… is from page 190 of my colleague Peter Boettke’s September 2013 speech given at a conference, in honor of James Buchanan, at George Mason University, “What Should Classical Liberal Political Economists Do?”, as this speech is reprinted in Pete’s 2021 book, The Struggle for a Better World:
Absent the three Ps of property, prices, and profit and loss, individuals will be devoid of the incentives and information required to continually innovate and coordinate their plans to realize the gains from trade and the gains from innovation.
DBx: This point cannot be repeated too often – the reason being that this point is too often never learned, or it is forgotten or ignored. And those persons who are among the most prone to overlook this point are proponents of industrial policy.
Industrial policy, by its very nature, attenuates property rights, overrides market prices, and distorts signals of profits and losses. With industrial policy, owners of inputs are not allowed to sell their inputs as they choose; owners of production facilities are not allowed to operate their facilities as they choose or in ways guided by market prices and the willingness of investors to invest, or not, their own funds. Income earners are not allowed to spend their own money as they choose.
The particular producers who are somehow (we are never told how) divined by industrial-policy officials to be ‘vital’ are protected from losses, or even have their profits topped off with funds taken from taxpayers. One result is that producers who are deemed not ‘vital’ confront artificial barriers in seeking profits or avoiding losses. After all, resources transferred to ‘vital’ firms must come from somewhere; these resources are drawn away from other, less-favored producers.
And of course industrial-policy officials spend other people’s money. These officials have no claim on whatever residual sums are left to enterprises after the enterprises pay their out-of-pocket expenses. Genuinely plausible efforts to improve efficiency – and also to innovate – are thus muted. Nor do these officials personally suffer monetary loses if the enterprises they favor fail to perform up to these officials’ expectations. Genuinely wasteful ‘innovation’ – or, depending on the officials’ demeanor, genuinely wasteful stasis – is thus encouraged.
Although I – and, with greater clarity, others – have said so repeatedly, industrial policy will work as promised only if and when officials charged with carrying out industrial policy come to have both the mind and motivation of gods. This fact is why all arguments in support of industrial policy are, at root and through and through, religious arguments.