Piketty concluded that a capitalist economy is an inequality engine whose malignant effects can only be mitigated post facto via redistribution. Recent history supported this theory: Since 1980, the S&P 500 stock index has appreciated by 11% per year, whereas annual real economic growth averaged about 3%. Given the historical and social fact of uneven distribution of capital, Piketty claimed unfettered capitalism would always lead to growing wealth inequality, with such wealth passing from generation to generation, which in turn would inevitably lead to the establishment of a transgenerational ruling elite, undermining the egalitarian promise of democracy.

“Capital” joined Robert Gordon’s “The Rise and Fall of American Growth” and Larry Summers’s concerns about “secular stagnation” as key intellectual tropes in mainstream center-left thought and policymaking, which marked low growth, the disappearance of work and subsequent high returns to wealth as inevitable. This consensus foreclosed the possibility of radical and creative policies that might enable a more egalitarian, high-income, full-employment economy. Instead, Obama-era liberalism sought to adapt to new realities by establishing opportunities for individuals to find a competitive edge in a shrinking-pie world.

This dour consensus has come undone. Over the last few decades, monetary policy has been the main (and blunt) instrument for shaping the economy, but today, policymakers from across the political spectrum are embracing a more active role for the federal government in directly configuring the “real economy” — wages, employment and investment. Leaders on both left and right are actively thinking about how the government can intentionally shape markets to fashion socioeconomic outcomes. 

This new dispensation represents a reframing of the relationship between the state and the economy, one potentially as transformational to American capitalism as the New Deal was in the 1930s or Reaganism was in the 1980s. It is most evident in a new bipartisan openness to the old-fashioned idea of an industrial strategy, but it is broader than that. Let’s call it the “Designer Economy.”

In a design framework, economic policy focuses on constructing and reaching a specifically envisioned future. This is different from traditional industrial strategy: It doesn’t “pick winners,” but rather pushes government agencies to have a broad awareness of technological and economic trends in order to promote specific potentialities. In contrast to planned economies or developmental states, a Designer Economy’s primary focus is on a dynamically changing future, and it aims to produce tools to enable various actors in the economy to adapt to these changes in a matter that preserves the public’s preferences through iterative experimentation.

If the United States government develops the administrative capacity to assess, promote and implement direct structural reforms to the economy, it will allow democratic debate to focus on larger cultural questions about what sort of society we want to actually create. 

This doesn’t mean that we expect a politically depolarized or post-partisan “era of good feelings.” Rather, like the post-FDR New Deal era (1930s-70s) or the post-Reagan neoliberal era (1980s-2010s), the Designer Economy will form a new terrain of vigorous political debate. But instead of focusing on the optimal distribution of limited sources of wealth, which represented the center of gravity of economic policy debate over the last 15 years, the policy debates in the Designer Economy will center on the goals and methods for government-enabled economic development that will in effect “pre-distribute” the fruits of accelerated technological deployment and economic growth.

Why Now?

Prior to 2016, many liberal economists (including many in the Obama administration) regarded long-term low growth as inevitable for a mature industrial economy, and therefore eschewed industrial policy. The shock of Donald Trump’s election sparked criticisms that Obama’s weak response to the 2008 financial crisis as well as rising inequality, deindustrialization and rural poverty had helped give rise to anti-democratic impulses. Telling laid-off workers to “learn to code” didn’t create well-paying software jobs. With Trump himself promising to bring back robust economic growth and industrial jobs (even if he had no real strategy other than more tax cuts for the rich and quitting free trade agreements), it became clear that liberal policymakers could no longer passively accept slow growth as ineluctable.

Then came the pandemic, which taught policymakers two lessons. First, by crafting various economic stimulus and income-support programs like direct payments to citizens and businesses, the government showed that recessions, even during a catastrophic pandemic, are policy choices that effective policy can alleviate rapidly. These programs may or may not have contributed to the inflation the American economy experienced in 2021 and 2022, but they certainly cushioned many individual workers, families and businesses from the consequences of the mass unemployment that the shutdowns of 2020 produced. Indeed, due to stimulus and an expanded welfare state, wage inequality in the U.S. fell during the pandemic, and child poverty dropped to a record low. Impoverishment, it turned out, was a policy choice.

Operation Warp Speed, initiated by the Trump administration and completed under Biden, guaranteed government purchases of vaccines once they were ready, providing a crucial confidence boost to the private sector to make large-scale and concurrent investments in rapid vaccine research and manufacturing. This was a clear demonstration that the speed of adoption of new technologies didn’t depend only on private-sector innovation. It could also be accelerated by government support both for R&D and, just as importantly, wide deployment. 

Most recently, rising geopolitical tensions with China and Russia’s invasion of Ukraine have dramatized the risks to globalized manufacturing, energy and food systems. Governments have implemented once-unthinkable measures to control the production and pricing of key goods. 

In the U.S., the Biden administration has quietly begun to pursue a strategy of being a commodity trader. Using the Strategic Petroleum Reserve, the White House is experimenting with stabilizing oil prices by selling oil when prices reach an upper bound and then offering contracts to refill the reserve when they hit lows. In effect, the government wants to use its large market position to cap prices for consumers while providing private firms with confidence that prices won’t fall below a level that makes future oil production unprofitable. This opens possibilities for other interventions to control flow and prices of materials in a green energy transition.

The Biden administration is also using governmental intervention to design an economy that is meant to avoid emergencies in the first place — a focus on resilience that reflects the post-pandemic realization about the fragility of globalization and the risks created by interdependence. These concerns drove bipartisan support for the CHIPS and Science Act, passed in August 2022, which committed the U.S. government to invest $280 billion in domestic semiconductor capacity, among other high-tech R&D and workforce development issues. 

