overproduction – J. W. Mason

At Dissent: Industrial Policy without Nationalism

(This piece was published in the Fall 2024 issue of Dissent.)

In the first two years after Biden’s election, there was considerable enthusiasm on the left for the administration’s embrace of a larger, more active economic role for the federal government. I was among those who saw both the ambitions of the Build Back Better bill and the self-conscious embrace of industrial policy as an unexpectedly sharp break with the economic policy consensus of the past thirty years.

Biden squandered that early promise with his embrace of Israel’s campaign of mass murder in Gaza. His legacy will be the piles of shattered buildings and children’s corpses that he, with aides like Antony Blinken, did so much to create.

The administration has also struck a Trumpian note on immigration, promising to shut down the border to desperate asylum seekers. And internationally, it is committed to a Manichean view of the world where the United States is locked into a perpetual struggle for dominance with rivals like Russia and China.

Can industrial policy be salvaged from this wreckage? I am not sure.

There are really two questions here. First, is there an inherent connection between industrial policy and economic nationalism, because support for one country’s industries must comes at the cost of its trade partners? And second, is it possible in practice to pursue industrial policy without militarism? Or does it require the support of the national security establishment as the only sufficiently powerful constituency in favor of a bigger and more active government?

Much of the conversation around industrial policy assumes that one country’s gain must be another’s loss. U.S. officials insist on the need to outcompete China in key markets and constantly complain about how “unfair” Chinese support for its manufacturers disadvantages U.S. producers. European officials make similar complaints about the United States.

This zero-sum view of trade policy is shared by an influential strand of thought on the left, most notably Robert Brenner and his followers. In their view, the world economy faces a permanent condition of overcapacity, in which industrial investment in one country simply depresses production and profits elsewhere. In the uncompromising words of Dylan Riley, “the present period does not hold out even the hope of growth,” allowing only for “a politics of zero-sum redistribution.” Development, in this context, simply means the displacement of manufacturing in the rich countries by lower-cost competitors.

I don’t know if anyone in the Biden administration has read Brenner or been influenced by him. But there is certainly a similarity in language. The same complaints that Chinese investment is exacerbating global overcapacity in manufacturing could come almost verbatim from the State Department or from the pages of New Left Review. More broadly, there is a shared sense that China’s desire to industrialize is fundamentally illegitimate. The problem, Brenner complains, is that China and other developing countries have sought to “export goods that were already being produced” instead of respecting the current “world division of labor along Smithian lines” and focusing on exports complementary to existing industries in the North.

Fortunately, we can be fairly confident that this understanding of world trade is wrong.

The zero-sum vision sees trade flows as driven by relative prices, with lower-cost producers beating out higher-cost ones for a fixed pool of demand. But as Keynesian economists have long understood, the most important factor in trade flows is changes in incomes, not prices. Far from being fixed, demand is the most dynamic element in the system.

A country experiencing an economic boom – perhaps from a upsurge in investment – will see a rapid rise in both production and demand. Some of the additional spending will falls on imports; countries that grow faster therefore tend to develop trade deficits while countries that grow slowly tend to develop trade surpluses. (It is true that some countries manage to combine rapid growth with trade surpluses, while others must throttle back demand to avoid deficits. But as the great Keynesian economist A.P. Thirlwall argued, this is mainly a function of what kinds of goods they produce, rather than lower prices.)

We can see this dynamic clearly in the United States, where the trade deficit consistently falls in recessions and widens when growth resumes. It was even more important, though less immediately obvious, in Europe in the 2000s. During the first decade of the euro, Germany developed large surpluses with other European countries, which were widely attributed to superior competitiveness thanks to wage restraint and faster productivity growth. But this was wrong. While German surpluses with the rest of the European Union rose from 2 percent to 3 percent of German GDP during the 2000s, there was no change in the fraction of income being spent in the rest of the bloc on German exports. Meanwhile, the share of German income spent on EU imports actually rose.

If Germans were buying more from the rest of the European Union, and non-German Europeans were buying the same amount from Germany, how could it be that the German trade surplus with Europe increased? The answer is that total expenditure was rising much faster in the rest of Europe. Rising German surpluses were the result of austerity and stagnation within the country, not greater competitiveness. If Germany had adopted a program to boost green investment during the 2000s, its trade surpluses would have been smaller, not larger. The same thing happened in reverse after the crisis: the countries of Southern Europe rapidly closed their large trade deficits without any improvement in export performance, as deep falls in income and expenditure squeezed their imports.

