PUBLIC FINANCE AND COMPARATIVE ADVANTAGE POLICY.

From the beginning of industrialization, the comparative advantage of the United States has always been in knowledge-intensive, emerging technology goods, with entrepreneurs figuring out ways to make people with modest skills productive, whether that is the monotony of the assembly line or the tedium of debugging lines of code.  That's still true, and Noah Smith is thinking about what that means.  He sees a government attempting to square two principles that might have to be traded off, seems like equity and efficiency are still there, long after Arthur Okun called attention to a related trade-off.  We're not in Adam Smith's pin factory any more; rather, we're in a semiconductor fabrication works.

A fab is a semiconductor fabrication plant — a factory where computer chips are made. They are huge, incredibly expensive things — a single fab can cost $17 billion, more than the entire 2020 capital expenditures of Facebook. Simply reading about what it’s like to work in a fab puts one in awe of modern technology. The amount of specialized machinery and software required to operate a fab is incomprehensible.

The amount of technical knowledge required to operate a fab is also staggering. When my friend, with a physics Master’s degree, went to work at an Intel fab, he found that he was the only person on his team without a PhD. A fab is a factory, but it’s not a 1908-vintage assembly line where people stand at an assembly line welding pieces of metal together to make a Model T. You have to understand advanced math and physics just to be able to make these machines run.

Which brings me to the point of this post. Fabs are a vivid illustration of the need for a strong STEM (science, technology, engineering, and mathematics) education system in the United States. In recent years there’s a push to de-emphasize STEM, mostly out of egalitarian concerns. But this push is wrongheaded. Egalitarianism is a worthy goal, but de-emphasizing or limiting STEM isn’t going to make us a more equal society; it’ll just make us economically weaker.

There has to be a metaphor to take the place of "carry water for a patternmaker" in there somewhere. I just can't come up with it.  We're still talking about the same thing, which is that some kinds of special machinery require more talent to operate than others.  The fun begins when some entrepreneur figures out how to Fordize those machines.  I suspect it is that phenomenon, rather than a race to more populous countries, that is the greater threat to the current comparative advantage in U.S. chip manufacturing.

The U.S. economy benefits enormously from exporting things like Intel chips, Google software, Apple phone designs, Applied Materials chip-making machines, and so on. If these industries migrate to Asian countries, the U.S. will be less able to generate the wealth that local service industries and government redistribution spread around.

Biden seems to know this, which is why his economic program relies heavily on spending more on scientific research. Government-supported scientific discoveries trickle down to knowledge industries and preserve U.S. dominance of the kinds of high-tech activities that bring home the bacon so that the rest of our economy can spread the wealth around. This is what I call the “two-track economy”.

I'll let somebody else tackle the symbolism of subsidized trickle down good (anybody else remember Teflon and Tang) while commercial trickle down is bad, if it even exists.  In simpler terms, those chips, search engines, and circuit boards are contemporary equivalents to Falk's gears or Harnischfeger cranes or Bucyrus-Erie power shovels.  For "local service industries" read corner tavern and bowling lanes and air-conditioned movie houses and sports teams.  Update those as you wish.

It's not so much that there are more people, meaning more potential operatives, in other countries, that pose the threat to the current comparative advantage.  Rather, it is that those other countries might create clean room aristocrats whilst United States educators shy away from cultivating genius.

Currently, the U.S. produces plenty of math superstars (we regularly defeat China and Russia in the International Math Olympiad), but on broad measures of math education we don’t do so well. On international tests of reading ability, the U.S. scores well above the average for developed countries, but in math we score below average. We’ve improved a bit in recent years, but we’re still pretty mediocre.

That seems unlikely to produce the kind of broad-based technical workforce needed to staff the fabs and labs that power U.S. knowledge-based industries. Of course, most workers in those industries will occupy a mezzanine level of STEM skill between “star researcher” and “able to pass a high school math test”. But the fact that such a high percentage of our grad students in STEM fields are from overseas suggests that there’s huge room for improvement in how well we train our own workers.

The key, dear reader, might be to maintain a country that offers opportunities to those overseas graduate students, as well as a domestic educational culture that respects ability and individuality.

We wrote that the U.S. should focus less on identifying talent and more on promoting work ethic and perseverance.

One thing we talked less about, but which I believe strongly in, is the importance of long-term motivation. It’s easy enough to motivate youngsters with parental and teacher pressure, but once they enter the long slog of adult life, they’re only going to work in a fab if they want to. At least two people I went to high school with are now mathematicians despite not being among the top scorers on childhood tests (meanwhile, I write op-eds for a living!). And while some child prodigies eventually become STEM stars, but some insist on having normal, average lives and careers. In other words, what people want to do is ultimately more important than what they’re told to do.

And both work ethic and personal motivation matter when on the job.

Alas, he continues (at some length), what goes on in elementary and secondary education fails either at improving social justice dispositions among the inmates or in cultivating talent to run those chip works.