The fact that some national conservatives deny that their goal is economic efficiency is simply a misunderstanding of what economists mean by efficiency. If you understand this definition, you will understand “Efficient Resource Allocation”. That is. ‘The allocation of resources that maximizes the satisfaction of human needs’.
And so [Alex] Salter is right about increased factory work and more factory production by the National Conservatives.[d]Appropriate subsidies, tax credits and similar policies have full potential to achieve this. But it is wrong to think that the story ends there. The story ends only when we decide that these reengineered factories are worth the increase in production and production costs, because only if this shrinking of the manufacturing sector is proven to be worth the cost can industrial policy be said to be truly effective. Improved economy.
Because industrial policy necessarily ignores market value, however, there is no way for the designers of industrial policy, or the mandarins who implement it, to know whether the value of their engineering output—here, more factory work and more factory output—is greater. or is less valuable than the goods, services, and economic opportunities sacrificed to achieve those outcomes.
As government engineers pour more resources into the building, industrial-policy officials build the various factories they love, where do these resources come from? Some will certainly come from other manufacturing jobs, while others will come from the service sector. But no one can know from these details. However, even if we know that, say, X tons of steel and Y hours of labor have been diverted by industrial policy from the service sector (from the construction of medical-research facilities and manpower and online retail distribution centers), how do we know that this re-allocation of resources will increase the net benefit of the country? How do we know that the cost of lost production from these service sector jobs does not exceed the cost of the manufacturing sector? How do we know that the number of jobs destroyed in the service sector is less than the number of jobs created in the manufacturing sector?
We cannot know. No one can. There is no telling anyone that the net result will be economic improvement for the country. Indeed, the only real knowledge we have when the wealth transfer first occurs is that, at least at that time, the market was more valuable than the surplus produced in the service sector. The results of the manufacturing sector are now produced. If it weren’t for the fact that we know this to be true, market participants themselves would move wealth away from the service sector and into the manufacturing sector.
In this reality, industrial-policy champions have only two possible responses if they want to defend industrial policy as beneficial to the country. One response is that the market is unreliable and knowledge is distorted. It is important to raise this question for those who respond: how do you know? What source of knowledge can tell you clearly enough that the knowledge conveyed by market signals is flawed, that government-engineered resource recovery improves the well-being of the nation’s people?
If you ask this question, you will not get a good answer. Proponents of industrial policy are ultimately guided only by their personal preferences, preferences, prejudices and lies.
A second possible response from industrial-policy proponents is to accept that market prices and asset prices are more accurate. Today’s Relative evaluations of various results and scarcity of resources, but to ensure that these prices and property values reflect Seasonal choices and knowledge; Because (the response continues) people don’t fully realize how much better the economy is today with different patterns of resource use and a mix of economic outcomes, today’s prices tell us nothing about what the ‘correct’ pattern of resource allocation should be. tomorrow. Proponents of industrial policy are market participants who recognize how much better off the government is when the government reallocates resources under industrial policy schemes, compared to what would happen in the absence of government intervention.
In response to this, it is important to ask the industrial-policy proponent: how do you know? What is the source of information that assures you that you know more than your fellow citizens who spend and invest their money today? Again, you won’t get a satisfactory answer. Whatever answer you get, when tested, “I feel my industrial policy will improve the country!” It’s just that.