Europe’s trade imbalances of a decade ago might seem far afield from current debates over industrial policy. But they illustrate a critical point. When a country adopts policies to boost investment spending, that creates new demand in its economy. And the additional imports drawn in by this demand are likely to outweigh whatever advantages it gains in the particular sector where investment is subsidized. Measures like the Inflation Reduction Act (IRA) or CHIPS and Science Act may eventually boost U.S. net exports in the specific sectors they target. But they also raise demand for everything else. This is why a zero-sum view of industrial policy is wrong. If the US successfully boosts investment in wind turbine production, say, it will probably boost net exports of turbines. But it will also raise imports of other things – not just inputs for turbines, but all the goods purchased by everyone whose income is raised by the new spending. For most US trade partners, the rise in overall demand will matter much more than greater US competitiveness in a few targeted sectors.

China might look like an exception to this pattern. It has combined an investment boom with persistent trade surpluses, thanks to the very rapid qualitative upgrading of its manufacturing base. For most lower- and middle-income countries, rapid income growth leads to a disproportionate rise in demand for more advanced manufactures they can’t make themselves. This has been much less true of China. As economists like Dani Rodrik have shown, what is exceptional about China is the range and sophistication of the goods it produces relative to its income level. This is why it’s been able to maintain trade surpluses while growing rapidly.

While Biden administration officials and their allies like to attribute China’s success to wage repression, the reality is close to the opposite. As scholars of inequality like Branko Milanovic and Thomas Piketty have documented, what stands out about China’s growth is how widely the gains have been shared. Twenty-first-century China, unlike the United States or Western Europe, has seen substantial income growth even for those at the bottom of the income distribution.

More important for the present argument, China has not just added an enormous amount of manufacturing capacity; it has also been an enormous source of demand. This is the critical point missed by those who see a zero-sum competition for markets. Consider automobiles. Already by 2010 China was the world’s largest manufacturer, producing nearly twice as many vehicles as the United States, a position it has held ever since. Yet this surge in auto production was accompanied by an even larger surge in auto consumption, so that China remained a net importer of automobiles until 2022. The tremendous growth of China’s auto industry did not come at the expense of production elsewhere; there were simply more cars being made and sold.

All this applies even more for the green industries that are the focus of today’s industrial policy debate. There has been a huge rise in production—especially but not only in China—but there has been an equally huge growth in expenditure. Globally, solar power generation increased by a factor of 100 over the past fifteen years, wind power by a factor of ten. And there is no sign of this growth slowing. To speak of excess capacity in this sector is bizarre. In a recent speech, Treasury Under Secretary Jay Shambaugh complained that China plans to produce more lithium-ion batteries and solar modules than are required to hit net-zero emissions targets. But if the necessary technologies come online fast enough, there’s no reason we can’t beat those targets. Is Shambaugh worried that the world will decarbonize too fast?

Even in narrow economic terms, there are positive spillovers from China’s big push into green technology. China may gain a larger share of the market for batteries or solar panels — though again, it’s important to stress that this market is anything but fixed in size — but the investment spending in that sector will create demand elsewhere, to the benefit of countries that export to China. Technological improvements are also likely to spread rapidly. One recent study of industrial policy in semiconductors found that when governments adopt policies to support their own industry, they are able to significantly raise productivity – but thanks to international character of chip production, productivity gains are almost as large for the countries they trade with. Ironically, as Tim Sahay and Kate Mackenzie observe, the United States stands to lose out on exactly these benefits thanks to the Biden administration’s hostility to investment by Chinese firms.

None of this is to say that other countries face no disruptions or challenges from China’s growth, or from policies to support particular industries in the United States or elsewhere. The point is that these disruptions can be managed. Lost demand in one sector can be offset by increased demand somewhere else. Subsidies in one country can be matched by subsidies in another. Indeed, in the absence of any global authority to coordinate green investment, a subsidy race may be the best way to hasten decarbonization.

As a matter of economics, then, there is no reason that industrial policy has to involve us-against-them economic nationalism or heightened conflict between the United States and China. As a matter of politics, unfortunately, the link may be tighter.