The CHIPS Act was largely motivated by the realization that global semiconductor production was concentrated in geopolitically risky and disaster-prone Taiwan. Like Operation Warp Speed, it aimed not just to spur technological innovation, but also to drive domestic installation and production, in part by “crowding in” private investment into semiconductor fabrication. 

Thus, at its core, CHIPS isn’t just a traditional competitiveness bill meant to onshore employment or stimulate a new highly profitable or export-oriented industry. It is also a market-shaping measure designed to eliminate systemic geopolitical risk to the supply of critical goods, while also recasting the socioeconomic geography of domestic industrial production.

Proponents Of The Designer Economy

Starting around 1980 and signaling the advent of the Reagan Revolution, the term “industrial strategy” became deeply unfashionable. It was seen as a legacy of the days when steel and smokestacks led the economy, before knowledge workers, the creative class and the tech industry emerged. While some wax nostalgic for the older industrial order, in the memories of many policymakers, the idea of industrial policy is tied up with the supposed failures of the Keynesian project in the 1970s, which laid the groundwork for the Reagan-Thatcher revolution and the consolidation of neoliberal ideas about economic policy.

Yet the “policy that shall not be named” has made a comeback in the past four years, in large part because pollsters have found overwhelming support for policies that aim to return manufacturing jobs to the U.S., especially among swing voters in swing states. Welfare improvements and climate change mitigation are popular if they are spun in terms of jobs and wages. Government investment into real resources and production guidance has become a rare point of bipartisan agreement. From National Economic Council (NEC) director Brian Deese, who has proclaimed industrial strategy to be the Biden Administration’s central economic framework, to Republican Senator Todd Young, who is pushing to fund regional tech manufacturing hubs, libertarian and neoliberal attitudes in Washington have begun to crumble.

The emerging consensus in favor of industrial strategy has five broad groups of politicians and policy intellectuals who — in different ways — are all advocating for the Designer Economy. Together, they form a Venn diagram of shifting and potentially unusual alliances between factions.

First are politicians on both sides of the aisle who are interested in creating high-quality employment opportunities for working Americans. Such jobs creators sometimes focus on high-tech and knowledge industries, but more often on blue-collar manufacturing jobs in regions where socioeconomic transitions are causing local unemployment. This is “place-based industrial policy,” which is grounded in a belief that manufacturing is critical to creating good jobs and lends itself to a politics of “boosterism” and regional development that has a long history in American economic development.

Second are green technology accelerationists, who are most concerned with the rapid development and, most importantly, installation of new carbon-free energy. Self-described “supply side liberals,” including former Obama administration officials who before were skeptical of direct government investment, have accepted that tech innovation alone isn’t a solution to America’s climate and economic problems. They are increasingly on board with the idea that the government should provide capital to speed the deployment of clean energy technology — not just in the U.S., but worldwide. This nascent position is beginning to tie together moderates in the Democratic Party with self-described “state-capacity libertarians,” mostly quondam Republicans, who see a role for government in enabling the creation of efficient markets.

Third, are those on the left who we might label social democrats but who sometimes call themselves democratic socialists. For them, a retooled industrial strategy is part of a larger ambition for social restructuring, including better welfare systems and social justice outcomes. The Green New Deal’s ambitious combination of social policy with massive investment into technology and infrastructure best reflects this strain of thinking. Social democrats believe the Designer Economy should pair industrial strategy, particularly in renewable energy, with an expansion of the role of the government in organizing and providing more welfare and social services, with the goal of developing a “low carbon, high care” economy. For example, they point to the universal provision of childcare as a labor market intervention giving more parents — women especially — the option to enter the workforce and thus to have more choice over their job quality.

Fourth, on the right, we have an old tradition (harkening all the way back to Alexander Hamilton) of national developmentalists who believe that the U.S. should pursue grand aspirational national projects. Policy intellectuals like Oren Cass are trying to create a post-Trump GOP that rejects libertarian economic policies in favor of a different sort of social rebuilding project. As Robert Atkinson and Michael Lind put it in 2019, for national developmentalists, “government should be a coach, helping U.S. firms compete globally, innovate and boost productivity, while attracting foreign high-value-added production.” Like the social democrats, these figures embrace the Designer Economy in order to promote an explicit social policy outcome, albeit one that is very different from that of the social democrats: the return of the patriarchal, single wage-earning household. Among elected officials, this vision is perhaps best represented today by Marco Rubio, whose office released a white paper in 2019 that used seemingly left-wing arguments to decry corporate America’s retreat from investment into new fixed capital and to propose returning corporate America to the paternalistic management practices of the 1950s and 60s.

Finally, there is a collection of foreign policy leaders who we might call supply chain hawks who worry about national security vulnerabilities associated with globalized supply chains. They want the government to invest in domestic production capacity for critical goods. These risks were highlighted by the shortage of personal protective equipment and ventilators during the early days of the COVID pandemic. Rising tensions between China and the U.S. have made many in Washington emphasize the need for “reshoring” or “friend-shoring” by redirecting supply chains toward agreeable governments. Supply chain hawks come from both sides of the aisle, from Treasury Secretary Janet Yellen to Republican Senator John Cornyn. As Deese, the NEC director, told Ezra Klein two years ago: “My openness to more targeted efforts to try to build domestic industrial strength — the things that people in prior eras would demean or mock as industrial policy — has increased, because I think we are not operating on a level playing field … when we’re dealing with competitors like China.”

