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An Open Letter to Julius Krein

Mr. Julius Krein

Mr. Krein:

A flood of flaws inundates your attempt to justify the tariffs, subsidies, and other interventions that comprise the industrial policy proposed by you and others who are associated with Oren Cass’s project at American Compass (“Planning for When the Market Cannot,” May 4).

Some of your flaws are relatively small, such as your use of logical fallacies to strangle strawmen. An instance of this error is your assertion that the success of South Korea’s semiconductor, shipbuilding, and auto industries is the result of that country’s “ambitious industrial policies.”

First take notice of your logical fallacy: Because all cases that you mention of successful industrial policy, including that of South Korea, occurred in the context of general liberalization of those countries’ economies, it’s fallacious to conclude that the successes of the industries that you single out, or of those economies generally, resulted from industrial policy. Indeed, economic theory – and careful studies of government intervention – give us powerful reasons to suspect that any such successes arose despite, rather than because of, industrial policies.

As Columbia University economist Arvind Panagariya notes on page 232 of his richly researched 2019 book, Free Trade and Prosperity, “once we look at the evidence carefully, Korea supports the case for outward orientation rather than protection, interventionism, and infant industry protection.”

Now let’s identify the corpse of your strawman: No economist – not even those whom you tar with the derogatory yet ill-defined term “market fundamentalists” – denies that government can, by artificially directing resources into some industries, arrange for those industries to thrive or, indeed, even for some of them to eventually operate with comparative advantages. Yet a key part of the case against industrial policy is that any and all such “successes” come at a price, namely, the destruction of other industries. Industrial policy, by artificially directing resources into politically preferred industries, necessarily directs resources away from other industries.

And so you ignore a key argument offered by industrial-policy opponents when you point to industries apparently made successful by industrial policy and declare, ‘Behold, industrial policy works!’

Your strangling strawmen with logical fallacies, however, is a flaw that pales beside a more fundamental error: never do you explain how government officials will get the knowledge necessary to successfully implement industrial policy. You spend much time clumsily – and obviously with scant understanding of the economics that you criticize – trying to explain why markets don’t always operate with complete and accurate information. (Congrats, by the way, for mowing down yet another strawman!) Yet you simply assume throughout that government officials not only have access to greater and more-accurate information than is used in markets, but also that these officials can, at the end of the day, be trusted to act on this information apolitically and in the public interest.

You make no news by noting that some lacunae remain in economists’ theory of how market prices, profits, and losses over time direct resources to their most productive uses. But at least we “market fundamentalists” nevertheless have a positive and coherent theory of – an explanation of – how markets elicit, distill, and communicate the information that must be acted on if resources are to be allocated at all ‘efficiently.’ And it’s a theory with a great deal of empirical support.

In contrast, you have absolutely nothing by way of an explanation of how government officials would, or could possibly, acquire such information. Zilch. Nada. All you offer on this front is assertion wrapped in a demand that we trust you and government officials with greater power to override the choices that each of us make as we spend and invest our own money. We’re to take as a matter of blind faith that you and those whom you advise will spend and invest our money for our welfare better than we will do so. No thanks. It would be better for all if you return to minding your own business and leave the rest of us to mind ours.

Donald J. Boudreaux
Professor of Economics
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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