≡ Menu

Resist the Legerdemain

Here’s a letter to a sympathetic reader of my blog:

Mr. K__:

Thanks for e-mailing to me Stephanie Slade’s tweet of Oren Cass’s claim (made in this podcast) that “any country is going to have an industrial policy. It’s just a question of what industrial policy. And so you’re always going to have special interests steering it.”

In asking my opinion of Oren’s claim, you surely encountered no difficulty predicting it: This claim is profoundly mistaken. It’s counterintuitive in a way that excites gullible sophomores, but upon inspection it immediately falls apart. It’s legerdemain, nothing more.

The firms, industries, and production patterns that survive in the market are determined by consumers voluntarily spending their own, and only their own, money, unimpeded by the state. This decentralized, unplanned, market-directed process of allocating resources, being open-ended, differs categorically from government officials consciously choosing, by using subsidies and tariffs, which particular firms and industries will survive and which won’t.

Oren would respond by asserting that, by allowing markets to be free, governments thereby choose which particular firms and industries survive no less than when governments use subsidies and tariffs.

Common sense alone is sufficient to reveal the falsity of this assertion. But gullible sophomores aren’t famous for possessing common sense. So to them I note that, if it were true that, by keeping the market free, government officials choose which particular firms and industries survive and which die, then detailed knowledge of how the free market will develop in the future is available today. It follows that Oren and the sophomores who swallow his assertions can all soon be gazillionaires by putting their money where their mouths are and going long on the firms that are known to be tomorrow’s ‘winners’ in the market and going short on those that are known to be tomorrow’s losers.

Unless and until Oren and likeminded interventionists prove their mettle by earning gazillions in the stock market, their advice deserves no credit.

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

Next post:

Previous post: