… is from page 181 of the 2016 Mercatus Center re-issue of my late colleague Don Lavoie’s indispensable and now-more-relevant-than-ever 1985 volume National Economic Planning: What Is Left?:
The point is that the only way we even know which lines of production are better suited to concentrate on and to what extent is by observing the outcome of market rivalry. Whether we are squandering resources by over- or underinvesting in microprocessors or steel can be revealed only by the message contained in the relative profitability of rival firms in these industries. But this is precisely the information we garble when we channel money toward one or another of the contenders.
DBx: Proponents of industrial policy who accuse proponents of free markets of having “blind faith in markets” have got matters backwards. Such an accusation is indeed, as described by my intrepid Mercatus Center colleague Veronique de Rugy, “baloney.” Those with blind faith are those who would distort or even eliminate the information-generation process of market competition and replace this process, as a means of allocating resources, with the diktats of politicians and bureaucrats who inevitably lack knowledge not only of what to produce for final consumption, but of how best to produce whatever final-consumption items are chosen for production. The result would be a massive waste of resources, as well as a stifling of innovation – because genuine innovation is inherently incompatible with the sorts of economic plans that are “industrial policy.”