Tuesday, September 29, 2020

Industrial policy for growth

Jared Woodard, head of Bank of America's Research Investment Committee, joined Joe Weisenthal and Tracy Alloway on the Odd Lots podcast to talk about why all financial markets have begun to seem like the same trade. For example, prices for gold, Tesla, Ethereum, and cloud computing stocks have been closely correlated lately.

Around 21:30 Jared starts discussing fiscal policy directly:
"The more important shift to look out for is what happens in public policy over the next several quarters and years. Monetary policy won't move the needle independently, it just affects what happens in some far off distant land of a really hot economy. And if fiscal policy only remains limited to providing life support when it's absolutely necessary -- like we've seen this year in the biggest and fastest fiscal expansion in US history outside of WWII -- all it does is gets us back to where we started the year, so we're not going to break out of this world of secular stagnation and scarce growth.
"To see a level shift / elevation to a new tier of growth and productivity requires new investment, especially industrial policy. This has worked really well in the past in the United States, South Korea, Japan, Germany. Basically any modern industrialized economy hasn't gotten to where it is today without some cooperation between the public and private sector when it comes to incentivizing research, boosting productivity in key industries, and protecting nascent industries, including with government as a buyer.
"Things are changing as countries realize that competition globally requires more than a laissez-faire attitude. So if governments continue the path they've started this year --  for example, there were 15-20 bills in Congress with bipartisan support designed to incentivize R&D and capital expenditures in new technologies -- you could see a big boost to productivity. That's what happened in the US during the Cold War. That's the scenario -- a combination of supporting consumption and incentivizing productivity -- that could get us to a new growth scenario and actually cause a profound shift in the kinds of portfolios that could work well."
Joe summarized Jared's point with "If I'm hearing you correctly, the best thing for the finance and oil industries would be a huge Biden and Democratic sweep and massive fiscal stimulus."

Jared mentions Michal Kalecki's 1943 paper The Political Aspects of Full Employment (summary here) as a prescient summary of the trend we've seen in the US toward a decrease in the power of labor and an increase in the power of capital. This trend has come with a corresponding decline in manufacturing capacity utilization rates, aggregate demand, and inflation. He then explains why there is now bipartisan support for measures such as the Senate authorizing $25 billion for semiconductor manufacturing in the US. In addition to industrial policy, there have been movements on the left and right that incorporate discussions about things like universal basic income, job guarantees, a better deal for working families, and labor unions.
"Things that were politically unthinkable 10 years ago in both parties are suddenly very thinkable today. The bottom line is that many owners of capital, including regular investors, are starting to realize that they're in the same boat with many workers, and if they don't find a new type of negotiated settlement of the sort that we had across the western world after WWII, then things are gonna go badly, not just for working people but for people trying to invest as well."

No comments:

Post a Comment