Advocates of a resilient supply chain-centered Designer Economy point out that it can work to stabilize the supply of critical inputs to production and create a new instrument with which to target prices and inflation. This view of government power recalls discussions of the government’s role in macroeconomic planning during the crises of the 1970s. As then, elements of this approach have bipartisan appeal: Democrat Chris Coons and Republican Marco Rubio have spent the past two years trying to establish a federal “office for supply chain preparedness” to monitor data on supply chains and convene industry to build best practices for resiliency under stress. 

The contours of these coalitions are fluid. Think, for example, of the affinities between post-Trump national developmentalists and national security advocates. There are also longstanding overlaps between green technology accelerationists and social democrats. And there may be more heterodox coalitions, like supply-side liberals, social democrats and national security advocates partnering to accelerate the global transition from politically risky fossil fuels. National developmentalists, job creators and green-tech accelerationists likewise might join together to temporarily sustain a low cost of fossil energy that would create the fiscal space to directly invest in renewables. These seemingly strange bedfellows, allying under the umbrella of the Designer Economy, will define American economic policy for the next several decades. 

There will of course still be sharp policy disagreements. However, these debates won’t be about whether we should pursue an industrial strategy, but rather about what sort of industrial strategy this should entail — about what sort of “good life” U.S. industrial policy should enable. On the left, the visions today focus on how to transition to an egalitarian post-carbon social democracy. On the right, the utopian ideal is a high-wage economy that enables families to live well with a sole breadwinner, so that “traditional family values” may be preserved or restored. 

What It Takes 

Whatever visions of the Designer Economy these emerging coalitions may develop, all advocates of industrial strategy will need to grapple with the limited capacities of the existing American government. As the Biden administration works to deploy the estimated $1.7 trillion in the Inflation Reduction Act, it is becoming clear that federal and state agencies have neither the necessary expertise nor the political authority to sequence and coordinate spending as part of a broad, all-of-government effort. Implementing any Designer Economy vision will require a government that can take on roles and responsibilities it hasn’t cultivated for decades. We’ll have to return to older ways of doing things.

During the New Deal, administrative agencies possessed great leeway to take on long-term, multi-decade development projects. Perhaps the most storied of these was the Tennessee Valley Authority (T.V.A.), which helped industrialize the U.S. South with cheap, public power. For its leaders, the T.V.A. wasn’t just about providing electricity or industrial development, but also a project of social and political transformation — quite literally, “democracy on the march.”

Similarly, in the post-war period, federal agencies provided powerful fiscal support and direct planning for the interstate highways and the construction of low-income housing across the country — both of which were transformational, though they often reinscribed racial segregation and disparities. And throughout the Cold War (and even today), the military-industrial complex has shown an impressive ability to coordinate the development of the highly complicated supply chains required to produce and deploy everything from nuclear weapons to a global spy satellite system — all while supporting what amounts to the only cradle-to-grave welfare system in the U.S.

Since the 1970s, however, the parts of the government that existed to manage and coordinate the real economy have atrophied as hostility to government power and legislative proceduralism blocked ambitious government projects. This was intentional: Removing such capacity was the express goal of two generations of anti-government activists and their fellow travelers who, as Grover Norquist used to say, wanted to “starve the beast” by shrinking the government until it was small enough to “drown in a bathtub.”

Under the euphemistic goal of “reinventing government,” the Clinton administration undertook a systematic effort to outsource critical administrative functions such as project evaluation and strategy. Ironically, this didn’t downsize the government — it just moved those functions to the private sector and bloated the parts of the government that manage contractors. By the mid-2000s, there were 7.5 million private federal contractors, four times more than federal civilian workers, a process one federal consultant described as the government “outsourcing its brain.”

Rejecting anti-government rhetoric and instead celebrating competent operators is thus a crucial first step. Managing a successful Designer Economy requires a cadre of experienced, entrepreneurial and independent government officials. Today, however, government service is difficult to enter due to a labyrinth of byzantine rules and processes. Moreover, public servants lack social prestige and are often underpaid relative to what they can earn in the private sector; a McKinsey partner earns much more than a congressional staffer or a Commerce Department GS-15. Many staffers are overworked, underpaid and can’t make ends meet in long-term government service. 

As a recent report by New America found, congressional staffers with specialist knowledge had virtually disappeared; most saw their posts as stepping stones to consulting and lobbying work. This prevents the government from benefiting from institutional knowledge, experimentation and “learning by doing,” which marks out the most successful industrial policy experiences. Increasing government pay in order to recruit and retain talent, therefore, must be central to the project of enabling the Designer Economy.

Government agencies also need explicit, legislated authority to do economic design work. The role of government in the era of the Design Economy is to coordinate between agencies, business and labor to find a consensus on specific futures and agreements on how to get to these goals. In an insightful interview with Ezra Klein, the Roosevelt Institute’s Felica Wong called these “coordination” problems. The federal government must be empowered to override blocking factions, particularly at the state and local levels. For example, the Department of Energy needs more authority to designate new, interstate transmission corridors and, if necessary, build and operate high-voltage inter-regional transmission lines. 

Government analysts need to be trained and empowered to collect and systematize new, granular micro-data on real production processes. Not only has the U.S. government become worse at monitoring and understanding what the real economy looks like and does at the detailed level required for effective design work to take place, it has also lost the ability to flexibly and rapidly make decisions. Streamlining decision-making will allow the government to do more than build or enable the private sector. Instead, it can become a bottleneck detective, finding ways to solve potential problems before they derail efforts to achieve desired goals. This means gathering and sharing information with interested parties — another coordination problem. 

