A correspondent continues to e-mail me to insist that I am unfair to the national-conservatives’ case for industrial policy.
You claim in your latest e-mail that I’m wrong to argue that I and other opponents of industrial policy “have a theory of how markets acquire information to allocate resources but researchers calling for industrial policy like Oren Cass do not.” You elaborate by writing that you
don’t know of any accurate prediction by free marketeers like [Milton] Friedman, [F.A.] Hayek and the tenured economists at George Mason of what the economy of tomorrow is going to look like. Why should Oren Cass be criticized for not having any accurate prediction?
You’re correct that those of us who you call “free marketeers” offer no predictions of what will be the details of the economy tomorrow. The reason for our refusal to so predict is central: Essential to our opposition to industrial policy is precisely our recognition that no human mind or minds can make any such accurate predictions regarding a modern economy that sustains, at high material standards, the lives of billions of people. We understand that such an economy can succeed only insofar as it relies upon the never-ending process of trial-and-error in competitive markets by entrepreneurs, unobstructed by government, to experiment with new ways to use resources. To the extent that such a market process is allowed to operate, the result will be the on-going discovery of ever-better, but never perfect, ways to use resources.
In stark contrast, proponents of improving the overall economy by using industrial policy necessarily claim to know enough about the economy’s hyper-complex and ever-changing particular, local facts in order to predict in incredible detail both what the economy would look like tomorrow in the absence of industrial policy and what it will look like as a result of industrial policy. Support for industrial policy, then, is support for empowering government officials today to (attempt to) impose on the economy patterns of resource allocation that are predicted to be tomorrow better than would be the resource-allocation patterns that would arise absent industrial policy.
In summary, central to the case for free markets is recognition of the impossibility of detailed economic prediction, while for industrial policy to work as its proponents advertise these proponents must be able to predict the future not only under alternative scenarios but also in amazing detail.
Anyone who proposes to improve the performance of the overall economy by using industrial policy necessarily is someone who presents himself or herself as a fortuneteller. The fact that most proponents of industrial policy are unaware that they pose as fortunetellers only further discredits their case for industrial policy.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030