… is from page 225 of the Mercatus Center’s 2016 re-issue of my late colleague Don Lavoie’s brilliant 1985 volume National Economic Planning: What Is Left?:
Planning in practice is characterized precisely by this public image of comprehensive control combined with an intense concentration of arbitrary government power but inevitably lacking the detailed knowledge to exercise that power intelligently.
Not since the failure of the market-socialists in the 1930s to meet the Mises-Hayek challenge to explain how government planners would get enough information to successfully replace market processes with bureaucratic commands have proponents of planning or industrial policy made any serious effort to explain how the state will acquire the knowledge it needs to successfully ‘plan’ or to ‘steer’ any economy larger than a few dozen people. Industrial-policy advocates such as Oren Cass, Daniel McCarthy, and Marco Rubio simply ignore the problem or assume that it will be solved by some unmentioned miracle.
The knowledge problem, as it is called, is no piddling one. It’s not a detail that can be overlooked or one whose solution can be expected to emerge naturally when resource-allocation decisions are in the hands of government officials. Yet the fact that people such as Cass and McCarthy hardly even acknowledge the existence – and much less the severity – of this problem reveals the recklessness with which these advocates of industrial policy ignore economics – and history.
These people seem to think that they’ve adequately dealt with the knowledge problem by (falsely) accusing those of us who today insist upon its relevance of missing the nuance in Hayek’s analyses – of peddling “simplistic absolutisms.” Having thus dispensed us ‘simplistic absolutists’ into the bin of people who can be ignored, advocates of industrial policy then go on about their business asserting that government officials empowered to override market processes will (merely by assumption) succeed in the way that these advocates of industrial policy assert they will succeed.
But unless and until these advocates of industrial policy offer some positive explanation of just how government officials will get more knowledge and information than is used by the market participants whose decisions these officials override, these advocates of industrial policy deserve to be ignored.
Offering such a positive explanation, note, is a necessary but not a sufficient condition for industrial-policy advocates to establish the validity of their case. Any such positive explanation, once offered, would then be compared to reality – more specifically, the ability of government planners in the real world to get, process, and act upon information would be compared to the ability of private market actors in the real world to get, process, and act upon information. Only if it were shown that government officials, under plausible circumstances, are likely as a rule to out-perform private market actors would there be a credible economic case for industrial policy.