Again, much of the governmental capacity that needs to be developed to support the Design Economy doesn’t need to be invented wholesale — it just needs to be restored. For example, before it was eliminated in 1995 as part of Newt Gingrich’s anti-governmental reforms, the Office of Technology Assessment served as the federal node for gathering and exchanging information on emerging technologies, as well as offering expert feedback and advice to Congress. We will need such institutions again.

One place to start would be to get a grip on supply chains of energy and critical industrial inputs. As energy analyst and investor Alex Turnbull points out, we know very little about the complex feedback loops between energy, commodities and prices. Most granular data on production is held and generated by consultancies with opaque methodologies and murky interests. Accessing it is extremely difficult and expensive. Collecting this data and making it public in the way the government does for numbers on employment and national income would dramatically improve visibility into what the real economy looks like. 

Open, standardized data will allow public agencies, academics and the private sector to analyze and chart various paths toward a desired future. For example, using new data, policymakers may decide that the best way to decarbonize the electrical grid is by building more wind turbines. Designers will be able to determine what demand this investment will put on grades of steel, copper and other materials to ensure that no bottlenecks arise. They can then model climate, geopolitical and technological shocks to this supply to see how they could affect development and costs.

The government needs to set high-level objectives for the development of general-purpose technologies such as machine learning, robotics, nanotechnology, green energy and synthetic biology; it needs to push companies in these industries to innovate relentlessly; and it needs to provide the capital and know-how to deploy these technologies from testing to scaled production. Such direct interventions might require new market-making strategies across a variety of critical inputs like grain, metals and even microchips. The U.S. government may eventually countenance public venture capital funds and lending institutions, such as green investment banks, in order to promote specific sectors and accelerate the production and installation of new technologies.

The Designer Economy will necessarily also shape labor markets differently. The U.S. will need an active labor policy that coordinates training and workforce composition through tripartite negotiations and information sharing between labor, government and businesses that helps smooth the transition of workers from sunsetting industries into newly forming ones — similar to what is called flexicurity in Scandinavia. Finally, a whole-of-government approach to economic design will entail anticipating what our industrial structure will look like a decade from now, so that we can prepare the workforce for the jobs of the future, rather than merely reacting to shocks and fads.

If a political consensus emerges in favor of an active government coordinating and investing in the real economy, then liberals and conservatives should share a desire for institutional reform. Though Americans may not be completely aligned on what sort of society we wish to create through the Designer Economy, we at least ought to be able to agree that the government needs the talent and administrative capacity to reach various futures.

The Designer Economy As National Development

Unlike the old vision of industrial strategy, the Designer Economy isn’t about smokestacks and steel mills. In fact, it revives a much broader (and older) idea: Government-led economic development. That form of leadership is ultimately about trying to enact a particular vision of what a national society should look like. Given how the rise of China, the 2008-9 financial crisis and the pandemic have changed the world, this type of development strategy has a chance to achieve a new kind of political purchase. 

In its 20th-century heyday, development planning was usually undertaken by low- or middle-income countries. Planners in countries with low wages attempted to attract foreign investment and technology to build “national champion” exporters who would thereby generate more capital for reinvestment, thus creating a flywheel of growth. This was the basis for the successful development in Japan in the first part of the 20th century, then the “Asian Tigers” (South Korea, Taiwan, Hong Kong and Singapore) from the 1960s through the 1990s, and most recently, of course, China since 1978. In places where this approach to development worked, it led not only to rapid growth in GDP, but also to dramatic social transformations as peasants flooded into cities from the countryside to find work in booming factories. In the most successful cases, such as Japan and South Korea, some of these countries eventually became technology leaders themselves.

Unfortunately, such a development strategy can’t work for the U.S. As the world’s largest and most technologically advanced economy, it can’t rely on “catch-up growth” for industries and technologies that have yet to be created, nor can it rely on low wages and technology transfer to accelerate growth. Instead, the U.S. must create a vision and model for itself — to change capitalism at its roots by generating more growth and more broadly shared prosperity. 

Faith in both development and industrial strategy crumbled in the late 20th century as they became associated with a theory of modernization that posited that the industrial model of the big 1950s economies represented the ideal for all economies. When that turned out to be a dead end for many, what resulted was not just skepticism about planning and long-term thinking, but incredulity toward the very idea of government promoting an economic vision.

Piketty’s “Capital” was the emblematic progressive example of this fatalistic consensus. In his recent writing on “participatory socialism,” he eschews any effort to shape capitalism, focusing instead on making it more inclusive. However, you cannot create participation in an economy without understanding and fashioning its underlying productive methods, priorities and composition. It isn’t surprising then that Obama-era liberalism failed to rebuild the American civic religion and instead became a precursor to Trump’s populism. 

The idea of the Designer Economy has the potential to rescue the dream of intentionally transforming the economy to better serve our shared purposes. An emergent political consensus agrees that American capitalism doesn’t have to be a listless system where incomes are stagnant and growing prosperity is available only to the already wealthy. Rather than commanding one ideal path, the politics of design are about what features we want in that future. With the right structures in place, we can transform the government from a mere regulator and issuer of transfer payments into a direct investor in and implementer of a vibrant, verdant, family-friendly and egalitarian future.

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As President Joe Biden’s administration and its progressive allies push to pass an ambitious social spending bill, moderate Democrats are worried. They point to rising prices and postulate that we are facing an era of high inflation. Wouldn’t more spending after an already large pandemic stimulus make matters worse?

