Low electricity prices, lighter labor regulations, and strict enforcement of the Clean Air Act are key to strengthening U.S. industrial policy
Alan Krueger is a great choice to lead the CEA but is it his job to figure out how to "create jobs" for the U.S economy? I don't think so. The NY Times wants us to have more manufacturing jobs and it has vehicle batteries on the the brain. Such Michigan investments may help but the jury is still out on whether industrial policy is a wise investment. Can you pick winners? At the horse track maybe, but in a multi-trillion dollar economy?
Fortunately for the world, Erin Mansur and I have written an applied paper investigating where U.S manufacturing agglomerates. If you want more manufacturing jobs, then you need to vote for; 1. low industrial electricity prices, 2. lighter labor regulations, 3. careful enforcement of the Clean Air Act.
To be a little bit more precise, industries that are energy intensive avoid high electricity price areas. Industries that are labor intensive avoid union states and industries that are pollution intensive avoid areas that are not in compliance with the Clean Air Act.
A cleaner test of our findings would be if counties in the United States could be randomly assigned their bundle of industrial electricity prices, labor regulations and Clean Air Act regulations. Suppose that the random assignment would last for a fixed amount of time such as five years. Firms would recognize this policy commitment and would choose their profit maximizing locational choice and the number of jobs they would want to create. From observing where firms locate and their job creation as a function of randomly assigned policies, we would have air tight evidence on the role that these 3 factors play in determining the geography of jobs. Will Alan Krueger endorse this experiment?
So, under random assignment; some U.S counties would have low energy prices, low labor regulation and low environmental regulation while others would feature the opposite If we make this discrete, counties would be randomly assigned to 8 mutually exclusive and exhaustive categories (high or low prices, high or low labor regulation, high or low environmental regulation).
I am taking the field experiments literature quite seriously but I'm applying it to "macro policy".