The Designer Economy

With the right structures in place, we can transform the government from a passive issuer of regulations and transfer payments into an active builder of an equitable and sustainable economic future.

Raw & Rendered
Credits

When Thomas Piketty’s “Capital in the Twenty-First Century” was published in English in 2014, critics pointed out that the book was the product of a particularly pessimistic political and historical moment. In those years, leading policymakers and public intellectuals on the center-left believed that the post-2008 world of slow growth, stagnant wages and middling unemployment was the best we could get — that 5% unemployment and 2% real GDP growth represented the natural state of the economy

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. 

“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.”

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. 

“The Biden administration is using governmental intervention to design an economy that is meant to avoid emergencies.”

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.

“Government investment into real resources and production guidance has become a rare point of bipartisan agreement.”

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.

“Seemingly strange bedfellows, allying under the umbrella of the Designer Economy, will define American economic policy for the next several decades.”

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.”

Noema is hiring a senior editor who will work with us in LA or remotely. The salary range is $110,000 - $160,000, and candidates should have at least five years experience editing. Apply here.

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.”

“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.”

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.

“Rejecting anti-government rhetoric and instead celebrating competent operators is a crucial first step to managing a Design Economy.”

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. 

“The idea of the Designer Economy has the potential to rescue the dream of intentionally transforming the economy to better serve our shared purposes.”

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.