Here’s a letter to a Wall Street Journal reader who thinks me to be “dreaming” if I “think that America can compete if we don’t match Chinese industrial and trade policies step for step.”
Upset with my letter in today’s Wall Street Journal – a letter in which I oppose U.S. industrial policy – you accuse me of wishing “to disarm the US economically at a time when China is aggressively building up its economic arsenal.”
With respect, your argument is fallacious. If politicians and bureaucrats can allocate resources more productively than can markets, then economically we should use industrial policy even if no other government does so. But if politicians and bureaucrats can’t allocate resources more productively than can markets, then we should reject industrial policy even if every other government on the globe uses it.
Fortunately, we have good information about industrial policy from both economic theory and history. They make plain that politicians and bureaucrats are far worse than are markets at allocating resources productively. If you insist on using a military metaphor, therefore, industrial policy isn’t a weapon that threatens to destroy foreigners but, instead, a weapon that governments use to saturation-bomb their own economies.
Or as Jim Bovard put it when exposing the closely related fallacy of calling unilateral tariff reductions “unilateral disarmament”:
Rather than “unilaterally disarming” our trade barriers, the proper analogy is to unilaterally defuse old bombs that have been left scattered across our industrial landscape. If foreign nations refuse to sever the ball and chain on their economies, is the U.S. obliged in self-defense to continue hobbling the American economy?
A better name for “industrial policy” would be “industrial damage.” And so if the U.S. government were, as you desire, to mimic Beijing on this front, the two countries would engage in an economic version of MAD – Mutual Assured Destruction. The only difference is that, while in a nuclear war each country is ravaged by a foreign government, in a trade or ‘industrial-policy’ war each country is ravaged by its own government. I think it best to avoid such a 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