Those voices should consider what John Maynard Keynes said in a 1933 letter to President Franklin D. Roosevelt during the worst year of the Great Depression. First, he argued, the president should boost consumer spending and convince businesses to get back to what they do best: making and selling things. Then, once things were up and running again, he could pursue economic reform to fix the systemic problems preventing the economy from meeting its potential. Then, as now, many conflated the ideas of “economic recovery” and “economic reform.” The purpose of economic recovery is to spend to prevent a crisis from spiraling. The purpose of reform is to spend so that we do not have these problems in the first place.

The U.S. economy is facing inflationary pressures not because of too much government spending but because, for almost two decades, there has not been enough. Our country simply does not have the kind of productive capacity that can create high, widespread growth without some inflation. We need to spend on building up that capacity so the economy can run at peak performance in normal times — and so it can be more resilient through future crises.

So far, the U.S. government has followed Keynes’ advice. With the CARES Act and American Rescue Plan, government spending softened the pandemic’s impact. Through expanded unemployment insurance, direct payments to households and other stimulus spending, the economy not only avoided a repeat of the Great Depression, but poverty rates in America fell for the first time in decades.

Some fear that these programs have been too successful. By spending to absorb the shock of the virus, they believe, the government has contributed to rising rates of inflation that will become uncontrollable. They point to labor shortages and the spiking cost of products like cars to justify putting the brakes on further spending.

The truth, however, is more complicated. States that cut pandemic-related unemployment benefits early have seen no improvement in the availability of workers. One reason is that parents, for the most part mothers, have dropped out of the workforce as child care has become more expensive and difficult to find. Jobs in the construction and manufacturing industries have been understaffed because of retirements and a failure to hire enough new skilled workers in the decades since the 2008 recession.

To make matters worse, supply chains continue to be strained. Pandemic-related changes to spending and the continuing impact of the virus have created bottlenecks in the production of practically every commodity. One has only to look at the backup of cargo ships outside the Port of Los Angeles to get an idea of the problem’s scale. Supply chains that once supplied car factories with semiconductors, for example, became stressed due to the rapid shifts in consumption patterns during the pandemic. Demand for durable goods with semiconductors in them, especially those that enabled us to work from home, soared while factories had to take health precautions and cut back on production. All of this has put upward pressure on prices. It also means delays, frustration and, often, actual scarcity of goods.

The housing market offers a stark lesson in how all of these factors combine to produce major problems. After the 2009 crisis, it took decades for American households to begin entering the housing market at rates that could sustain a healthy housing construction industry. Developers lost skilled workers to retirements and labor market churn, and because they expected a depressed market for new housing, they didn’t train enough new workers. Then the pandemic triggered a rush to buy real estate as households shifted their consumption from services to assets, and supply crunches disrupted the delivery of construction material. Developers scarred by the post-2009 environment could not believe this new surge in demand. Housing prices went up.

These pain points have been created by the lack of spending over the past decades. The American economy suffered a historically slow recovery from the 2008 financial crisis due to low government spending. President Barack Obama’s stimulus is now widely understood to have been too small and its effects offset by austerity in states and by the 2011 budget cuts. Low demand meant that new investment in private firms remained low. New infrastructure was not built in sufficient quantities. The vaunted processes of automation stalled because labor was so cheap and readily available, there was no point in replacing workers.

By the time the pandemic arrived, America’s economy was woefully unprepared for another disaster — and this will hardly be the last crisis we face. With climate change, anyone under the age of 40 will be facing a future full of floods, fires and storms. We need an economy that is strong enough to be able to adapt to rapid changes in worker and consumer behavior brought on by disasters. We need to pursue an economy-wide project of long-term resilience and stabilization.

Now that the pandemic has exposed this vulnerability, we have a choice. We could accept our fate, cut spending and raise interest rates, thereby hurting household purchasing power and putting people out of work. The economy will reenter a slow, long-term decline, and even though prices will remain stable in the short run, this will still leave us prone to disruption in the next crisis.

Or, we could turn to another option: We could invest in America so that we have enough capacity to serve a healthy economy. We could build a supply side that is robust enough to respond to a surging demand side and, in so doing, put the genie of inflation back into the bottle.

First, we must pursue an active industrial policy that shores up the manufacturing of key goods like semiconductors, while also making sure that these activities aren’t concentrated in a single firm and that there is reserve capacity in case of an emergency. Instead of offshoring all production of low-end semi-conductors to factories in Taiwan, for example, we should use the spending power of the government to issue long-term capital to vital but low-margin sectors. We can also work on predicting supply crunches ahead of time and prevent them with a running reserve of strategic materials. The necessity of government coordination for supply chains is already dawning on some of the shipping industry’s leading CEOs.

Second, we need to maintain and expand the electrical grid to lower the price of clean energy and build redundancies into the power supply. The cost of renewable energy is rapidly falling. America’s geographic diversity allows us to use wind and solar energy generated in low-demand parts of the country to serve regions that aren’t getting much wind and sun. A solar panel in Texas can power a train in Chicago, and wind from the California coast can heat a home in Texas when the sun isn’t shining there. But the grid is not up to the challenge of incorporating these new forms of generation, which require long-range, rapid transmission across the country. Building a high-voltage super grid would move us to a decarbonized economy and reduce energy costs to businesses and homes, thereby putting downward pressure on prices.

Finally, social services and health care are vital for building a resilient supply side that can withstand inflationary pressures. We must also improve child and elder care to prevent the labor force from shrinking. As America ages, many of us — particularly women — will be forced to choose between work and taking care of our children or parents. Government investment in care will prevent a shrinking labor force, allowing more workers to hold full-time jobs. And allowing Medicare to negotiate with pharmaceutical companies could greatly reduce drug costs, which have been among the biggest contributors to overall price growth for the past three decades.

