In my most-recent column for AIER, I do my best to point out some errors that are in Oren Cass’s recent attempt, at Law & Liberty, to defend industrial policy against Samuel Gregg’s wise warnings against such policy. A slice:

Now to Cass’s foundational error, which is this: he completely misses the market’s role at gathering and processing information. This error is revealed when he equates the competitive market to the meanderings of a drunk donkey. In fact, it is no such thing.

As many economists – from Adam Smith in the 18th century through Carl Menger in the 19th and Ludwig von Mises, F.A. Hayek, Armen Alchian, Milton Friedman, Julian Simon, Deirdre McCloskey, and Vernon Smith in the 20th and 21st – have revealed, the competitive market price system at every moment marshals and acts in accordance with an amount of dispersed information so detailed, vast, and frequently changing that no government officials could possibly hope to outperform the results of this market process. These economists’ argument is not that the market process works perfectly; of course it doesn’t. The argument instead is that no amount of conscious planning or intervention can hope to match, and much less to surpass, the performance of decentralized and competitive markets over time.

Cass might disagree with these economists and their arguments. But for this disagreement to obtain any measure of legitimacy requires that he advance a substantive argument to the contrary. Instead, though, he writes in apparent unawareness of this vast scholarly literature. He simply offers two twin assertions: on one hand, market processes are akin to an intoxicated ass, and on the other hand, government officials somehow (by what mysterious means we aren’t told) have uniquely excellent access both to information about the current state of the economy as well as to knowledge about the future. (Cass also ignores public-choice considerations – that is, the bias of government officials to serve special interests at the expense of the general interest – but that’s a tale for another time.)

Assertions such as those made by Cass are easy to offer. Dreamers, dirigistes, and demagogues have done so since the dawn of the industrial age. These assertions are not, though, a sufficient reason to ignore economic theory and to empower state officials to superintend and to override the results of competitive markets in which individuals, as both consumers and producers, spend their own money – and the results of which have proven, without exception, to be far superior to consciously imposed schemes of politicians and bureaucrats.

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Someone recently wrote to me asking for a reference to something that I’d written comparing the way that we Americans purchase groceries to the way that most of us purchase K-12 schooling. On May 5th, 2011, I published an essay on this topic in the Wall Street Journal, but a search of Cafe Hayek reveals that I have yet to reproduce here that essay in its entirety.

Here it is:

If Supermarkets Were Like Public Schools

Teachers unions and their political allies argue that market forces can’t supply quality education. According to them, only our existing system — politicized and monopolistic — will do the trick. Yet Americans would find that approach ludicrous if applied to other vital goods or services.

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries — “for free” — from its neighborhood public supermarket.

No family would be permitted to get groceries from a public supermarket outside of its district. Fortunately, though, thanks to a Supreme Court decision, families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes.

Of course, the quality of public supermarkets would play a major role in families’ choices about where to live. Real-estate agents and chambers of commerce in prosperous neighborhoods would brag about the high quality of public supermarkets to which families in their cities and towns are assigned.

Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. Poor people — entitled in principle to excellent supermarkets — would in fact suffer unusually poor supermarket quality.

How could it be otherwise? Public supermarkets would have captive customers and revenues supplied not by customers but by the government. Of course they wouldn’t organize themselves efficiently to meet customers’ demands.

Responding to these failures, thoughtful souls would call for “supermarket choice” fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers’ poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state — well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

In the face of calls for supermarket choice, supermarket-workers unions would use their significant resources for lobbying — in favor of public-supermarkets’ monopoly power and against any suggestion that market forces are appropriate for delivering something as essential as groceries. Some indignant public-supermarket defenders would even rail against the insensitivity of referring to grocery shoppers as “customers,” on the grounds that the relationship between the public servants who supply life-giving groceries and the citizens who need those groceries is not so crass as to be discussed in terms of commerce.

Recognizing that the erosion of their monopoly would stop the gravy train that pays their members handsome salaries without requiring them to satisfy paying customers, unions would ensure that any grass-roots effort to introduce supermarket choice meets fierce political opposition.

In reality, of course, groceries and many other staples of daily life are distributed with extraordinary effectiveness by competitive markets responding to consumer choice. The same could be true of education — the unions’ self-serving protestations notwithstanding.

Mr. Boudreaux is professor of economics at George Mason University and a senior fellow at the Mercatus Center.

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… are the closing lines (found on page 185 of the original edition) of James M. Buchanan’s and Richard E. Wagner’s important 1977 book, Democracy in Deficit: The Political Legacy of Lord Keynes:

On the one side, there lies the falsely attractive path toward “national economic planning,” a choice that would have us allow government to go beyond traditional bounds because it has failed even to fulfill its more limited promises. On the other side, there is the way of the free society, of men and women living within a constitutional contract that also keeps governments in well-chosen harness. This way, so well understood by Americans two centuries past, has been obscured by the underbrush of burgeoning bureaucracy. Will we, like Robert Frost’s traveler, choose the road less traveled by?

