SECTORAL AID: A LETTER TO THE ECONOMIST (February 24, 2009)

There are ever-louder voices that manufacturing, and especially car manufacturing, should be bailed out just like banking before it. I am with you when you argue in your main leader that this would not be wise (“The Collapse of Manufacturing,” February 21, 2009). Consumers should decide about such matters. Besides, there is a real danger of a protectionist backlash. But you overstate your case by arguing that all sectoral aid is wasteful and dangerous. As you point out, the economy is like a network in which everything is connected with everything else. To paraphrase Orwell, though, some sectors are more connected than others. The total effect of increasing the demand of a particular sector by a given amount is measured by several multipliers: output, employment, import, or export. The total effect includes increases in output, employment, import, or export across the economy as a whole.  In most countries, manufacturing has high output and employment multipliers, but it also has high import and export multipliers, whence my support of your caution. By comparison, construction typically has equally high output and employment multipliers as manufacturing, but low import and export multipliers, which is why it is sometimes used to pull an economy out of the doldrums. To wit, not all sectoral aid is wasteful and dangerous. And many a wise government will thus prop up its economy by propping up the construction demand.