… is from page 631 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:
In centrally planned economies, we have seen the planners overwhelmed by the task of trying to set literally millions of prices – and keep changing those prices in response to innumerable and often unforeseeable changes in circumstances. It was not remarkable that they failed so often. What was remarkable was that anyone had expected them to succeed, given the vast amount of knowledge that would have had to be marshaled and mastered in one place by one set of people at one time, in order to make such an arrangement work.
DBx: Yes.
While industrial policy is not as all-encompassing an attempt to centrally plan an economy as is full-on socialism, the knowledge problem to which Sowell refers nevertheless looms large and unsolvable. Proponents of industrial policy excel at describing the economic outcomes they envision, and in enumerating the many alleged advantages of these outcomes over the messy reality that industrial policy is meant to clean up. Proponents of industrial policy are, however, incompetent at explaining just how government officials will acquire and process the detailed knowledge these officials must acquire and process in order to ensure that the industrial-policy plan works as advertised, and without causing too many unforeseen negative consequences. Indeed, idustrial-policyists mostly ignore the knowledge problem altogether.
No less than advocates of full-on socialism, industrial-policyists have no appreciation of the role of market prices, competition, financing, and entrepreneurship. They are likewise ignorant of the complexity of the economy that they fancy they can re-engineer at will. Industrial-policyists are the equivalent of peddlers of penis-enhancement schemes: the promised results seem alluring and manly, but the peddlers – who might well believe their own marketing – are dangerously ignorant of reality.
It is remarkable that so many people continue to expect that industrial policy can succeed at raising living standards generally.
