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I repeat: No advocate of industrial policy has ever explained just where or how he or she – or the government – will get all the detailed knowledge that would be necessary to get in order for such policy to have as much as a snowball’s chance in hell of working to improve the overall economy.
Editor, Wall Street Journal
1211 6th Ave.
New York, NY 10036Editor:
In his insightful exposé of the ugly realities of the CHIPS+ Act, Andy Kessler quotes National Economic Council director Brian Deese’s assertion that “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’” (“The Semiconductor Boondoggle [2],” August 15). Mr. Kessler then observes that “[t]his is as wrong as Soviet or Chinese five-year plans.”
True. But more might be said about what is perhaps the most important factor condemning industrial policy to failure – namely, the absence of any genuine market test.
The only way to determine which industries truly contribute to economic growth is through market competition – through the process of each firm, spending only its investors’ own money, going head-to-head with other firms to attract customers. Only in the free market is no one compelled to fund or to patronize any firm, and only in the free market is no one prevented from, or penalized for, experimenting with different peaceful ways to attract suppliers and customers. The resulting competition thus reveals which firms contribute most to economic betterment.
Industrial policy short-circuits the market’s discovery process. Such policy is premised on the fantasy that politicians or bureaucrats, spending other people’s money and protected from the competition of politically disfavored rivals, can foresee not only which particular products are best to produce, but also which of the countless alternative means of producing these products are most efficient (that is, most sustainable).
Just as it would be folly to cancel the upcoming NFL season and instead rely on experts to declare the next Super Bowl champion, it would be folly – indeed, much greater folly – to cancel economic competition and instead rely on experts to declare which firms should and shouldn’t survive.
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