WASHINGTON, October 4, 2026 – Three years ago, Washington placed an enormous bet. With legislation in 2021-2022 funneling hundreds of billions into chips, batteries, and clean manufacturing, agencies across the government started investing public money in high-tech infrastructure. The promise was a rosy one of homegrown silicon, battery production at home, and well-paid manufacturing jobs. On TV, it looked great. But take a stroll around the empty site in Chatham County, North Carolina, where an electric car plant is on hold, and the storyline starts to unravel.
This story has played out before. In 1982, the business school community came up with the dire warning about the need for American industrial policy to fight off competition from abroad. The idea was straightforward enough – choose certain sectors, provide subsidies, and then have the federal government run the market. Forty years later, this script is once again popular, but the structural facts remain the same.
Corporate winners chosen by the government may seem clean on paper, but the truth is that it becomes very complex very quickly. The manufacturing output in the United States has been virtually unchanged since 2022 despite massive federal investments, showing an imbalance between the money spent by the government and the growth in the economy.
Consider the super-projects that were supposed to emerge thanks to new legislation. Delays are accumulating everywhere. Big chip producers keep postponing production deadlines for their billion-dollar facilities in Arizona and Ohio owing to labor shortage issues, increasing costs, and numerous bureaucratic obstacles. Small suppliers deprived of federal funding are abandoning their investment plans quietly. In the electric car industry, the situation looks equally fragile. Many electric cars are not profitable per unit, and thus big American manufacturers are postponing their factory-building projects.
But why the bottleneck? Because throwing government money at factories is not going to solve any actual logistical problems. It is impossible to legislate a revival of industry when there are no workers able to operate it and no infrastructure to enable it. When federal spending is done without sorting out local permits, labor availability, and logistics, you get not industrial revival but inflation, major delays, and specialized labor shortages.
Market economists pinpoint this exact error in reasoning: attempting to inflate demand for selected industries through government spending without sorting out baseline regulatory obstacles simply creates demand bubbles contrary to real-world economic resistance. When subsidies hit resistance from operational obstacles, projects do not move forward and capital lies idle, while consumers pay the price.
And let’s face it, politicians have never been known to be discipline-minded venture capitalists. According to public choice theory, when governments choose which industries will be successful, what follows is government favoritism in politics. Political favors go to the connected incumbents instead of the creative entrepreneurs. In the meantime, essential supply-side reforms—repairing the broken immigration channels for engineers, cutting down on bureaucracy, and updating electrical grids—are postponed since they do not produce exciting photo opportunities.
This does not mean that federal industrial policy is an exercise for the wastebasket by default. The history of the United States shows that the country knows how to allocate money for fundamental research and science, and infrastructure projects. But there is a huge gap between building more roads and funding laboratory work in universities and trying to control the manufacturing industry through bureaucratic desks.
In order to have a stable industrial base in this case, the government should be well grounded. Stop trying to manage production chains of the private sector from the offices. Instead, try to change the environment in which American companies can really create something valuable. Otherwise, we will spend billions and billions on buying time.
