Quotation of the Day…

by Don Boudreaux on August 22, 2022

in Prices, Seen and Unseen

… is from page 319 of GMU Econ alum Benjamin Powell’s excellent 2005 paper “State Development Planning: Did it Create an East Asian Miracle?

State development planning cannot promote real economic growth. Advocates of development planning fail to recognize that the same calculation problem that Mises and Hayek outlined in the socialist calculation debate also applies to more limited attempts at planning the market process. The knowledge necessary for solving the economic problem of how to satisfy the most urgently felt wants without leaving any more urgent want unsatisfied requires the price knowledge that the market generates. Any attempt to ‘guide’ the market operates without this knowledge.

DBx: I repeat: No proponent of industrial policy, to my knowledge, has even tried to give a serious answer to the question: How will government officials get the detailed, nuanced, and ever-changing knowledge that is necessary for them to possess if they are to improve overall economic welfare by overriding market-process-generated patterns of resource allocation with government-dictated uses of resources?

Vacuous answers to this question are abundant: ‘Government will invest in the industries of the future!’ ‘Industrial policy will ensure that critical industries aren’t destroyed by foreign competition or by the wiles of financiers!’ ‘With industrial policy we’ll invest more in Main St. and less in Wall St.!’ ‘With industrial policy we’ll ensure that we no longer depend on China for critical inputs!’

Oh so easy to say.

I’m quite sure that most proponents of industrial policy sincerely believe that such assertions of fine aspirations are sufficiently substantive to guide actual policy. But this sincere belief held by industrial-policy proponents only reveals their complete failure to understand the nature of the problem to which these proponents are confident they are offering a realistic ‘solution.’

Industrial-policy proponents continue to believe that they write and speak intelligently only because they refuse to come to grips with the reality of – that is, with the enormous complexity of – the modern economy and, hence, also with the indispensable role that is played in this economy by consumer sovereignty and the price system. This intellectual failure of industrial-policy proponents is as ludicrous as would be, say, the proposal of an astrophysicist wannabe who insists that, if only government would build a few asphalt roads from the earth to the moon, government can easily arrange for humans to bicycle to the lunar surface.

Or to use another analogy, to propose that government direction of resource allocation override resource allocation by market processes is to propose that the task of allocating resources be entrusted to a drunk – and lame – donkey.

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