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Quotation of the Day…

… is from page 81 of economist Lionel Robbins’s insightful and still-relevant 1937 book, Economic Planning and International Order:

The tariff is an instrument of resistance quite as much as an instrument of construction. And experience does not suggest that, when the state has sunk capital in particular lines of enterprise, it will show any remarkable alacrity in writing it off as a loss if conditions change to its disadvantage.

DBx: People with their own personal wealth on the line act to change, or even to liquidate, particular investments the moment it becomes clear that those investments are unlikely to pay returns as high as are available elsewhere. Not so with politicians and bureaucrats (and their academic and think-tank advisors). Having only other people’s personal wealth on the line, when these officials command that resources be reallocated from here to there they have much weaker incentives both to be objectively alert to the actual economic performance of their economic decisions and to reverse these decisions if and when it becomes clear that these government-created resource uses aren’t working as promised.

And precisely because a core tenet of industrial policy is that market signals are often too faulty to rely upon – and, hence, that the more-reliable guide is the alternative, non-market-determined economic vision of the industrial-policy designer – economic problems as revealed by market prices and values will be ignored for as long as possible. Why pay attention to unreliable market signals when the industrial-policy visionary can tap further into resources owned by other people in order to keep his or her industrial-policy vision alive for at least a bit longer?

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