Industrial policy is the replacement of price-guided resource-allocation patterns with commands issued by politicians and their hirelings. But as Hayek points out, it is impossible for politicians and their hirelings to possess any of the “knowledge of the particular circumstances of time and place” that must be known if the resulting use of resources is to serve human purposes without also being stupendously wasteful.
To replace markets with industrial policy is to replace an information-generating process with ignorance. It is to toss aside access to information and to rely instead upon uninformed stupidity. Advocates of industrial policy are advocates of economic stupidity. Of course, advocates of industrial policy do not understand that they are advocates of economic stupidity; their ignorance of economics blinds them to the reality of their schemes. But the reality of their schemes is not optional.
I challenge any advocate of industrial policy – Oren Cass, Ian Fletcher, Marco Rubio, Elizabeth Warren, Daniel McCarthy, whoever – to explain substantively how such information will be acquired. Is it supposed that individuals will use their smartphones to text information, moment to moment, to mandarins and commissars? Will government officials, upon assuming office, gain supernatural powers? Will this information be gathered and carried into government office buildings by angels from the heavens or by magical elves from the forests? Or is the theory that this information will transmit itself into the brains of bureaucrats, over some mysterious pathway?
What is the mechanism or process of information acquisition? The question is not unreasonable.
Offering a ponderous list of the many ways that real-world markets fall short of textbook perfection will not suffice. Not only is any such list old news, it doesn’t begin to answer the question of how industrial-policy commissars and mandarins will acquire the amount of knowledge routinely compressed into market prices and transmitted widely.
I search in vain the writings of industrial-policy advocates for an explanation of the sort that I here (and, obsessively, in many other blog posts) request. Yet not only do I find no such explanation, I find not even a recognition that such an explanation is necessary. I find only an unsupported implicit assumption that the officials charged with carrying out industrial policy will, somehow, out-perform the competitive market process.
However inadequate and incomplete is the economic theory upon which the case for free markets rests, this theory is infinitely better than the non-theory – the utter absence of explanation – that is ‘offered’ by advocates of industrial policy
-Prof. Don Boudreaux
While markets offer services and products, they are information driven. What the good professor doesn’t explicitly state in THIS post is that the source of all of the information in a given Introduction of Notables,marketplace (e.g., all of the costs that make up a product and all of those consumers of that product) are all contained in a single aggregated data element: Price.
On the Producer side, Price is the summation of ALL of the costs of a given “thing” as well as the desired profit from that “thing” plus an estimate of what that “thing’s” worth to Consumers. Price conveys that value to Consumers who can then determine if the estimated value is worth it to them. It is a rather amazing process.
We are also being presented, in a wholesale manner, what happens when only Politicians and bureaucrats take over the economy. Have you enjoyed your 90 day free trial of Socialism where the economy is nothing BUT “Industrial Policy” in which YOU are told what you can do.
(H/T: Cafe Hayek)