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Bonus Quotation of the Day…

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… is from page 57 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:

For example, the Chinese system of high-speed trains is a glorious State project, which now stretches through the entire immense country—all of the trains raised twenty meters above grade on viaducts. Stunning. But was it a good idea? China, still with an income per head, despite its successes from economic liberalism, only one-fifth or one-fourth that of the United States, has more of such three-hundred-kilometer-per-hour trains than the rest of the world combined. Like the TGV in France, the trains are nice for affluent people with a high opportunity cost of personal time, and are massively subsidized for their benefit. But they reduce income on balance for the rest of the nation.

DBx: Many people who assert that industrial policy has a splendid record of success point to things such as Chinese high-speed trains. Such people do not understand the economic case against industrial policy.

The economic case against industrial policy is not that the state is unable to arrange for some project to be completed or some industry to survive or even to thrive. Of course an agency that can commandeer resources and obstruct people’s commercial choices can build the likes of a high-speed rail system or ensure that steel or computer-chip or soybean producers receive enough revenues to sustain their operations and even to be able to produce outputs that foreigners voluntarily purchase.

What no such agency can do, however, is to know that the uses of resources that it arranges with its tariffs, subsidies, and diktats are worthwhile. That is, the state cannot possibly know that its industrial-policy ‘successes’ generate satisfaction for consumers that is at least equal to the satisfaction that would have been generated for consumers had the resources commandeered by the state been instead allocated to whatever uses the market would have directed them. And because these state-ordered allocations of resources are made by suppressing market prices, the overwhelming likelihood is that even the most impressive-looking industrial-policy ‘success’ is really a failure.

…..

“Oh look! China exports lots of medical devices because of Chinese industrial policy! See! Industrial policy works!” — Assertions such as these, commonplace as they are, utterly miss the point. To point to particular industries that succeed as a result of industrial policy and exclaim “See! Government restrictions on free trade and free markets work!” makes no more sense than, say, to point to some Chinese people reading Chairman Mao’s Little Red Book and exclaiming “See! Government restrictions on freedom of the press and freedom of thought work!”

Alas, although sensible people understand that such ‘reasoning’ by protectionists and industrial-policy advocates is manifestly foolish, the world apparently has in it enough people who are sufficiently gullible to find such reasoning enchantingly compelling.

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