The Latest from Cafe Hayek

(Don Boudreaux)

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… is from page 259 of Matt Ridley’s important 2020 book, How Innovation Works: And Why It Flourishes in Freedom:

Technology is absurdly predictable in retrospect, wholly unpredictable in prospect.

DBx: This reality is yet another that is predictably ignored by proponents of industrial policy as a means of improving the economic fortunes of the bulk of ordinary people within a country. These proponents fail to understand the importance of permissionless innovation – of open-ended, competitive trial-and-error – of emergent order. They are economic creationists, intellectually no more credible than are biological creationists who deny the reality of evolution by natural selection.

(Don Boudreaux)

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… is from page 106 of the late Stanford University economic historian Nathan Rosenberg’s insightful 1992 paper “Economic Experiments,” as this paper is reprinted in Rosenberg’s 1994 book, Exploring the Black Box: Technology, Economics, and History:

It is inherently difficult to experiment [economically] and to introduce numerous small changes, and to do so frequently, in a large hierarchical organizational structure where permissions and approvals are required from a remote central authority.

DBx: Each proponent of industrial policy, whether from the political left or right or middle, necessarily presumes that the government officials who craft the industrial policy perform their crafting with god-like knowledge. For any such plan to work – that is, for any such plan to generate outputs that when either consumed directly in the home country or traded for imports improve the economic well-being of the people of the country as much as possible – the drafters of the plan must determine just what exactly will be produced, in what quantities, and how these outputs will be produced.

If the drafters of the plan do not have such knowledge, then after the plan is launched errors will eventually be committed. Adjusting to the discovery of these errors will require revision of the plan. Such revision will, in turn, often require that the original plan be adjusted not just in the location where the error is first discovered (“Omigosh, the cost of using carbon fiber to build airplane frames is higher than we thought!”) but also in other, more-distant parts of the plan (“We need to shift some aluminum over to our aircraft producers, so you producers of automobiles and washing machines have to find some other materials to use.”)

Industrial-policy proponents simply ignore this reality. They simply – or, rather, simple-mindedly – assume that government officials either already possess or will easily come to possess all the vast amounts of knowledge, much of it subject to change, necessary to make the industrial policy a success.

I understand that regular readers of this blog likely tire of my repetitiveness, but I repeat a question that I will repeatedly ask until someone offers to it a serious answer: Exactly how will those officials who craft and monitor industrial policy obtain the knowledge they must possess in order to make industrial policy work in the ways that industrial-policy proponents promise it will work?