… is from page 8 of economist Lionel Robbins’s insightful and still-relevant 1937 book, Economic Planning and International Order:
Discussion of plans for particular industries is obviously incomplete. If pushed to its logical conclusion it must involve discussion of general planning: as we shall see later on, the “planning” of particular industries almost inevitably tends to spread.
DBx: Robbins is correct because the economy is not, contrary to the supposition of proponents of industrial policy, a collection of static supply chains lying side by side but otherwise unconnected to each other. Instead, the economy is a web of inconceivably large numbers of dynamic interconnections, with each producer’s outputs being used by many downstream firms and consumers, and each of these outputs itself the product of the outputs of many different upstream producers. Attempts by government to expand one particular industry or sector necessarily pulls resources away from countless other uses elsewhere in the economy, with only a small handful of these consequences being within the purview of the planners. And the expansion of the output of the privileged industries lowers many prices downstream, causing firms in some other industries to scale back production. Most of these consequences are far away in the web, ignored by the proponents of the intervention.
But these distant consequences generate feedback in the form of changes in the pattern of prices and of resource allocation unforeseen by the arrogant industrial policyist. The availability of this or that resource to his favored industry will prove to be less than expected, compelling the industrial policyist to expand his intervention in order to salvage his scheme. This expanded intervention will produce similar unforeseen consequences.
The only escape from this problem is for the industrial-policy scheme to be pursued only in a half-hearted manner or – far better – to be abandoned altogether.