? Where does it come from? "Potential GDP", the same. 3/

Only in very stylized model is there some ex ante optimal long-term growth path that can be hewed or not hewed. That is a human construction, constructed not because it describes anything humans have experienced of the world, but because it simplifies certain kinds of analysis. 4/

To then claim there actually does exist in the world an ex ante optimal growth path and all we must do is follow it is to succumb to idolatry and call it science. In real life, the opportunity set is unknowable, there is no achievable optimal, we must decide in which direction to err. /fin

I think this conversation is happening at an incoherent level of generalization. "Democracy" is not good or bad for development. It's too broad a thing to be a treatment. That's like saying "drugs are good for curing cancer". Which ones? Which cancer? 1/

Similarly claims that democracies broadly redistribute. In the US, for decades, because of the disinflationary effects of inequality and a culture of "temporarily embarrassed millionaires", electoral incentives have tilted more towards concentration than redistribution. /fin

We are agreeing on this. Biden faced a time-inconsistency problem. Electorally, under current institutions, recession is better than inflation. On long term welfare merits, inflation is better than recession. 1/

Democracies have to devise institutions that allow policy that is long-term beneficial but short-term very broadly painful to survive. That's a challenge. Autocracies have to do the same, but the constraints they face and the tools by which they address them are different. /fin

These are all how questions. There is no such thing as industrial policy or not. There is always industrial policy. You seem to evaluate Biden's interventions as failures. That strikes me as extraordinarily premature, even though I think they've not been all that well tailored. 1/

There are real political economy questions, surrounding inflation in a democratic context, for example. Policy that risks inflation is often wiser than policy that errs on the side of unused capacity, over long stretches of time, but inflations are often unsurvivable to a governing party. 2/

That time consistency problem is real. It does not discredit the (let's stipulate, it's not we're we're arguing about here) long-term wisdom of running an economy "hot". It creates problems we have to confront about how to sustain that wise thing given electoral institutions and constraints. 3/

It is true, as you suggest, that there are some policy courses whose results broad publics would want that autocracies can pursue that are more challenging in a democratic context because of these kind of time inconsistency problems, and quirks in general of actual existing democratic processes. 4/

That doesn't mean autocracy is preferable (even setting aside historical claims that democracy is good for development, again a subject of dispute, but not a dispute I'm interested in). 5/

There are lots of reasons to want democracy, so our challenge is to reconcile democratic institutions with an ability to sustain good policies. 6/

The potential space of democratic institutions is huge, of which we've explored only a tiny, flawed fragment, so I don't think there's reason to be pessimistic. 7/

(I don't think democracy/autocracy horse-races are very useful, but just as democracy presents certain difficulties to certain wise policy choices, the political economies of autocracies also have counterproductive affordances.) 8/

(Triumphalisms or damnations based as criteria so course a "democracy" or "autocracy" are bound to be stupid. I am for democracy, but not based on any instrumental claim of its superiority, which would require a careful definition of criteria. It's a prior, ethical commitment.) /fin

I don't think any democracy that exists or has existed thus far is sufficiently perspicacious and effective, and sufficiently granular in its effects, that we should defer to outcomes on the basis that the polity has elected and continues to elect governments that prosecute the policy. 1/

Democracy is a per se good, and can be useful, functional, in a variety of ways. But I don't think understanding it as a tool by which publics ensure governments meet the fixed or at least prior individual preferences of economist conventions captures a great deal of democracies role. 2/

Democracies pursue a lot of bad policies, under that economistic framework or any other (except one that treats outcomes of one flawed set of democratic institutions as optimal by definition). We bother to think about policy because having elections does not obviate the work. 3/

Deep questions about counterfactuals, competing goals, and trade-offs are always with us, about China's industrial policy, and every other policy, in imperfect democracies as much as ugly autocracies. 4/

(A "defender of industrial policy", like a "defender of housing policy", is a nonsequitur. Which policy? It's a kind of lobotomy of a certain strain of economism that an impossible nothing is taken as an achievable baseline so that questions of "policy or not" can seem coherent.) 5/

The best we can address big questions of tradeoffs and counterfactuals is to examine big outcomes over significant periods of time. Our quantitative microscopes cannot help up. 6/

At every step, one can and could have plausibly argued that China's interventions have been net counterproductive, given their choices across tradeoffs, relative to the counterfactual under some alternative. But after forty years of this, the cumulation is pretty undeniable. 7/

I mean, maybe there was some really great set of initial conditions in China 1980 that policy only blunted, and otherwise outcomes would have been even more fantastic. 8/

But from a broad welfare improvement perspective, general economic capacity and capability, national security, national power perspectives, China's overall playbook has proven extraordinarily successful against any baseline distribution of ex ante outcomes. 9/

Does that mean every particular choice, every industrial policy intervention, was great? No, of course not. We still have much to discuss. 10/

But our priors should be a lot more deferential to the possibility there is some good to learn from in them than to centuries-old theoretical ideas that intervention is distortion from which we should in general refrain. /fin

It's astonishing to read the criteria by which this paper judges success or failure. 1/

Industry profitability is treated as a benefit, the lack thereof a cost. The framework is surplus — welfare is consumer surplus + profit — but a broader view of social welfare might (very much should!) treat peristent profit as distortative rent. 2/

Fragmentation and idle ("excess") capacity are inefficiencies, welfare costs, by definition. Neither benefits of competition nor the social value of price elastic response to demand shifts can play any role. 3/

They are admirably candid here: "our model does not feature any market failure; as a result, industrial policy is necessarily welfare-reducing and our results essentially speak to its costs." 4/

The exercise is basically (my words, not a quote from the piece) "from the perspective of a worldview in which policy can only be harmful by definition, here are details of just how this policy is costly." 5/

If that's your worldview, there's no point in learning the details. But if that's not your worldview, you need some understanding about what it is that you mean for industrial policy to accomplish and what you view as benefits and costs for the exercise to be meaningful. 6/

For people (like me!) who you a political-economic support of competition and a flexible capacity to produce as benefits, their analysis is 180 degrees topsy-turvy. 7/

It is perhaps interesting as an exercise to understand, under a partial equilibrium surplus-tallying framework, presuming otherwise perfect markets, where surplus was lost by China's intervention. But it's a curiousity, entirely unsuitable to any kind of normative or policy guidance. /fin

it’s not the choices per se made by organs like NY Times that delegitimates them, as much as the sense they are triangulating — btw thr audience’s prejudices, risks of blowback from disingenuous operatives, desire to retain access, privilege, bodily freedom regardless of the next administration. 1/

that’s all understandable, but quite a different basis for decision-making than disinterested evaluations of truth, importance, and the public interest. /fin