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… is from page 7 of the Introduction by GMU Econ professor emerita Karen Vaughn to the 2021 collection of some of her writings, Essays on Austrian Economics and Political Economy [2]:
Market economies are about learning and change, not about achieving some equilibrium state….
Markets are indeed “discovery procedures.” Actors are driven by competition to learn and experiment with new ways to satisfy consumer demands. Profit and loss are indicators of whether they are successful, and thus whether the innovation will persist. Hence, economic discovery leads to the growth of market institutions that codify the results of market discovery.
DBx: Yes. And therefore designs to enrich the populace through policies such as industrial policy are not only inherently inconsistent with market economies, they necessarily eliminate genuine innovation.
Of course, industrial-policy bureaucrats can dream up new ideas that these bureaucrats then impose on their economic schemes. But no new ideas other than those that are dreamed up by, or pre-approved by, industrial-policy bureaucrats can be allowed if industrial policy is seriously to be pursued. The reason is that any new idea must be fitted into the industrial-policy scheme; if it is not so fitted yet allowed to be implemented, it will likely undermine that scheme. Actions taken in the trail of the introduction of this new idea, if these are not pre-approved of by the industrial-policy bureaucrats, cannot help but unravel great swathes of the industrial policy.
Because always in their details, and usually even in the large, genuine creativity, discovery, innovation, and change are inherently unpredictable – and because predicting in sufficient detail the full consequences of the introduction into economic processes of any new idea is far beyond the ability of the human mind – industrial policy that reliably promotes sustained economic growth for the masses is impossible. Successful industrial policy is more than unlikely. More than implausible. More than improbable. It’s impossible.
Keep this reality in mind when you next encounter a plea for using industrial policy to raise the living standards of ordinary people.