History shows us that spending in line with social priorities can help the economy in the wake of a world-shaping cataclysm. Economic historian Andrew Bossie found that in the years following World War II, there was a short, sharp rise in inflation — and part of the cure for this inflation was spending to employ and educate returning veterans. This created a buffer of demand that stabilized and stimulated the development of civilian-oriented industries.

Contrast that with the demobilization from World War I. Fearing inflation, the Federal Reserve raised interest rates, leading to a short recession. Though relatively benign, this recession broke worker bargaining power and anchored wages downward. In the Roaring ‘20s, low wage growth led households to overextend themselves on credit, fueling a borrowing boom whose bust resulted in the Great Depression.

We need to learn from this today — after all, the pandemic delivered such a shock to the U.S. economy that coming back from it will be like demobilizing from war. Fortunately, there is some recognition of these issues. The Biden administration’s Build Back Better plan clearly emphasizes the importance of developing social services for a more robust work force. The reconciliation bill and proposed legislation, like the Industrial Finance Corporation Act and the National Investment Authority, all point to a slow return to the state as an active investor in America’s infrastructure and manufacturing capacity. We have begun to recover. Now it is time to reform.

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In the 13 months since the COVID-19 pandemic began, the United States has had more deaths than the country lost in four years of World War II. This state of affairs seemed particularly embarrassing when countries much poorer and weaker than the U.S., such as Taiwan and Vietnam, let alone China, the rising power, were able to take decisive action in order to stop the spread of the pandemic. 

Some believed that the pandemic was the nail in the coffin of American hegemony. But a year later, the U.S. is pursuing an aggressive vaccination campaign against COVID-19, leading the industrialized world. Its economy is set to exit the pandemic stronger than it entered — so strong in fact that the U.S. will likely be the engine of economic growth for the entire world in the first post-COVID years. 

A partisan might point to the new and more competent presidential administration as the key factor that has turned a disastrous containment strategy into what seems like a dramatic vaccination success. But this would be to miss the forest for the trees. 

The successes and failures of governments around the world reveal that state capacity is largely path-dependent: the result of previous political and economic leaders’ actions and decisions. This path dependence is itself a function of where major powers are positioned in a global division of labor, wherein certain capabilities, such as financial depth or export competitiveness, are exaggerated. The differing trajectories of the U.S., China and the European Union in addressing the pandemic have made these differences clear and can tell us something about what the post-pandemic world might look like. 

The early American response to COVID-19 was a disaster: Hospitals lacked protective equipment, the ability to detect and contain the virus was hampered by stressed supply chains and, most importantly, Americans and their leaders resisted true lockdowns as the virus spread unabated. At the time, as planes delivered Chinese-made masks to suffering and confused Americans, some observers suggested the pandemic heralded the last act of the American century. 

But in the middle of the chaos, the American fiscal state was rumbling to life. American fiscal policy has largely been dormant since the Reagan revolution, largely restricted to tax policy and military spending. Even the Obama-era stimulus paled in comparison to the challenge of the Great Recession. 

The first CARES Act and ensuing stimuli were a radical departure from the previous policy regime. Just as importantly, the Federal Reserve changed its stance to prioritize employment over a strict inflation target of 2%. These policies worked. Instead of a feared repeat of the Great Depression, the American economy has remained largely stable and prosperous, considering the circumstances. And the post-CARES Act political environment has taken the brakes off the American state’s largest comparative advantage — its ability to use fiscal policy to invest in growth. 

The success of fiscal policy alongside the failure of social policy reveals that the American state is a broadsword, not a scalpel. However, it is a powerful sword indeed. As Nils Gilman and Steve Weber argued at the outset of the pandemic, the initial response to COVID-19 was a test of “operational expertise” — an area of knowledge that tests coordination and social services. What we can see clearly now is that the U.S. welfare state remains weak, but its fiscal and innovative state are a remarkable success. 

In the postwar period, the American military-industrial complex seeded a system of funding innovations and then transferring them to the market. Though the U.S. has retreated from industrial policy in many sectors, it retains a strong infrastructure for funding late-stage scientific research and advanced pharmaceutical manufacturing. 

As Alex Williams and Hassan Khan have argued, the relative weakness of American domestic manufacturing was the result of a series of deliberate policy choices in the 1970s and after that incentivized firms that are light on assets and rely on global supply chains for low-value-added, high-cost activity. Since the 1980s, the U.S. has emphasized the competitiveness and short-term economic efficiency of business rather than resilience. These features left the U.S. extremely vulnerable to the kinds of discoordination that plagued it in the early pandemic. 

However, the pandemic triggered an effort to invest in the development of vaccines with no attention to cost or efficiency. Unconstrained government spending for the achievement of public goals used to be a driver of economic growth and innovation in the U.S., and the success of vaccinations shows that America can still use these tools if they are not politically restricted. The U.S. has more state capacity than we imagined at the start of the pandemic — it is simply that some of the muscles of the state have not been exercised, while others have not been put to use.  

In China, the pandemic response offers a stark contrast to the U.S. Despite COVID-19’s Chinese origins, China has largely returned to normal due to aggressive lockdowns and test and trace policies. After initial missteps, China leaned into a draconian set of lockdown measures to control the spread of the virus. 

However, vaccine hesitancy runs high, probably because of the success of the containment campaign: The Chinese public seems to not see vaccination as a priority given the low prevalence of domestic COVID-19 cases. Moreover, even the head of China’s CDC now admits that domestic vaccines may be ineffective, with efficiency as low 50%. Given the low rates of COVID-19 infection, why not wait for the more developed product to appear?

