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We Lost the Factories. Then We Lost the Students.
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We Lost the Factories. Then We Lost the Students.

Industrial Policy #7 - millions of smart kids steered away from building things

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Real Charts
Apr 25, 2025
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We Lost the Factories. Then We Lost the Students.
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Back to the industrial commons this week. What if the real cost of bad industrial policy isn’t just offshored factories — but millions of smart kids steered away from building things?

This one started with a clip from Palmer Luckey on Rick Rubin’s podcast. Large excerpt from that podcast in today’s Recommended Listen. Luckey, who founded Anduril, doesn’t pull punches when talking about what the U.S. lost in letting go of manufacturing.

Here, I’m exploring the downstream effect of those choices:

  1. Why smart students in the U.S. and China make such different decisions

  2. How subsidies can create labor gluts, not golden tickets

  3. And why, in China, state support often lowers wages instead of raising them

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“There are no solutions, there are only trade-offs; and you try to get the best trade-off you can get, that’s all you can hope for.” ― Thomas Sowell

What Shapes a Nation’s Talent?

Imagine a smart 18-year-old in the U.S. and one in China. Both are top students, both at a crossroads. What they choose to study — and eventually do for work — isn’t just a matter of personal interest or ability. It’s shaped by something much larger: the structure of opportunity that surrounds them.

In the U.S., that means scanning a labor market where the best-paying jobs are in tech, finance, or law. In China, it might mean heading straight into engineering — because that's where the jobs are, and where the state is pushing investment.

These decisions don't happen in a vacuum. They’re a feedback loop between labor markets, education systems, and industrial policy. And when subsidies flood a sector, and firms outgrow those subsidies—they don’t just reshape industries. They reshape lives.

The Slow Erosion of America’s Industrial Commons

I previously covered Andy Grove’s warning not to abandon so-called “commodity” manufacturing. Those mundane operations—casting, welding, molding—aren’t low value. They are part of an industrial commons: the shared know-how, infrastructure, and labor pool that support entire industries.

Losing an industrial commons today means losing the ability to scale future innovations tomorrow.

We hollowed out our manufacturing base. Not overnight, but steadily — driven by flawed economic models and free trade orthodoxy. The idea was simple: let comparative advantage do the work. But free trade doesn’t exist. It’s managed trade. And we let other nations manage it better.

As Palmer put it:

The problem is — and I mean, there are a million problems — but what we did was hollow out our country by allowing China into the World Trade Organization and letting American companies outsource manufacturing to China without penalty, without import tariffs, without any disincentive to do it. Why wouldn’t you, if you’re allowed to send production to another country where everything’s cheaper, there are no environmental regulations, and no labor laws? Why wouldn’t you?

We’ve been able to get a bunch of cheap stuff over the last 50 years as a result. That has helped in some ways — everyone in the U.S. can buy cheap TVs, cheap cars, and cheap goods because of China’s rise. But the flip side is there’s no more manufacturing here.

The erosion of our industrial commons was gradual, except the labor part—that went quickly. Here we can see it with respect to our manufacturing employment statistics:

Smart Kid in America

Let’s look at it through the eyes of a high-achieving American student.

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