DBx: In 1977, Buchanan and Wagner were warning against the pretensions mostly of professors, pundits, and politicians on the political left. In 2020 these same people remain sufficiently – perhaps even more – pretentious and, thus, we should continue to beware of them and their mix of hubris, economic and historical ignorance, and wild fantasies.

But in 2020 Buchanan’s and Wagner’s warning is increasingly applicable also to self-identified American conservatives – people such as Marco Rubio, Josh Hawley, Tucker Carlson, Daniel McCarthy, and Oren Cass. Despite some differences that separate each from the other, and that separate each from self-identified “Progressives,” conservative who support interventions such as industrial policy are, no less than their “Progressive” counterparts, ignorant of history, clueless about economics, naive about human nature, uncritical of pop and potted accounts of recent events, dismissive of much of what they profess to respect (including the U.S. Constitution), contemptuous of principles, and stupidly trusting of those in their tribe who possess state power.

Like “Progressives,” these conservatives too often mistake the unavoidable making of inescapable trade-offs as manifestations of problems ‘solvable’ by state intervention. They also – and also like their “Progressive” counterparts – mistake their ability to imagine splendid social and economic outcomes, or to describe such outcomes on paper, as sufficient evidence that such outcomes can realistically be engineered into existence by the state, and will be so engineered if only we entrust the right officials with sufficient power.

These conservatives and “Progressives” would have us lose touch with reality. Looking down one path, they see reality, and they dislike it. Looking down the other path they see only beautiful mirages conjured by their imaginations. Believing the latter to be real, they recommend the latter path. Reality-based people do not follow them willingly down this path, because behind the mirages is a reality far worse – a reality more impoverished and more filled with oppression – than the other path.

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Bonus Quotation of the Day…

by Don Boudreaux on January 19, 2020

in Crony Capitalism, Trade

… is from page 31 of the original edition of Lee Francis Lybarger’s 1914 book, The Tariff (which I just received as a generous gift from David Henderson) (original emphases):

But the word [“protectionism”] as used in the Tariff has the very opposite meaning. It does not protect the people from extortion. It subjects them to extortion, by leaving them to the tender mercies of only one set of sellers. It does not protect the people from high prices. It exposes them to such conditions as make prices high. That is its purpose. The only way a Protective Tariff can possibly operate is to increase the price of the things on which it is levied.

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… is from page 155 of Bas Van Der Vossen’s and Jason Brennan’s superb 2018 book, In Defense of Openness (original emphasis):

Growth is what actually saves lives, actually reduces misery, and actually meets people’s basic needs over time. Past economic growth is why Bas, Jason, Peter Singer, and our readers are debating how much a duty we have to rescue distant strangers, rather than ourselves jostling for the best position in a breadline. Future growth is our best bet – possibly our only bet – to lift the millions who are suffering out of poverty.

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… is from page 142 of the original edition of James M. Buchanan’s and Richard E. Wagner’s great 1977 book, Democracy in Deficit: The Political Legacy of Lord Keynes:

The events of fiscal history strongly support the hypothesis that unconstrained access to public borrowing will tend to generate excessive government spending.

DBx: Yep.

Public borrowing allows citizens-taxpayers today to spend the money of citizens-taxpayers tomorrow, many of whom aren’t yet even born, and much less of voting age. And when people are able to spend other people’s money, they do so irresponsibly and excessively. This irresponsibility and excess only grow when today’s citizens-taxpayers are falsely assured by some prominent economists that the burden of government indebtedness on future generations is nothing, or at most negligible, to the extent that this debt is held by fellow citizens.

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Here’s a letter to Liberty & Law:

Editor:

Attempting to defend industrial policy carried out in the name of economic nationalism, Oren Cass commits several errors that reveal his unfamiliarity with economics (“Comparative Disadvantage,” January 15). Detailing these errors would require a full-length essay, so I here mention only two.

First, Mr. Cass mistakenly presumes that nations compete against each other economically. They don’t, as economists since Adam Smith have demonstrated. An especially notable such demonstration is offered by Paul Krugman in his 1996 book, Pop Internationalism. It’s regrettable that Mr. Cass, when insisting on a reality of which all economists are aware (namely, that comparative advantage is “endogenous”) approvingly mentions Krugman’s work on strategic trade theory, yet nevertheless ignores Krugman’s equally notable work debunking the myth that nations are economic rivals and that – contrary to another of Mr. Cass’s contentions – workers in high-wage countries are harmed by trade with workers in low-wage ones.