They are certainly linked in the rhetoric of the Biden administration. Virtually every initiative, it now seems, is justified by the need to meet the threat of foreign rivals. A central goal of the CHIPS Act is to not only reduce U.S. reliance on Chinese imports but to cut China off from technologies where the United States still has the lead. Meanwhile arms deliveries to Ukraine are sold as a form of stimulus. This bellicose posture is deeply written in the DNA of Bidenomics: before becoming Biden’s national security advisor, Jake Sullivan ran a think tank whose vision of “foreign policy for the middle class” was “Russia, Russia, Russia and China, China, China.”

Thea Riofrancos calls this mindset the “security-sustainability nexus.” Is its current dominance in U.S. politics a contingent outcome—the result, perhaps, of the particular people who ended up in top positions in the Biden administration? And if so, can we imagine a U.S. industrial policy where the China hawks are not in the driver’s seat? Or is the political economy of the United States one in which only a Cold War enemy can motivate a public project to reorient the economy?

In a recent paper, Benjamin Braun and Daniela Gabor argue for the second alternative. It is only “the salience of geopolitical competition” with China that has allowed the United States to go as far with industrial policy as it has. In the absence of much more popular pressure and a broader political realignment, they suggest, the only way that “green planners” can overcome the deep-seated resistance to bigger government is through an alliance with the “geopolitical hawks.”

Many of us have pointed to the economic mobilization of the Second World War as a model for a quick decarbonization of the U.S. economy through public investment. Wartime mobilization — the “greatest thing that man has ever done,” in the words of a contemporary Woody Guthrie song — offers an appealing model for decarbonization. It combines both the most rapid expansion and redirection of economic activity in U.S. history, and the closest the country has ever come to a planned economy. But given the already dangerous entanglement of industrial policy with war and empire, it’s a model we may not want to invoke.

On the other hand, the climate crisis is urgent. And the arguments that it calls for a more direct public role in steering investment are as strong as ever. It’s safe to say that neither the historic boom in new factory construction nor the rapid growth in solar energy (which accounts for the majority of new electrical generating capacity added in 2024) would have happened without the IRA. It’s easy to see how climate advocates could be tempted to strike a Faustian bargain with the national security state, if that’s the only way to get these measures passed.

Personally, I would prefer to avoid this particular deal with the devil. I believe we should oppose any policy aimed at strengthening the United States vis-à-vis China and flatly reject the idea that U.S. military supremacy is in the interest of humanity. An all-out war between the United States and China (or Russia) would be perhaps the one outcome worse for humanity than uncontrolled climate change. Even if the new Cold War can be kept to a simmer—and that’s not something to take for granted—the green side of industrial policy is likely to lose ground whenever it conflicts with national security goals, as we’ve recently seen with Biden’s tariffs on Chinese solar cells, batteries, and electric vehicles. The Democratic pollster David Shor recently tweeted that he “would much rather live in a world where we see a 4 degree rise in temperature than live in a world where China is a global hegemon.” Administration officials would not, presumably, spell it out so baldly, but it’s a safe bet that many of them feel the same way.

Adam Tooze observes somewhere that historically socialists often favored strictly balanced budgets — because they expected, not without reason, that the main beneficiary of lax fiscal rules would be the military. The big question about industrial policy today is whether that logic still applies, or whether an expansion of the state’s role in the economic realm can be combined with a diminution of its capacity for war.

At Jacobin: Yes, We Should Support Industrial Policy and the Green New Deal

(This piece was published by Jacobin on April 6, 2023, in response to the Dylan Riley post linked in the first paragraph. The version below adds a few unimportant footnotes and one somewhat important paragraph that I forgot to write before submitting it — the one about halfway through that mentions Oskar Lange.)

A few days ago, Dylan Riley wrote a post on New Left Review’s Sidecar blog that provoked a furious response on twitter. ¹ Since I largely agree with the criticism made by Alex Williams, Nathan Tankus, Doug Henwood and others, perhaps I shouldn’t add to the chorus. But I want to try to clarify the larger stakes in this debate.

