Here’s a letter to someone who disagrees with opposition that I expressed, (in a letter) in yesterday’s Wall Street Journal, to industrial policy.
Mr. M__:
Thanks for your e-mail in response to my letter in yesterday’s Wall Street Journal in which I express opposition to industrial policy.
You write:
We can afford to stick to the free market only if other countries do too, but not when places like China are heavy into practicing industrial policy…. We can’t afford not to retaliate in kind.
With respect, I disagree.
The economics of the matter are plain. If industrial policy is an effective means of improving the performance of an economy, our government should use it to improve the U.S. economy regardless of the policies pursued by other governments. But if industrial policy is an effective means of worsening the performance of an economy, our government should avoid using it regardless of the policies pursued by other governments.
Politicians and bureaucrats either are or aren’t able to outperform the free market at spurring economically beneficial innovation and allocating resources efficiently. Such an ability is not miraculously turned on and off by the policies pursued by other governments.
When foreign governments abuse their countries’ economies with industrial policy we Americans should pity the harmed citizens of those foreign lands. We should not, however, respond by abusing our own economy with industrial policy and thereby turn Americans into similar objects of pity.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
