… is from page 71 of Deirdre McCloskey’s and Art Carden’s superb new (2020) book, Leave Me Alone and I’ll Make You Rich: How the Bourgeois Deal Enriched the World:
An ethical market economy, we further claim, has been best achieved not by industrial policy from Paris or Washington but by a free society, one with no masters: modern liberalism.
DBx: As I obsessively point out, proponents of industrial policy have no answer to the question “How will government officials know enough to carry out industrial policy in a manner that will out-perform competitive markets at allocating – and continuously reallocating – resources in ways that create prosperity for ordinary men and women?” Having no answer to this question, industrial-policy proponents typically sidestep it by implying that (somehow!) government officials will miraculously be blessed with this knowledge.
Another strategy for evading this question is a four-stepper: (1) Cobble together a flimsy straw man out of poorly remembered (or poorly taught) strands of materials from the Econ 101 or Econ 460 courses they took as undergraduates; (2) name the straw man “market fundamentalist”; (3) slay this straw man; (4) loudly and proudly declare victory over “market fundamentalists.”
Yet even this second strategy, at the conclusion of step four, runs into the problem of having no answer to the question: “How will government officials know how to do better than even the straw man might have done?”
The knowledge problem is, quite simply, never acknowledged by proponents of industrial policy.
But as the above quotation from Deirdre and Art implies, turning resource-allocation decisions over to government officials also creates an incentives problem. It promotes corruption. Inherently unethical – why should some bureaucrat in the Department of Building a Bright Tomorrow be authorized to obstruct your ability to spend and invest the income that you earn? – industrial policy naturally attracts rent-seekers. And rent-seekers inevitably ensure that the political supervisors of, and the daily operatives in, the DBBT allocate resources in ways that benefit the politically powerful, all at the expense of the general public.
But, hey, industrial-policy advocates mean well! Their intentions are pure and pretty. And lots of them boast terminal degrees from elite universities. They’re well-meaning and smart, and they’ve read lots of books and even have written some. What could possibly go wrong if we implement one of their schemes? (Note: By the nature of industrial policy, only one such scheme can be implemented at any one time. But the details of each industrial-policy proponent’s scheme differ from those of the schemes proposed or envisioned by other industrial-policy proponents. Questions about how to choose which particular scheme to implement – and to stick with long enough to see if it will work as advertised – are ones that I’ll here put aside for a later epistle.)
To be clear, by “modern liberalism,” Deirdre and Art above mean classical liberalism, not some tepid version of Progressivism.