Riley’s piece starts from the suggestion that the failure of Silicon Valley Bank reflects a larger crisis of overcapacity and lack of investment opportunities. SVB, he writes,

had parked a huge quantity of its deposits in low-yield – but supposedly safe – government-backed securities and low-interest bonds. … the bank was overwhelmed by the massive growth in deposits from its tech clients – and neither it nor they could find anything worthwhile to invest in. …the SVB collapse is a beautiful, almost paradigmatic, demonstration of the fundamental structural problem of contemporary capitalism: a hyper-competitive system, clogged with excess capacity and savings, with no obvious outlets to soak them up.

This is an elegant framing but it runs into a problem immediately, involving the ambivalent meaning of ‘invest.” The depositors in SVB were not venture capitalists, but the firms that they had stakes in. The reason SVB had such big deposits was not because finance was unable to find profitable outlets even in the tech world, but precisely because it had done so. (Whether these businesses are doing anything socially useful is of course a different question.) The fact that SVB’s assets consisted of Treasury bonds rather than loans to its depositors reflects the shift in business financing, especially in tech, away from banks toward specialized venture capital funds — an interesting development, certainly, but one that doesn’t tell us anything about the overall population of businesses looking for financing.

Lurking behind Riley’s formulation here seems to be a crude version of commodity money theory, in which money is either out in the world being useful, or being left idle in the bank. But money in the real world is always in the form of bank deposits — that’s what money is — regardless of how actively it is circulating.

To be fair, Silicon Valley Bank is just the hook here. The real argument of the post — the one that provoked such a reaction — is that the ongoing crisis of overcapacity means that Green New Deal-type programs of public investment in decarbonization are a self-defeating dead end. “Imagine,” writes Riley,

that Bidenomics in its most ambitious form were successful. What exactly would this mean? Above all it would lead to the onshoring of industrial capacity in both chip manufacturing and green tech. But that process would unfold in a global context in which all the other capitalist powers were vigorously attempting to do more or less the same thing. The consequence of this simultaneous industrialization drive would be a massive exacerbation of the problems of overcapacity on a world scale, putting sharp pressure on the returns of the same private capital that was ‘crowded-in’ by ‘market-making’ industrialization policies.

There are a number of distinct arguments in, or at least in the vicinity of, Riley’s post. We can of course debate the specific content of the IRA — where does it fall on Daniela Gabor’s spectrum from “de-risking” to the “big green state”? There’s a larger political question about the extent to which activists and intellectuals on the left should attach themselves to programs carried out by the established political actors through the state, as opposed to popular movements outside of it. And then there is the specific question of overcapacity — is it reasonable to think that any boost to investment via public spending will just diminish opportunities for profitable accumulation elsewhere?

I’m not unsympathetic to the first two of these arguments, even if I don’t agree with them in this particular case.

In my opinion, the IRA model passes two key tests: The public money goes to productive enterprises, not to holders of financial assets; and there is affirmative direction of spending toward specific activities. To me there is an important difference between “for each new solar panel you install with union labor, you will get x dollars of subsidies” and “if you hold a bond that fits these broad criteria, the interest is taxed at a lower rate” — even though, at a sufficiently high level of abstraction, both involve subsidizing private capital. But there’s a lot of room for debate here about how to describe specific measures and where to draw the line; a different read of its provisions might plausibly put the IRA on the other side of it.

Similarly, it’s important to remember that winning some specific legislation does not mean that you control the state — there’s a real danger in imagining ourselves “in the room where it happens” when in reality we are very far from it. When Riley writes that “no socialist should advocate an ‘industrial policy’ of any sort, nor have any truck with self-defeating New Deals,” I, obviously, do not agree. But if you wrote a parallel sentence about the humanitarian activities of the US military in various parts of the globe, I would agree wholeheartedly. Over the years I’ve had many disagreements with people with broadly similar political commitments, who thought this particular intervention could was worth supporting. As far as I am concerned, when the instruments of the state are marines and cruise missiles, the only possible engagement from the left is protest and obstruction.

War is different from industrial policy. But one can imagine an argument along these lines that would be worth taking seriously. If you wanted to write a stronger critique of the Green New Deal from the left, you might stress the tight links between industrial policy and nationalism, and the frightening anti-China rhetoric that’s a ubiquitous part of the case for public investment.

Here, though, I want to talk about the specifically economic argument, about overproduction.

