May 26, 2019


If ever there was a reminder that the U.S. economy is too heavily tied to the ephemera of speculation, the current crisis is it. We’ve known for years that little seems to be made here any more; that durable – or not so durable – goods made from plastic, steel, aluminum or wood are more likely to be manufactured in China or India than in Chicago or Indianapolis. But as journalists try to explain the current crisis, it’s as if the Wizard of Wall Street’s curtain is being pulled back to reveal an appalling sight – billions of dollars being exchanged for, essentially, pieces of paper.

Steve Fraser, whose book “Wall Street: America’s Dream Palace” holds that curtain open for scrutiny, argued in a recent interview on NPR’s Fresh Air that it is not too late for the U.S. economy to return to manufacturing. Perhaps not to smelting plants and textile mills, but to something better. If technological innovation can be married to manufacturing, things could again be made here. Things like plug-in car batteries, wind turbine blades, highly efficient wood pellet boilers, photovoltaic panels, lightweight and energy-efficient composite construction materials, medical equipment and even communication and entertainment hardware.

Mr. Fraser put the current crisis in historical perspective in a piece in the Nation magazine last month. In it, he notes that the second half of the 19th century saw government backing industrial revolutionaries like railroad tycoons with subsidies, tax breaks and lax oversight. “But when panic struck,” Mr. Fraser writes, “the mighty, as well as the meek, went down with the ship. Washington felt no obligation to rush to the rescue of the reckless. The bracing, if merciless, discipline of the free market did its work and there was blood on the floor.”

Even before the Great Depression, this changed. The Federal Reserve was created in 1913, and many other regulatory bodies followed the crash of 1929. These safeguards are necessary, and the bailout of the mortgage market is less surprising with them as a backdrop.

But Mr. Fraser believes investing in a new economy, rather than only shoring up the ephemeral one, is possible.

“The government must figure out how to deploy its power to shift the flow of investment capital out of the minefields of speculative paper transactions and back into productive channels that will help meet the material needs of American society,” Mr. Fraser wrote. “Real value must be created in place of chimeras.”

Government can and should have a role in spurring innovation. The $700 billion price tag of the bailout is an interesting figure; it’s the same amount the U.S. sends out of the economy each year to buy oil, gasoline and natural gas, the same amount of the U.S. annual military budget, and the same amount already expended in Iraq.

Public funding of research and development on that scale is not practical today. But federal tax policy can instead create disincentives for speculation and incentives for investing in new technology tied to manufacturing. It won’t reap immediate rewards, but it may map a way to a time where things are actually made in the USA.

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