Second, when he writes that “[t]he social benefits that we expect from individuals pursuing their self-interest do not extend to macro-economic allocations,” Mr. Cass summarily and emphatically dismisses what is perhaps the single most important discovery of modern economics, namely, that people’s attention within a market economy to their own diverse, individual self-interests results in an undesigned allocation of resources that promotes economic growth and enriches almost everyone. This process is what Adam Smith famously described as being guided productively by “an invisible hand,” what F.A. Hayek identified as a beneficial “spontaneous order,” and what extensive empirical research has overwhelmingly verified.

Mr. Cass, of course, is free to dispute the validity of this discovery. If his disputation succeeds he might even become a strong candidate for an economics Nobel Prize. But a conclusion as sweeping as his cannot legitimately be done so summarily, in a single sentence, and with no support other than a link to one of Mr. Cass’s own earlier essays.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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… is from page 139 of Peter Bauer’s penetrating 1969 article “Dissent on Development,” as it is reprinted in the original 1972 edition of Bauer’s invaluable collection of the same name (Dissent on Development):

The collection of resources for government financed or sponsored investment often has a substantial disincentive effect on saving, effort and enterprise, because of the taxation or controls imposed for this purpose. These disincentive effects can easily offset, or more than offset, the potential increase in income from investment. The contribution of [government-directed] investment to development is a net factor, after allowing for the repercussions of both the collection and the expenditure of the funds. These repercussions include not only a diminution of resources in activities or sectors from which they have been transferred, but also the consequences of their collection on the incentive to save, invest, undertake risk, incur effort and produce for sale. Yet many discussions on planning consider government development outlay as a simple addition to resources, regardless of the provenance of the funds or the repercussions of their collection.

This approach is in part an example of the practice of economics without costs, that is a treatment which ignores the alternative uses of resources absorbed by one activity.

DBx: Bauer was here addressing technocratic “Progressives” who rejected market processes in favor of grand plans designed and implemented by well-meaning geniuses armed PhDs and state power. But his words continue to ring true today, 51 years after they were first published, not only as a necessary warning of the hubris of “Progressives” but also of a hubris increasingly found on the political right, and particularly among “economic nationalists.”

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In my latest column for the Pittsburgh Tribune-Review – published on this, the 100th anniversary of the start of nationwide alcohol prohibition in the United States – I lament some additional costs of such an obnoxious and officious policy. A slice:

The gang violence of 1920s’ liquor trafficking was a direct result of Prohibition which encouraged criminals to supply alcohol and gave them incentives to use violence. It’s no accident that Anheuser-Busch, Jack Daniels and other alcohol suppliers today don’t gun down their competitors or threaten violence on their customers.

Another cost of Prohibition is that it made alcoholic beverages more toxic and stronger.

Unlike today, if an American in the 1920s died or fell seriously ill from drinking tainted beer or wine, there was no one to sue. And no rival of suppliers of tainted booze could compete for customers by openly advertising its superior, safe product. Prohibition thus greatly dampened suppliers’ incentives to avoid selling toxic brews.

Relatedly, because the risk of getting caught rises with the volume of illegal booze being trafficked, alcohol sellers during Prohibition concentrated on selling high-proof spirits and steered away from selling low-proof wine and beer.

One final cost of Prohibition warrants mention — namely, its assault on personal freedom. If we truly wish to enjoy the blessings of liberty, we must accord to each peaceful adult the freedom to eat or drink as he or she choose. Each of us, in short, should mind our own business.

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My intrepid Mercatus Center colleague Veronique de Rugy exposes an atrocious shake-down operation run by the U.S. Department of Labor.

I’m very glad that John Tamny responded to Michael Lind’s weak recent essay in the Wall Street Journal. A slice:

Except that what’s really “snobbish” is the belief that workers shouldn’t “move to opportunity.” It’s snobblish because it insults the very people who made the U.S. great by risking everything (including their lives) on the way to crossing borders and oceans in order to taste personal and economic freedom in the United States. These intrepid individuals were of course promised nothing if they were lucky enough to reach the U.S., but made the ultimate leap on the assumption that freedom to achieve would be all they would need to better themselves economically.

Merrill Matthews isn’t among those who credit the currently strong U.S. economy to Trump’s tariffs punitive taxes on Americans who buy imports.

What is partly responsible for today’s strong economy is the (relative) deregulation that has so far occurred under Trump.

David Harsanyi is dismayed, rightly so, at Democrats’ detachment from economic reality.

When it comes to global-warming alarmism, David Simon says ‘Don’t be like Paul Krugman!

Ronald Radosh writes about the fake historian Howard Zinn.

Chris Edwards compares bureaucracy in New York to bureaucracy in Florida.

As I do nearly every day, Pierre Lemieux wonders what Mencken would say were he still alive.

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