Riley’s post draws on a long-standing argument among writers for the New Left Review, that the fundamental challenge for contemporary capitalism is overproduction or excess capacity. In this story, the end of the postwar Golden Age was due to the end of US dominance in world trade. Starting in the 1970s, stable oligopolies in manufacturing gave way to to cutthroat competition as producers from an increasing number of countries competed for a limited market. Because manufacturing is so dependent on long-lived, specialized capital goods, producers are unwilling to exit even in the face of falling prices, giving rise to chronic depressed profits and excess capacity, and a turn to financial predation — what Robert Brenner calls neofeudalism — as an alternative outlet for investment. Even when profits recover, there’s little incentive to accumulate new means of production, given that there’s already capacity to produce more than markets can absorb.

The most influential version of this story is probably Brenner’s book-length New Left Review article from 1998. ² It is clearly compelling on some level – a lot of people seem to believe something like it. It draws on a long tradition of theories of overproduction and destructive competition, going back at least to the underconsumption theories of Hobson, Lenin and Luxemburg on the one side and, on the other, the first generation of the US economics profession, shaped by the pathological effects of competition between railways. Richard Ely, founder of the American Economics Association, described the problem clearly: “whenever the principle of increasing returns works with any high degree of intensity, competition can never regulate private business satisfactorily.” His contemporary Arthur Hadley described destructive competition in capital-intensive industries in very much the same terms as Brenner: at prices

far below the point where it pays to do your own business, it pays to steal business from another man. The influx of new capital will cease; but the fight will go on, either until the old investment and machinery are worn out, or until a pool of some sort is arranged.

(The quotes are from Michael Perelman’s excellent The End of Economics.)

There’s an important truth to the idea that, in a world of long-lived specialized capital goods and constant or falling marginal costs, there is no tendency for market prices to reflect costs of production. Too much competition, and firms will sell at prices that don’t recoup their fixed costs, and drive each other to bankruptcy. Too little competition, and firms will recover their full costs and then some, while limiting socially useful output. No market process ensures that competition ends up at the goldilocks level in the middle.

But while this problem is real, there’s something very strange about the way Riley deploys it as an argument against the Green New Deal. Rather than a story about competition, he — following Brenner — talks as if there was a fixed amount of demand out there that producers must compete for. In a world of overproduction, he says, any public investment will just create more excess capacity, driving down profits and accumulation somewhere else.

In a funny way, this is the mirror image of the Treasury View of the 1930s — which said that any increase in public employment would just mean an equal fall in private employment — or of its modern day successors like Jason Furman and Lawrence Summers. The Furman-Summers line is that the world has only a certain amount of productive capacity; any public spending above that level that will just result in inflation, or else crowding out of private investment. The Brenner-Riley line is that the world has only a certain amount of demand, both in general and for carbon-reducing technology specifically. Try to produce any more than that, and you’ll just have excess capacity and falling profits. Both sides agree that the economy is like a bathtub — try to overfill it and the excess will just run over the sides. The difference is that for first side demand is the water and productive capacity is the tub, while for the other the water is capacity and the tub is demand.

Riley invokes Oskar Lange’s 1930s discussions of electoral socialism in support of his contention that “half-measures are self-contradictory absurdities” — which very much includes any “blather about New Deals.” But the situation facing socialist governments in the 1930s was quite different. Their problem was that any serious discussion of nationalization would terrify capital and discourage investment, sending the economy into a deeper slump and dooming socialists’ prospects for extending their initial electoral gains. This meant that nationalization had to be carried out all at once or not at all — which in practice, of course, meant the latter. (There is a good discussion of this in Przeworski’s Paper Stones.) Keynesian fiscal policy was precisely what offered the way out of this trap, by allowing an expansion of the public sector on terms consistent with continued private accumulation. Riley here is rejecting exactly the solution to the problem Lange identified.

But there’s a deeper problem with the Riley-Brenner vision. In Jim Crotty’s review of Brenner’s long article, he argues that, in response to what Brenner saw as an excessive focus on labor-capital conflict in accounts of the end of the postwar boom, he created an equally one-sided story focused exclusively on inter-capitalist competition. I think this gets to the crux of the matter.

Let’s take a step back.

