Here’s a letter to a new correspondent:
Thanks for your e-mail prompted by my essay on comparative advantage for the Cato Institute’s “Defending Globalization” project. Specifically, you write that, while you agree that “as time passes individual people and businesses oftentimes change their comparative advantage, for America to compete successfully against countries like China we need for our government to play a more active role in directing the skills and competencies developed in our economy. Today’s chaos spells doom.”
With respect, I disagree for at least two reasons.
First, as Beijing does more of what you wish Washington to do more, the Chinese economy is made, not stronger, but weaker.
Second, the market isn’t remotely chaotic. Market prices and wages, nearly all of which include skin-in-the-game expectations of future economic developments, supply highly reliable guidance to individuals on which careers to pursue, which skills to acquire and hone, and which commercial and industrial activities to develop. Although relying upon market signals and entrepreneurial ingenuity never yields perfect results, it does yield results far superior to those that we’ll get if we rely upon politicians, bureaucrats, and think-tank-based sherpas to visualize – always, by the way, through some unnamed sorcery – just which particular comparative advantages Americans ‘should’ have, and then to impose taxes and dispense subsidies in pursuit of this fantastic vision.
Do you really believe that members of Congress know better than you or your children what are the best potential uses of your talents? Do you truly find credible the assertions of politicians and pundits who boast that they can divine uses for countless resources, including labor, superior to the uses chosen by individuals each of whom puts his own money and effort where his mouth is, and is both uniquely situated and incited to determine if those choices are panning out?
If you’re genuinely worried about economic chaos, you should immediately reject your current enthusiasm for efforts to replace market-determined allocations of resources with allocations imposed by government officials. The chaos you wisely fear will be generated by the interventions that you unwisely endorse.
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