A second difference between the world’s two largest economies is that China’s vaccine campaign is aimed at exporting vaccines to developing market economies. The strategy is implicitly designed to capture market share. Not only are Chinese vaccines being actively marketed to the developing world, but China also initially attempted to issue vaccine passports to foreigners who accepted Chinese-made shots before switching to a policy that accepted others. 

However, despite early success, China is having issues meeting both domestic and foreign demand. Moreover, there is conflicting evidence for the effectiveness of the Sinovac vaccine, even when it was deployed on a large scale in Chile. As the U.S. begins to reach vaccine saturation, its more effective vaccines will likely start becoming a powerful tool in vaccine diplomacy. 

China’s successes and failures are the result of another long path dependency: its export-oriented, developmental state. China’s domestic political economy is dominated by low levels of consumption and high savings that, in turn, drive exports. This is the result of decades of policy choices to restrict the growth of consumption by wage-earners. China’s export-driven economy is built on an operational capacity designed to discipline labor. 

As successful as this model has been, it may now be running out of steam — the low-hanging fruit has been picked and real growth is slowing down. Thus, China must either move toward a model driven by domestic consumption or move up the production possibility frontier to compete with more technologically advanced countries in exports. 

The Chinese attempt to dominate exports of vaccines to emerging markets, even at the possible expense of domestic supply, is a testament to China’s dedication to maintaining an export-oriented economy. The skills needed to control a workforce that is necessary to support high trade surpluses clearly translate to an ability to contain the spread of a virus. 

American vaccine hoarding, on the other hand, is another testament to the power of the American fiscal state, which is a driver of America’s dominance of global infrastructure. In short, the centrality of American financial and consumer markets to the global economy means that its elites have not been bound to build alliances based on development aid since the demise of a competing social model in the Soviet Union. Given the resiliency that the dollar-denominated fiscal system has shown through the pandemic, it is likely that the American fiscal state will continue to dominate the global economic infrastructure. 

The diametrically opposite responses of China and the U.S. have revealed that the two countries appear weak only because their strengths are asymmetric. America’s powerful fiscal state makes it capable of playing the role of an economic hegemon, stabilizing the global economy in a crisis by acting as a creditor and importer of last resort. If political constraints on spending are removed, its ability to create new productive capacity and innovation is almost unlimited. China, on the other hand, is a developmental state able to mobilize its population to compensate for more limited fiscal space and distance from the innovation frontier. 

China and the U.S. are both strong states whose capacity is particularly pronounced when we compare them to states with much weaker governments. Case in point is the world’s third major economy: the European Union. 

After Italy’s COVID disaster last February, most European countries were able to implement quarantine and lockdown restrictions that at least temporarily restricted the spread of the virus. Germany in particular was held up as a global model. These early successes testify to the strength of Europe’s welfare states and public medical systems. 

However, the E.U. vaccination campaign highlights a failure to properly leverage its economic power and become a true fiscal state. Instead of pursuing vaccine development at any cost like the U.S. and Israel, for example, the E.U. stuck to a strategy of attempting to negotiate with firms to secure a lower price, costing it precious time and weakening Brussels’ hoped-for all-European effort. 

Instead, individual E.U. members are now scrambling to secure vaccinations outside E.U. channels. Vaccination failures have complicated even Germany’s once-vaunted public health efforts. Publics that once saw a competent government are losing patience with restrictions, with almost no end in sight and no urgency to act.

The European economic response has been hampered by the same problems as its vaccine strategy. The pandemic spurred hopes that Europe might begin the process of creating a common budget through a European rescue fund. These early hopes for swift action have been dashed by delays caused by opposition from the so-called “frugal four” — Austria, the Netherlands, Denmark and Sweden — that lasted for the first five months of the pandemic and were only approved by the German constitutional court a week ago. The slow deployment of the rescue plan has hurt growth in Europe’s weak southern periphery, which has been disproportionally impacted by the pandemic. And with the rescue package still awaiting ratification, already there are calls for fiscal discipline in the European south.  

The pandemic underlined the primary weakness of the European project: its lack of a central fiscal state. The modern E.U. was organized as a free trade zone and a smaller “optimal currency area,” or a set of countries that share a currency and monetary policy without sharing a fiscal policy. The founders of the E.U. assumed that free trade and movement between countries would create a balanced common market that did not need fiscal transfers between states. This belief in the power of free trade was complemented by a deep faith in monetary policy to respond to shocks to the economy. 

The 2008 financial crisis shattered these assumptions, and Europe has been stuck in a low-growth equilibrium since. The north has continuously under-consumed compared to its productivity and forced its exports on the south, which can neither spend to invest in productive capacity and stimulate the economy nor adjust exchange rates downward to make their own exports more competitive. This stagnation hurts wage-earners in both regions, spurring an increasingly nationalist political environment. 

At the outset of the pandemic, many had hoped that a central fiscal policy, a critical piece of state capacity, might be built, and the dream of European economic solidarity might emerge. Unlike 2008, it was difficult to blame the poorer members of the E.U. for being profligate. However, like China and the U.S., the pandemic has exposed that Europe is a hostage to path dependency. 

The COVID-19 pandemic has not provided us with any easy answers on what political system is best. But it has revealed that every model of socioeconomic organization in the world’s leading economies is remarkably uneven. State capacity turned out to not be just one thing. Instead, it is a highly unevenly distributed set of capacities that are not only shaped by a country’s or group of countries’ history of development, but its place in the global political economy. 

However, there is one conclusion that we can take away. Reports of the death of American power are greatly exaggerated. The U.S. still has an outsized capacity to use its fiscal state to solve big problems. Unlike China or the E.U., the willingness to use this capacity has demonstrated a real change in policy that was triggered by the pandemic. 

