Here is another letter I wrote earlier in the day. (This letter is very boring, but it is important to address these deep disagreements.)
After reading My previous letter When it is said that only market signals can provide producers with knowledge of consumer preferences, “My criticism of industrial policy does not apply to Oren Cass, who stated clearly that he wants to use jobs, not consumption.” He said.
While you are correct about Oren’s stated goal, you are incorrect in saying that this goal is independent of the economic issue with industrial policy.
When economists use the word “consumption,” we mean the ends of economic activity. These can be anything. Oren insists that the ability to obtain and remain in manufacturing jobs is not only an income to purchase consumer goods, but is itself an economic end—that is, a consumption good. However, even if we grant that Oren is correct on this point, the case for industrial policy is invalid.
Consumables must be traded among themselves; Buying a bigger house means sacrificing more restaurant meals or more entertainment. Each of these things is good, but being ‘good’ alone has nothing to tell us how many units of each we should get because of getting more units of a good. It is a must. It means getting smaller parts of others. In a free market, prices and wages direct producers to produce, and consumers – to spend their own income – to consume, the ‘right’ mix of countless different consumption goods.
But under Orion’s industrial policy, the number of manufacturing jobs is artificially increased by subsidies and tariffs. Even accepting that these jobs (as Oren believes) are consumer goods, replacing market signals with government orders removes the necessary information to determine how the cost of additional manufacturing jobs compares to the cost of other consumer goods. Possible jobs. After market signals are removed, all we have is an Oren Cass or some government official’s search for the actual mix of manufacturing operations with other consumer goods.
Hunches, alas, are not information.
Oren escapes this problem by proving that every additional manufacturing job, no matter how many jobs there are, is worth the sacrifices made to make that job a reality. But I doubt even Oren believes that more manufacturing should continue, throwing every American into poverty.
Donald J. Boudreaux
Professor of Economics
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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