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Signifying Nothing

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Here’s a letter to Palladium:

Editor, Palladium

Editor:

Upon encountering the title “The Economic Foundations of Industrial Policy [2]” (June 15), I hoped that Marc Fasteau and Ian Fletcher would discuss, well, the economic foundations of industrial policy. Yet all I found is a prolix rehash of the many ways in which real-world markets differ from textbook perfectly competitive markets.

This information is not news. Economists have been aware of this fact since Adam Smith first put quill to parchment. And the development, in the 20th century, of the model of perfect competition was from the start understood by sensible economists to be neither descriptive of, nor prescriptive for, reality. See, for example, Joseph Schumpeter’s famous 1942 book, Capitalism, Socialism, and Democracy. Therefore, contrary to Fasteau’s and Fletcher’s implication, the strongest case for free markets and against industrial policy is not and never has been built on the assumption that markets are perfectly competitive or even close to being so.

Even worse than Fasteau’s and Fletcher’s straw-man portrait of the case for free markets is their complete failure to explain how government officials charged with carrying out industrial policy would acquire the information they must have in order to out-perform markets. After slogging through nearly 6,500 words of unoriginal claims – some trite, some questionable, some certifiably false – the reader reaches the end of their essay only to be assured that “every country, including the U.S., can benefit from good industrial policy.” “Can”? The authors offer not a single word to explain how real-world government officials would go from a theoretical “can” to an actual “will.”

With this essay, Fasteau and Fletcher join the ranks of Oren Cass, Marco Rubio, Elizabeth Warren, and every other industrial-policy advocate, past and present, in steadfastly refusing to explain how the information needed for government officials to carry out industrial policy successfully would be marshaled by these officials. Indeed, the fact that these authors do not even acknowledge this core issue is sufficient reason to dismiss their arguments out-of-hand.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
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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