The development of a capitalist economy is a complex process, which can go wrong at many points. Production on an increased scale requires the expansion of the physical and organizational means of production, with whatever technical and material requirements that entails. Additional labor must be enlisted and supervised. New raw materials must be acquired, and the production process itself has to be carried out on an increased scale. The resulting products have to be sold at a price that covers the cost of production — in other words, there must be sufficient demand. The resulting surplus has to be channeled back to investment. All of this has to take place without excessive changes in relative prices, and in particular without politically destabilizing changes in wages or the distribution of income. The reinvestment stage normally happens via the financial system; the ongoing payment commitments this generates have to be consistently met. And it all must take place without generating unsustainable cross-border payment flows or commitments.

All of these steps have to happen in sync, across a wide range of sectors and enterprises. A business expanding production has to be confident that the market for its products is also growing, as well as the supply of the inputs it uses, the financing it depends on, and the labor it exploits. An interruption in any of these will halt the whole process. When growth is steady and incremental, this can be mostly taken for granted, but not in the case of more rapid or qualitative change, as in industrialization.

This problem was clearly recognized by earlier development economists. It’s the idea behind the “two gap” and “three gap” models of Hollis Chenery and his collaborators, the “big push” of Rosenstein-Rodan, or Gerschenkron’s famous essay on late industrialization.³ Everything has to move forward together. Industrialization requires not only factories, but ports, railroads, water, electricity, schools. All of these depend on the others. You need savings (or at least credit), and you need demand, and you need labor, and you need foreign exchange.⁴

At the same time, an essential feature of the capitalist mode of production is that the various steps each involve different decision makers, acting with an eye only to their own monetary returns. From the point of view of each decision maker, the choices of all the others look like fixed, objective constraints. From the point of view of a particular producer, the question of whether there is sufficient demand to justify additional output is an objective fact. For the producers collectively, it is their decisions that determine the level of demand just as much as — in fact simultaneously with — the level of current output. But for them individually, it’s a given, an external constraint.

The problem comes when in thinking about the system as a whole we treat something like destructive competition not as what it is – a coordination problem – but from the partial perspective of the individual producer. From this perspective, it appears as objectively given, as if there were only so much demand to go around. The mainstream, of course, makes the exact same error when they treat the productive capacity of the system as prior to and independent of the actual level of activity. (This is the point of Arjun Jayadev’s and my recent paper on supply constraints.) The fact that when one part of the system moves ahead faster it encounters friction from parts that are lagging imposes genuine limits on the pace of expansion — both supply and demand constraints are real – but we should not treat them as absolute or externally given.

The faster and farther reaching are the changes in production, the harder it is for a decentralized market system to maintain coherence, and the more necessary conscious, more or less centralized coordination becomes. This was one of the main lessons of the economic mobilization for World War II, and a critical consideration for decarbonization. Planning is ubiquitous in real-world capitalism, and more rapid transformations in activity require planning at a higher level.

At the same time, we shouldn’t underestimate the capacity of our system of anarchic production for profit to eventually break through the barriers it encounters — something Marx understood better than anyone. That is why it’s become the world-encompassing system it is. Sustained demand will itself call forth the new labor and improved production techniques required to meet it. Conversely, while Say’s law may not hold in the short run, or as a matter of logic, it is very much the case that improvements in production create new markets, and expand demand qualitatively as well as quantitatively.

Overproduction and excess capacity are not new phenomena. They have been a recurring feature of the great crises that capitalist economies have experienced for the past two hundred years. Here is Jules Michelet’s beautiful contemporary description of the 1842 commercial crisis in France:

The cotton mills were at the last gasp, choking to death. The warehouses were stuffed, and there were no sales. The terrified manufacturer dared neither work nor stop working with those devouring machines. Yet usury is not laid off, so he worked half-time, and the glut grew worse. Prices fell, but in vain; they went on falling until cotton cloth stood at six sous.

We should never forget about the misery and chaos of crises like this. But we should also not forget how this story ends. It is not “and then eventually enough mills were shut down and things went back to how they were before.”

Here’s how the Michelet passage continues:

Then something completely unexpected happened. The words six sous aroused the people. Millions of purchasers — poor people who had never bought anything — began to stir. Then we saw what an immense and powerful consumer the people is when engaged. The warehouses were emptied in a moment. The machines began to work furiously again, and chimneys began to smoke. That was a revolution in France, little noted but a great revolution nonetheless. It was a revolution in cleanliness and the embellishments of the homes of the poor; underwear, bedding, table linen, and window curtains were now being used by whole classes who had not used them since the beginning of the world.

