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… is from page 47 of the May 9th, 2020, draft of the important forthcoming monograph from Deirdre McCloskey and Alberto Mingardi, The Illiberal and Anti-Entrepreneurial State of Mariana Mazzucato:
In market economies, capital is allocated by banks or investment funds, which search for a return and scrutinize the person who seeks capital for productive uses. Their ability to do so in a decently competent way is checked by the market itself, daily. The utterly incompetent banks or banking customers go bankrupt, most of them causing trouble mainly to themselves and their investors.
DBx: Indeed so. But when the state allocates capital – as the state does, for example, when it practices industrial policy – the state does not go bankrupt, regardless of the depth of its incompetence. It usually resorts to the animal act of seizing more funds from taxpayers, although some states, on occasion, might scale back their operations on some fronts.
And nor do the enterprises favored with state privileges always, or even usually, go bankrupt when their incompetence is revealed. Very often these incompetent or economically unjustified firms are simply injected by the state with more of other people’s money.
Proponents of industrial policy would have you believe that politicians – overwhelmingly individuals whose comparative advantage is the winning of political elections – somehow have uniquely accurate knowledge of commerce, technology, and the future. This knowledge, you are further asked to believe, is so great and sure that there is not only no need to subject it to a market test, but that any such test would be counterproductive.
Proponents of industrial policy would have you believe that politicians and their hirelings empowered both to restrict consumers’ options for spending their own money, and to override the decisions of investors investing their own money, will outperform the competitive markets that are displaced by the power wielded by these politicians and their hirelings.
Proponents of industrial policy, in other words, ask you to believe the ethical and economic equivalent of the claim that an armed thug who intrudes into your home and then compels you to consume as he commands, to invest as he commands, and to work as he commands, will improve your well-being.
Or perhaps I’m being a bit unfair to proponents of industrial policy. Let me be more fair: Proponents of industrial policy ask you to believe the ethical and economic equivalent of the claim that when your neighbors choose by majority rule an armed thug to intrude into your home and then compel you to consume as he commands, to invest as he commands, and to work as he commands, this thug will improve your well-being.
Proponents of industrial policy insist that, because they can imagine and describe in words how the thug will improve your well-being, any such thug – or, any such thug influenced and advised by them – will improve your well-being in reality.