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An Open Letter to Zach Graves

Summary:
Mr. Graves: Presumably as a means of challenging those who, like myself, oppose industrial policy, you ask on Twitter: Will there be a point where fiscal conservatives notice companies like Tesla and SpaceX are hugely successful and embrace ‪@MazzucatoM-ism? You misunderstand the core economic argument against industrial policy. This argument is not that government is incapable of coercively directing enough resources to private companies in order to enable favored firms to thrive better than they would in a free market. Instead, this core economic argument starts with the reality that government officials who carry out industrial policy cannot possibly know which industries and firms are destroyed by their interventions. (Resources directed to SpaceX don’t fall from space; they must

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Mr. Graves:

Presumably as a means of challenging those who, like myself, oppose industrial policy, you ask on Twitter:

Will there be a point where fiscal conservatives notice companies like Tesla and SpaceX are hugely successful and embrace ‪@MazzucatoM-ism?

You misunderstand the core economic argument against industrial policy. This argument is not that government is incapable of coercively directing enough resources to private companies in order to enable favored firms to thrive better than they would in a free market.

Instead, this core economic argument starts with the reality that government officials who carry out industrial policy cannot possibly know which industries and firms are destroyed by their interventions. (Resources directed to SpaceX don’t fall from space; they must come from other economic activities.) This economic argument then draws attention to the fact that industrial policy intentionally overrides market prices, profits, and losses, which are the chief sources of information about what particular uses of resources are most likely to best satisfy consumer desires. To choose to have industrial policy, therefore, is to choose to economically fly blind. This choice is unwise.

Of course government can arrange for particular companies that would wither in a free market to thrive when doused in subsidies and coddled by protective tariffs. But this achievement does not signal what you take it to signal. The thriving of the likes of Tesla no more means that U.S. industrial policy gives Americans greater access to goods and services than did the thriving of Pravda mean that Soviet press policy gave Russians greater access to the news and truth. Quite the opposite.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Don Boudreaux
He is a professor of economics at George Mason University in Fairfax, Virginia. Previously, he was president of the Foundation for Economic Education.

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