An openness to the possibility of this sort of transformational change is what’s fundamentally missing from both the Summers-Furman and Brenner-Riley views. This is not a system in homeostasis, that if disturbed returns to its old position. It is a system lurching from one unstable equilibrium to another. And this is very relevant, I think, to decarbonization.

Not so very long ago, it was conventional wisdom that photovoltaic energy was never going to be more than a niche power source — useful when you can’t connect to the grid, but way too expensive to to ever be used at utility scale. And now look — solar accounted for nearly half of new electricity generation installed last year. There’s an almost endless scope for further growth in renewable energy, as more of the economy is electrified. The fact that Silicon Valley Bank was holding a bunch of Treasury bonds does not mean that the field of productive investment has been exhausted.

The tremendous growth of renewable energy over the past generation wouldn’t have happened without public subsidies and regulation. At the same time, most of the actual production has been carried out by employees of private, profit-seeking businesses. Riley is absolutely right that no one should be counting on private investment in education or in care work. Explaining why those activities depend critically on the autonomy and intrinsic motivation of the workers carrying them out, and are therefore inherently unsuited to for-profit businesses, is something we need to keep doing. The same goes for many public functions that have been turned over to contractors. But there are many other areas where it is still possible to harness the profit motive to meet human needs.

(I am not, to be clear, saying anything about the virtues of markets or the profit motive in the abstract. I would like to progressively eliminate them from human life. I am simply stating the fact that my house was put up by a private builder, for profit, and yet the roof does keep out the rain.)

There is plenty of scope to criticize the specific content of the IRA and other climate legislation, and the strategic choices of the groups that support them. (Altho a bit of humility is called for with the latter.) But we need to categorically reject the idea that there is some hard constraint such that any program to increase private spending on decarbonization will be canceled out by a reduction in spending somewhere else.

The bottom line, both for the politics and the economics, is that we need to resist thinking in terms of a change in one area while everything else stays the same. Ceteris paribus may be a useful analytic tool, but it’s fundamentally inapplicable to historical processes where one change creates the pressure, and the possibility, for another.

Yes, given the existing productive technology, given existing markets, one country’s support for renewable energy might compete with another’s. But these things are not given. Economies of scale exist at the level of the industry as well as the firm; technological progress in one place quickly spills over to others. As, say, hydrogen becomes practical for large-scale energy storage, it will be come practical to produce green energy in areas where it isn’t today. This is as far as you can get from the Brenner paradigm of a zero-sum competition for shares of a fixed market.

The real problem for the Green New Deal and broader industrial policy program is not scarcity, whether of material or of markets. It is twofold. First, it requires a capacity for public planning that is currently lacking, in the US and elsewhere. Industrial policy means building up and legitimating the state’s direct role in a wider range of activity— a challenge when the biggest existing form of direct public provision, the public schools, are under ferocious attack from the right. Second, to the extent that a rush of public and private spending leads to a sustained boom, that will create profound challenges for a system that is used to managing distributional conflicts through unemployment. We’ve gotten a sense of what the political reaction to full employment might look like from recent inflation discourse, with its fears of “labor scarcity.” It’s reasonable, for now, to respond that it’s silly to worry about a wage-price spiral when labor is so weak. But what happens when labor is stronger?

These are real challenges. But we shouldn’t see them as arguments against this program, only as markers for where the next conflicts are likely to be. That’s always how it is. “Gradualism cannot work,” declares Riley, but all politics is incremental. Socialism is only a direction of travel. Even if the “commanding heights of the economy” could “be seized at once” — Riley’s rather ambitious alternative to the Green New Deal — that would only be a step toward the next struggle.

A program to mobilize the existing bourgeois state to push private spending in the direction of meeting human needs, and the need for a habitable planet in particular, faces many obstacles — that is true. Whatever successes the left has had under the Biden administration have been limited and compromised. Some of the most important, like the expansion of unemployment and family benefits, have already been rolled back — that is also true. But the same could be said for all the socialist programs of the past. We have to just keep going, with one eye on the long run direction of travel and the other on the contingencies of the present. The one thing we can say for certain about the future is that it hasn’t happened yet. If we keep going, we will see things that haven’t been seen since the beginning of the world.