Dec 23, 2018

Myth 11: The US Government Should Have an Industrial Policy That Picks Winners and Losers

12 Days of Christmas Trade Myths
Christine McDaniel Senior Research Fellow , Veronique de Rugy Senior Research Fellow

This is the eleventh installment in a holiday-themed series aimed at correcting common misconceptions about trade. Each day until Christmas, economists Christine McDaniel and Veronique de Rugy will address a new claim about trade or tariffs while providing additional resources for those interested in learning more about the topic.

Myth: The US Government Should Have an Industrial Policy That Picks Winners and Losers

When one of the elves decides to use a new material in order to make a better toy, Santa doesn't scold and bark “I’m going to punish you because you're doing things differently.” Santa understands that the elves know what they are doing better than he does because that’s their actual job. He also knows that these elves put a premium on keeping the children happy and that the children's wish lists change every year. So the elves need to learn how to make new toys every year! The same should be true of the relationship between the President and American automakers, including GM. Because Americans’ car preferences have turned away from sedans, and more towards SUVs and electric cars, GM is doing what any company or elf that wants to survive would do—serve the marketplace. GM recently announced a major restructuring, including closing some plants that were making the kinds of cars Americans don’t want anymore, and teaming up with Honda on cars that have a bright future (self-driving cars). Out with the old, and in with the new!  That's how Santa's workshop stays bright and shiny and productive!

Suggested Resources

1. "The Pitfalls of Industrial Policy," by Michelle Clark Neely, Federal Reserve Bank of St. Louis
2. "Three Reasons Why Industrial Policy Fails," by Shanta Devarajan, The Brookings Institution

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