Competitiveness... Falling behind... and American investment...

Free Exchange:

I won't argue that there are no zero-sum aspects to international trade. New international trade theory provides a foundation for actual infant industry arguments, on the grounds that increasing returns to scale may make the first mover the only sustainable location for production in one industry or another. But no country will monopolise all the highly-remunerative industries. Chasing the next infant industry is likely to mean more misses than hits, with a lot of waste and rent-seeking along the way.

So what's the real issue, here? Is it underemployment? Well, one thing worth doing would be using appropriate government policy to mop up cyclical joblessness. Is it the longer term trend of labour market mismatch and polarisation? If there are too few highly skilled workers, then perhaps America should allow more foreign workers in and devote more resources to better educating its young people. Is it that current centres of productivity and wealth don't support the millions of workers that they used to? Well, perhaps America should do a better job investing in its cities, ensuring that infrastructure is sufficient to handle industry demands and housing supply growth is rapid enough to keep cities affordable.

Is there less useful knowledge being produced than was previously the case? I doubt it, but it certainly couldn't hurt to devote more resources to basic research. Are businesses struggling to create new jobs? Well, why not make it easier to start firms and hire workers, by trimming regulations that don't pass cost-benefit tests and simplying tax structures?

Maybe there is a serious problem of competitiveness. Maybe the American government should be stepping in to promote individual industries and protect manufacturing so that it doesn't leave the country. I don't think so, but I could be wrong. But if you want to convince me and other people that some truly important intervention is necessary, a good way to start would be by doing all the fundamental stuff America should already be doing and then showing me that there's still a problem in need of solving.