… is from pages 98-99 of an advance copy of Samuel Gregg’s excellent and important forthcoming book, The Next American Economy: Nation, State, and Markets in an Uncertain World:
[G]overnment use of industrial policy undermines the market’s ability to furnish the accurate information needed by entrepreneurs, investors, and businesses to identify the most optimal economic path for each of them to follow – a process which constantly allows millions of piecemeal improvements to be made across the overall economy. By contrast, if industrial policies become a central feature of economic life, inefficiencies will grow throughout the economy as people act on the basis of increasingly bad information.
I will repeat here that which, as long as there is afoot any enthusiasm for industrial policy, cannot be repeated too often: Proponents of industrial policy have yet to substantively explain how government officials charged with carrying out industrial policy will get all the detailed information they must possess if they are to have any hope of allocating resources in a way that outperforms the market at improving over time the economic lot of the masses. Responding, in effect, “then a miracle occurs” doesn’t quite cut it.