Brad and Noah discuss the reindustrialization of America

Today, Brad DeLong and I discussed the potential for reindustrialization in the United States. Brad has written a book on this topic, highlighting three main reasons to boost American manufacturing: geopolitical, economic growth, and economic equality. Geopolitical and military concerns suggest that having a supply chain for defense and dual-use manufacturing, not dominated by China, could help us avoid being bullied by China's export controls.

Economic growth could be achieved by adding agglomeration and clustering effects to a robust manufacturing sector. Economic equality could be addressed by providing high-paying blue-collar manufacturing jobs, though this seems unlikely due to the advent of AI and AI-driven robotics, which may render human labor in factories obsolete.

However, manufacturing could still create local service jobs fueled by the money brought into towns by automated factories, a concept known as the "local multiplier" effect. The most promising driver of reindustrialization, we concluded, is geopolitics and security. Ukraine's experience with building a strong drone and robotics industry out of necessity during the Russian invasion serves as a cautionary tale, but also an important example.

Ultimately, Brad and I identified two main obstacles to reindustrialization in America: land use and bank loans. The permitting bill currently moving through Congress aims to address land use, while bank finance proves to be a significant hurdle for manufacturing. One potential solution is leveraging America's struggling megabanks by granting them selective exemptions from Dodd-Frank restrictions, enabling them to serve as pools of capital for reindustrialization.