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The Goals of Industrial Policy Are Indeed Too Much to Ask

Here’s a letter to a long-time reader of my blog; he’s a friendly but adamant critic.

Mr. C__:

Thanks for your e-mail.

Thinking me “ungenerous” in my interpretation of the national-conservative case for industrial policy, you write that “the industrial policy proposed by Oren Cass and other National Conservatives doesn’t require central economic planning. It simply proposes that tariffs and other policies be used in a way to make working class jobs stable again…. The only goal is to ensure blue collar workers can earn a decent living without worrying about losing their jobs and being confident, as were America’s past generations, their children would enjoy an even higher standard of living. This is not too much to ask.”

But it is too much to ask, for reasons rooted both in basic arithmetic and basic economics.

Basic arithmetic says that if our children are to have a higher standard of living than we have today the economy must grow with output per worker increasing. Basic economics reveals that such economic growth depends on innovation, competition, and the freedom of consumers to spend their incomes as they see fit in order to reveal which goods and services improve their lives – that is, to reveal which goods and services contribute most to their standard of living.

If industrial policy were to successfully ensure that workers never have to worry about losing their jobs, this policy necessarily will have eliminated innovation, competition, and consumer freedom. At best in this static economy future generations will have no hope of enjoying living standards higher than those of past generations, for the government will have frozen in place all economic and commercial relationships. But in fact the living standards of future generations will fall. The reason is that no one will be free to adjust to unanticipated economic, social, and physical changes outside of government control. Wars abroad that disrupt sources of supplies – demographic changes that cause consumers to want to purchase, say, more easy chairs and fewer diapers – increased demand abroad for petroleum or steel or lithium that makes these commodities more difficult to acquire here at home – in the face of these and countless other possible changes businesses will be unable to adjust in ways that minimize the negative impacts. These failures to adjust will accumulate. Soon, the American economy will bear a resemblance far closer to the real-world Venezuela of today than to the imaginary America of yesteryear.

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

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