Government Efforts to Make Supplies More Secure Are Too Likely to Make Supplies Less Secure

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In my latest column for AIER, I explain that each private firm in the domestic economy has strong incentives to obtain for itself the optimal degree of security against disruptions in its sources of supplies ^[2]. A slice:

Unusually heavy challenges, misfortunes, and difficulties that manifest themselves today are not necessarily proof that yesterday’s decisions – decisions that led to today’s problems – were mistaken.

This reality should be kept in mind whenever we observe domestic firms experiencing disruptions to their sources of supplies. Each of these firms had strong incentives to weigh the costs of diversifying their sources of supplies against the benefits of doing so. There’s no good reason to suppose that these firms generally made their sourcing decisions imprudently or harmfully.

Even less is there reason to suppose that politicians, pundits, and bureaucrats – none of whom have their own money at stake in such assessments – know better than do the owners and managers of private firms how many or how few sources of supplies any particular business ‘should’ have. Nothing is easier when supplies from abroad are disrupted by the likes of war or Covid lockdowns for politicians or pundits to proclaim, in theatrical fits of pique, that the government should have used tariffs or subsidies to avoid the disruption. Yet the very fact that private companies themselves – having at stake their own money – chose not to arrange their sources of supplies in the ways later endorsed by politicians and pundits is strong evidence that the proposed schemes of these politicians and pundits are unlikely to better promote the country’s long-run best interest.

Hindsight, as they say, is 20/20. (Actually, I suspect that, while at least the recent past is indeed usually more visible than is the future, in reality hindsight is closer to 20/40. But that’s a topic for another time.) The fact that pundits and politicians can take stock of the present situation and describe how it would have been better had different choices been made in the past is paltry evidence that these persons should be trusted with the power to override the decisions of business people regarding future sourcing of supplies.

The case, in short, for government to ‘repatriate supply chains’ is too weak to take seriously. Ignore it.