Spending on physical and human capital doesn’t solve all things, but it solves many things. The U.S. can build the capacity needed to overcome the weaknesses in its government if it can align its politics behind it. This might be a herculean task, but we should heed Winston Churchill’s observation that Americans will do the right thing after exhausting all other alternatives. 

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The rise of the “data economy” rightly makes people nervous. From political propaganda to scandals involving personal data, companies like Google, Apple, Facebook and Amazon have not exactly covered themselves with glory. Politicians and others have grown more and more concerned about how the data economy is becoming monopolistic and exploiting workers, and several Democratic presidential candidates have proposed using the tools of monopoly regulation to break up the Silicon Valley giants. These efforts are commendable but ironically may not be ambitious enough.

Regulating the digital economy will mean not only assuring competition, but also actively incentivizing ways it serves the common good. New data-intensive firms have tremendous potential to transform the economy. But so far, their effect has been negligible. American productivity is slowing and whatever benefits productivity brings has not returned to workers. To fully realize the potential benefits that this industry may bring, we need to treat it like what it most resembles — a utility. The utility approach to regulating data firms opens a vista of possibilities to create a new economic ecosystem that serves the public good while assuring economic growth.

At first glance, the challenges of regulating data-intensive industries might seem unprecedented and daunting. Data, unlike many other commodities, has huge network effects and returns to scale. Our individual information is valuable but not as valuable as the aggregated information of many users. “Big data” allows developers to sharpen predictive and analytic tools and could eventually be the fuel upon which giant leaps in artificial intelligence is developed.

There are harms that come with this segmented platform ecosystem. First, developers are reliant on one or another platform for inputs restricting the interoperability of systems. As a result, large platform companies can then either acquire or compete with their customers. This is common enough that developers have termed it “the kill zone.” Indeed, despite tales of Silicon Valley entrepreneurship, new business creation is down and many technology startups are sold to major firms.

“To fully realize the potential benefits that the data economy may bring, we need to treat it like what it most resembles — a utility.”

While these arrangements are good for some individual entrepreneurs who are well compensated for selling their firms, it is bad for competition and the larger economy. This might be the answer to the infamous “productivity puzzle” — the question of why, despite massive technological advances, productivity has slowed. Instead of diffusing productive advances across industries, platforms with large network effects force other firms to rely on their standards and environments to deploy technology.

We are faced with a dilemma. On one hand, big data requires scale and uniformity that fits a large network better than many small silos. However, this same effect is also responsible for an inequitable, politically opaque and ultimately inefficient structure for a vital new industry. The good news is that we’ve been here before, and we have the tools to solve these issues. The creation of utilities, or publicly authorized and specially regulated monopolies, is a cornerstone of American anti-trust law seen by the original progressives as a powerful tool with which to combat rent-seeking but “natural” monopolies.

The progressive era also offers us an example of a general-purpose technology that mirrors data and AI: electricity. Despite the development of the steam turbine in the late 19^th century, it took decades for the impact of the technology to be felt. Firms either had to have the capital to install their own turbines in their factories, or they had to rely on transmission lines being established by unregulated monopolies. Starting at the municipal and state levels, political leaders and constituencies established public utilities for electrical transmission.

We also have a model for how the American government successfully shaped an emerging industry by creating and directing an innovative ecosystem. During the Cold War, the Defense Advanced Research Projects Agency established missions for private industries to collaborate on. Using its role as funder and customer, DARPA coordinated these collaborations and made sure that firms participating in these operations relied on each other to form innovative ecosystems in which knowledge was shared rather than hoarded. In fact, DARPA contracts explicitly forced competing contractors to share proprietary information with one another.

“The good news is that we’ve been here before, and we have the tools to solve these issues.”

The experience of utility regulation and DARPA provide us with a blueprint to tackle a monopoly in the new economy in a way that benefits multiple stakeholders rather than entrenched interests. Public data banks — “data utilities” — should be established by localities, states and the federal government. The goals of these data banks should be to establish a standard for public data, integrate private data with public data to create universal access to all firms and to create an ecosystem in which private companies are dependent on the public data bank and each other to innovate. Such agencies should aggressively solicit the transfer of private data to public uses using contracts and tax incentives.

Fortunately, there are several discussions in a wide variety of municipalities that may one day evolve toward such a data utility. The city of Toronto and a Google subsidiary called Sidewalk Labs are collaborating to solve the problem of data access and governance via the creation of an “independent civic data trust,” which would control the data. There are many ethical and governance questions that arise from this arrangement, but the point is that there is a legal architecture in place to solve them.

However, a trust alone is not enough to steer the new economy in the way a utility could. In California, following a call by Governor Gavin Newsom for a “data dividend,” some theorists have begun to think of a “dividend” in the broad context of a public good. One strategy would be to set up a data tax to fund a “Data Relations Board” that would build on existing legislation to build a public data set. The DRB would be able to use tax breaks and other incentives to encourage firms to transfer proprietary data sets into the DRB’s custody for wide use. By establishing a public infrastructure, this new agency would be able to guide the development of the data economy toward a larger public good.

Public data utilities are a vital policy for reshaping the economy to serve the public good, as well as to restart stagnant economic growth. Since the collapse of the dot-com bubble, the rate of productivity growth — the measure of economic and technical progress — has stalled in most industrialized economies, despite the fact that new technology has developed at an exponential scale. Public data utilities could help unblock the bottlenecks that have been limiting the wide-scale deployment of these technologies and help construct an economy in which members of the public have a chance to benefit from the fruits of increased productivity.

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