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Quotation of the Day…

… is from page 290 of the late Wesleyan University economic historian Stanley Lebergott’s great 1984 book, The Americans: An Economic Record (footnote deleted):

Of course taxpayers and producers in disadvantaged localities sought to protect their interests by putting cost walls around their cities. Thus in 1862 Maine forbid the railroad into Portland to change its track gauge. For, if it shifted to the standard 4-foot 8-inch gauge, goods would have hurtled right through Portland on their way to Boston. The legislation ensured that shipments would still have to be unloaded in Portland from one railroad line to another. All of this generated incomes for Portland’s laborers, truckers, and wholesalers. It also kept up the value of city lots and buildings. (Unfortunately it offered no long-run solution. Shippers began using cheaper, competing routes to market. Portland then failed to develop in its competition with Boston and Montreal as it might have but for that feat of policy, so shrewd in the short term.)

DBx: The lesson here for industrial policy is obvious. In the short run, legislative interventions can often protect from market forces this group’s jobs, enhance that group’s property values, and ensure for members of yet another group the ability to gaze lovingly upon a townscape or countryside unchanged by economic dynamism. But there is no practical way that such interventions can avoid over the long-run decreasing the well-being of a randomly chosen subset of denizens of the ‘protected’ area. And the longer is the time horizon considered, the smaller is the number of individuals who can legitimately be said to reap benefits from such interventions. After enough time, everyone affected and still alive will be a loser.

The hubris of industrial-policy proponents, as of other economic planners, supposing that they can foresee all of the relevant consequences, across space and time, of their interventions is stupefying.

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