"The Rise of Mesoeconomics" - William H. Janeway

In our last visit with Bill Janeway, "The Forgotten Origins of Silicon Valley" - William H. Janeway, I didn't mention that he is not your typical pointy-headed academic. Here's his mini-bio at Cambridge Uni.:

Ambassador for Cambridge Judge Business School

Senior Advisor & Managing Director, Warburg Pincus

Dr William H Janeway is a Senior Advisor and Managing Director of Warburg Pincus. He joined Warburg Pincus in 1988 and was responsible for building the information technology investment practice. Previously, he was Executive Vice President and Director at Eberstadt Fleming. Dr Janeway is a director of Magnet Systems, Nuance Communications, O’Reilly Media, and a member of the Board of Managers of Roubini Global Economics. He is a Visiting Lecturer in Economics at the University of Cambridge and Princeton University.....

"....and so forth, and so forth, and so forth."   

(last seen a couple days ago)

From Project Syndicate, May 17, 2024:

 

The digitalization of economic life and real-world data has opened up new possibilities for the study of the economic networks, regions, and sectors that ultimately determine how economic policies play out in the real world. Such modes of thinking will be crucial for economic policymaking in a new age of geopolitical risk.

CAMBRIDGE – In 1950, George A. Lincoln of the US Military Academy’s Department of Social Sciences published Economics of National Security: Managing America’s Resources for Defense, in which he and his colleagues distilled the lessons learned, often belatedly and painfully, from industrial mobilization during World War II. But in a second edition just four years later, Lincoln offered a “complete revision” to take account of the additional lessons learned from the “partial mobilization” for the Korean War. 

The second edition provided a comprehensive, detailed analysis of what Bernard Baruch, the chair of the War Industries Board in World War I, called the “5 Ms of mobilization”: manpower, materials, money, manufacturing, and morale. But it also anticipated the emerging threats of the Cold War by identifying four distinct levels of mobilization. The first is a full mobilization, which describes what the British, more than the Americans, underwent during WWII. The second is a limited (or partial) mobilization, such as what the United States pursued in the two years prior to Pearl Harbor and following the outbreak of the Korean War. The third is a sustained high “plateau of preparedness,” equivalent to what the US maintained, to varying degrees, throughout the Cold War. And the fourth is a demobilized “normal” peacetime economy. In previous periods of peace dating back to the American founding, government procurement – including of munitions – represented trivial claims on the country’s resources. But the economics of national security after WWII represented a new paradigm. Each of the varying levels of mobilization was distinguished by its relative demand for resources and the legitimate need for measures to override price signals. This is where the economics of national security overlaps with and can inform the economics of a broader range of industrial policies. 

 

In all such cases, the key challenge, according to Lincoln, is to determine “the relationship between requirements and capabilities,” which in turn depends on “the existence of adequate experience, data, and statistical information.” As he put it: “Although it is comparatively easy to speak of converting requirements for forces into terms of end items and of end items into needed raw materials, machine tools, manpower, and facilities and of converting these factors into money, the actual detailed action of conversion from one category to another is a difficult process requiring judgment and a great deal of toil and time. The capabilities side of the equation is even more difficult. We need to know what exists in the United States economy, how it can be adjusted to a security effort and the timing of the adjustment. A security effort is dynamic, with integrated activities proceeding concurrently. A miscalculation which is small, measured in dollars or tonnage, a shortage of copper, for example, may create a major disruption.”

Rediscovering Industrial Policy 

Seven decades later, this mode of thinking has become newly relevant, because it offers the necessary framework for operationalizing the “modern industrial and innovation strategy” that US President Joe Biden’s national security adviser, Jake Sullivan, presented on April 27, 2023. According to Sullivan, the US faces multiple, mounting economic- and national-security concerns, owing to its “hollowed out” industrial base, “a new environment defined by geopolitical and security competition,” an “accelerating climate crisis and the urgent need for a just and efficient energy transition,” and “the challenge of inequality and its damage to democracy.” All these problems demand “an economic mentality that champions building.” The US must ensure that it has the “capacity to produce and innovate, and to deliver public goods like strong physical and digital infrastructure and clean energy at scale.”  

In response to these challenges, the administration has implemented industrial policies such as the Infrastructure Investment and Jobs Act (2021), the CHIPS and Science Act (2022), and the Inflation Reduction Act (2022). Even taken together, these do not come close to the comprehensive mobilization of resources that won WWII on “the momentum of production,” nor do they compare even to the modest partial mobilization for the Korean War. But they are steps in the same direction. Re-shoring America’s lost capacity for high-tech manufacturing and accelerating construction of green infrastructure will require something like a melding of Lincoln’s “partial mobilization” and the “plateau of preparedness.” Moreover, building these capacities is bound to generate upstream bottlenecks, owing to critical dependencies that will become apparent only through (frustrated) practice. Fortunately, the new US initiatives have been deployed at a time when the idea of industrial policy is regaining some legitimacy within the economics discipline. Long derided by economists as the fruitless and wasteful attempt to “pick winners,” historic examples of effective industrial policies are now being rediscovered and evaluated with rigor. A recent survey of the literature by economists Réka Juhász, Nathan J. Lane, and Dani Rodrik calls attention to a range of approaches that have been adopted to induce structural change in market economies by shifting incentives for competition in sectors deemed strategic (as opposed to identifying specific “national champions”). Of course, the most salient example is the US Defense Department’s sponsorship of all the technologies that combined to make the digital revolution: a hugely successful exercise in operationalizing the economics of national security.

 

The Middle Ground of Economics....

....MUCH MORE

 

As far as "the new age of geopolitical risk" I'm not sure National Security Advisor Sullivan is as bright a bulb as could be desired in the NSA seat. To date he is most famous for stating at The Atlantic magazine's Atlantic Festival: "The Middle East Region Is Quieter Today Than It Has Been in Two Decades"

 

That was eight days before the Hamas atrocities of October 7, 2023. 

And the events that have followed in the ensuing 376 days.

Considering the resources the National Security Advisor can draw upon, CIA, NSA. DIA, National Reconnaissance Office and fourteen other agencies he is either a damn fool or they (the agencies) are a bunch of cosplaying charlatans.