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Quotation of the Day…

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… is from page 5 of the 1999 Liberty Fund edition of James M. Buchanan’s and Gordon Tullock’s seminal 1962 book, The Calculus of Consent [2]:

Economic theory does not explain the organization of private choices sufficiently to enable the professional economist to predict the precise composition of the national product, the exchange ratio between any two goods or services, or the price of any one good in terms of money. Such predictions would require omniscience, not science, because we must deal with individuals as actors, not as atoms. The sciences of human choice must be modest in their aims.

DBx: Yes. The brilliant economist no more than the merely competent one studies human exchange and the different institutions to which this exchange gives rise and how, in turn, these institutions affect exchange. The brilliant economist no more than the merely competent one develops a good sense of which questions to ask and what fallacies to guard against.

And the brilliant economist no less than the merely competent one is completely without access to knowledge of individuals’ preferences and to knowledge of the detailed facts on the ground – knowledge that, if possessed by an omniscient creature, would allow that creature to make specific economic predictions of the sort that naive people think scientific economists should be able to make.

Knowledge – detailed knowledge – of these inconceivably large number of ever-changing details is necessary for specific predictions of changes in relative prices, changes in the pattern of output, changes in GDP, changes in the ‘distribution’ of income, changes in almost any of the phenomena that, to repeat, naive pundits and people, along with poor economists, suppose economists ought to (be able to) predict.

People who propose the use of industrial policy to improve the economy package their proposals as the fruits of science. But this packaging is wholly misleading. In reality, as Buchanan and Tullock understood, for industrial policy to work as advertised, what is required isn’t science but omniscience.

And so unless you really believe that politicians, bureaucrats, professors, pundits, and thinktank scholars are, or can become, omniscient, you should reject industrial policy without hesitation or qualification.