In his 1974 Nobel Prize lecture, economist F.A. Hayek warned his profession against the dangers of what he called “the pretense of knowledge.” Our society, he noted, is so much more complex than we can even comprehend, and essential pieces of knowledge about it are dispersed among millions of individuals. Hayek urged economists and social scientists to maintain humility about the limits of their own knowledge, and to resist the intoxication that comes with the heady authority of “expertise” used to experiment with and control the populations that these “experts” believe need guidance.
To top it off, he noted that thinking of economics as akin to a natural science leads to the very mistaken belief that anyone could know enough to engineer society successfully. In fact, he famously added in The Fatal Conceit, “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Leonhardt and Wu engage in rhetorical legerdemain by equating monopolization that results from crony capitalism with monopolization that results from the market competition. Before explaining, let me hasten to add that I don’t deny the existence significant levels of crony capitalism in the U.S. and the problems it creates. What I deny—and this is what creates the problem in crafting a policy response—is that market concentration is a useful proxy to measure market power.
Nationalism is, among other things, a gigantic aggregation error. It takes a huge, enormously diverse collection of people and imagines that each and every individual in the collection is somehow better than each and every individual in other nation-states. The more you think about it, the more idiotic it becomes.
You have heard it said “free trade only works when it is fair trade, and when foreign companies get subsidies from their governments, they aren’t trading fairly. Therefore, we must punish these cheaters with tariffs and other restrictions.”
But I answer that we should not punish these “cheaters.” If anything, we should thank them–and if anyone is made worse off by the subsidies, it is the taxpayers in the countries that are doing the taxing and the subsidizing. Americans, on net, are better off because we get more stuff for the sweat of our brows.