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Public Investment, Industrial Policy and U.S. Economic Renewal

  • Robert Pollin
  • Dean Baker
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    The U.S. economy faces enormous questions and challenges as it attempts to recover from the collapse of 2008-09. Some of the most pressing questions are a series of longer-term, structural challenges: Can we establish a growth engine driven by something other than financial bubbles? Can we renew the automobile industry and, more generally, reestablish a healthy manufacturing sector? Can we accomplish these various tasks while also rebuilding the economy on a new foundation of clean energy as opposed to fossil fuel energy sources? Addressing these longer-term challenges is the overarching theme of this paper. Following an introductory discussion, in Section 2 we consider the overall evidence on the need for public investment in the traditional areas of transportation, energy, and water management. We then address the issue of financial crowding out. To do this, we examine evidence on how much of the U.S. economy’s financial resources have been flowing into productive private investments over time, as opposed to financial speculation. In Section 3, we then examine the U.S. ad hoc industrial policy, as it has been practiced both at the level of general manufacturing policies, such as with the auto bailouts, and in terms of technology incubation through the Pentagon. We consider ways of channeling these policy tools into supporting a strong technological base on a sustained basis. In Section 4, we bring together our discussions on public investment and industrial policies to sketch a policy approach for supporting the revival of the U.S manufacturing sector, including the U.S. auto industry. In particular, we focus on the prospects for investments in public transportation: —to create an expanding market for U.S. automakers who are willing to convert part of their production lines to manufacturing buses and trains; to lower the costs of transportation for lower-income households; and to help advance the construction of a clean-energy economy in the United States.

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    File URL: http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_201-250/WP211.pdf
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    Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp211.

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    Date of creation: 2009
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    Handle: RePEc:uma:periwp:wp211
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    1. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
    2. Daniel J. Wilson, 2005. "Beggar thy neighbor? the in-state vs. out-of-state impact of state R&D tax credits," Working Paper Series 2005-08, Federal Reserve Bank of San Francisco.
    3. Robert S. Chirinko & Daniel J. Wilson, 2006. "State investment tax incentives: a zero-sum game?," Working Paper Series 2006-47, Federal Reserve Bank of San Francisco.
    4. Chang, Ha-Joon, 1993. "The Political Economy of Industrial Policy in Korea," Cambridge Journal of Economics, Oxford University Press, vol. 17(2), pages 131-57, June.
    5. Brian M. Freeman & Allan I. Mendelowitz, 1982. "Program in search of a policy: The chrysler loan guarantee," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 1(4), pages 443-453.
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