Industrial Policy

Abstract

Macroeconomic policies are designed to affect the overall economic climate such as the levels of savings, investment, inflation and unemployment by manipulating such things as government spending, the amount of money in the economy, the taxation rate, and the exchange rate. Macroeconomic policies generally reflect the neo-classical economic idea that the government’s role in the economy should be minimal, that government should confine itself to managing the money supply and public spending to smooth out economic cycles. Neo-classical economists have a static notion of comparative advantage whereby every country has a different mix of advantages and disadvantages over the goods it can potentially produce. Countries should manufacture what they produce most cheaply while importing everything else. All industries are equally valued: skateboards can be as important to the economy as satellites. Free markets are seen as ends in themselves; by definition, the more markets are freed from government interference, the more the economy will be efficient, productive, and prosperous. This idea was embraced most enthusiastically by early industrializing countries like Britain and the United States, whose industries largely evolved without significant government assistance.