Here’s a letter to a self-described “fan” of Brink Lindsey’s and Sam Hammond’s proposed “development policy” (which is their neologism for industrial policy):
Thanks for your e-mail.
You advise that I “be more forgiving of demands for industrial policy. We must keep pace especially with China by doing more than them to grow their economy.”
With respect, I’ve never understood this argument. If industrial policy strengthens an economy, then regardless of its use or nonuse elsewhere we should use it. But if industrial policy weakens an economy, then regardless of its use or nonuse elsewhere we should avoid it. Q.E.D.
More fundamentally, while the adoption of industrial policy appears superficially to be “doing more” to meet economic challenges, it in fact is a retreat into doing less – much less.
Industrial policy, no matter how impressive on paper, substitutes the ideas of a relatively minuscule number of government officials spending other people’s money for the ideas of (literally) billions of entrepreneurs, investors, and consumers spending their own money. In competitive markets, anyone with a peaceful idea is free to try it out, yet no one can compel others to go along. In stark contrast, with industrial policy the only ideas that are used are those that are pre-approved and imposed by government officials. How can an economy possibly be improved by coercively displacing an ocean of billions of creative ideas with a puny puddle of bureaucratic ones? The best course is to reject industrial policy in order to let the market handle matters.
I know, my plea sounds banal. So please forgive me for closing by quoting at length from an essay that I wrote years ago but which remains relevant:
Saying “Let the market handle it” is to reject a one-size-fits-all, centralized rule of experts. It is to endorse an unfathomably complex arrangement for dealing with the issue at hand. Recommending the market over government intervention is to recognize that neither he who recommends the market nor anyone else possesses sufficient information and knowledge to determine, or even to foresee, what particular methods are best for dealing with the problem.
To recommend the market, in fact, is to recommend letting millions of creative people, each with different perspectives and different bits of knowledge and insights, each voluntarily contribute his own ideas and efforts toward dealing with the problem. It is to recommend not a single solution but, instead, a decentralized process that calls forth many competing experiments and, then, discovers the solutions that work best under the circumstances.
This process is flexible and it encourages creativity. It also denies to anyone the power to unilaterally impose his own vision on others.
In brief, to advise “Let the market handle it” is a shorthand way of saying, “I have no simplistic plan for dealing with this problem; indeed, I reject all simplistic plans. Only a competitive, decentralized institution interlaced with dependable feedback loops — the market — can be relied upon to discover and implement a sufficiently detailed way to handle the problem in question.”
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