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Quotation of the Day…

… is from page 295 of Matt Ridley’s excellent 2020 book, How Innovation Works: And Why It Flourishes in Freedom:

Thus for innovation to flourish it is vital to have an economy that encourages or at least allows outsiders, challengers and disruptors to get a foothold. This means openness to competition, which historically is a surprisingly rare feature of most societies.

DBx: Distressingly, even the most open and liberal societies are never free of harmful forces aiming to plan, bridle, and direct competition and innovation. Most such forces today in the United States fit under the innocent-sounding name “industrial policy.” Everyone who endorses such a policy as a means of improving the performance of the economy as a whole, or as a means of raising the living standards at least of middle- and lower-income people, presumes that which is impossible: successful soothsaying.

Economic growth of the sort that routinely raises the living standards of middle- and lower-income people requires genuine innovation. Genuine innovation, by its nature, is impossible to predict in any detail. We can predict that in an open, bourgeois, liberal society innovation will regularly occur. Yet no one can predict what the innovations will be, who will produce them, or how their effects will or ‘should’ ripple through the economy over space and time.

Industrial-policy advocates – left, center, and right – simply refuse to acknowledge this reality. They continue to write as if government officials, by imposing tariffs here and dispensing subsidies there, will cause the economy to perform better than one that is open to competition and in which innovation is permissionless. For industrial-policy schemes to work, therefore, government officials must know in detail just how their meddling will affect innovation, and how the innovations they spur will affect the economy at large. In addition, they would have to know what innovations their meddling prevents and how the economy at large will be affected by the prevention of these innovations.

Because no one can know such things, every industrial-policy proponent presumes either that he or she has supernatural powers or that government officials charged with implementing industrial policy will, by some miracle, be invested with such powers.

It is not too much to say that every industrial-policy scheme is inherently whackadoodle, in the same way that belief in palm-reading or in the predictive powers of fortune cookies is whackadoodle.