Bonus Quotation of the Day…

by Don Boudreaux on May 6, 2022

in Competition, Complexity & Emergence, Innovation

… is from page 98 of the late Stanford University economic historian Nathan Rosenberg’s insightful 1992 paper “Economic Experiments,” as this paper is reprinted in Rosenberg’s 1994 book, Exploring the Black Box: Technology, Economics, and History (original emphasis):

The freedom to conduct experiments required not only a high degree of autonomy; it also required, as already discussed, a large number of decision-makers as opposed to a high degree of centralization and/or hierarchy. In effect, this meant not only decentralization but also the inability of the experimenters to influence the outcome of the market evaluation of the new products. In fact, some of the most decisive failures of twentieth-century socialism flow from the failure to allow experimentation, and from the consequent failure to benefit from the opportunity to observe the outcome of such experiments.

DBx: Proponents of industrial policy are proponents of reducing such decentralization and experimentation. Proponents of industrial policy are proponents of socialism-lite. They propose, for those parts of the economy they wish to control, to replace decentralization and market experimentation with hierarchy and pre-determined outcomes. The fact that industrial-policy proponents typically don’t wish to subject the entire economy to their conscious control means only that the ill-consequences of their arrogant schemes will not be as extensive as are the ill-consequences of the schemes of socialists who propose for the entire economy what industrial-policy advocates propose for a part of the economy.

The following advice is worth repeating: Whenever you encounter an industrial-policy proposal, ask that proposal’s advocates how they, or the government officials charged with implementing the proposal, will acquire the knowledge necessary to generate an allocation of resources that is superior to the allocation that would result when consumers and producers are all left free to peacefully spend and invest their own money as they choose, being guided by market prices, profits, and losses. Pay close attention to the answer. I guarantee you that that answer will be without substance. The answer will boil down to this assertion: ‘We just somehow know.’

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