‘Progressive’ industrial policy? A regressive joke

‘Progressive’ industrial policy? A regressive joke

The White House is targeting Pittsburgh and four other cities as “workforce hubs to encourage more public and private investment in new and innovative industries,” reports the Post-Gazette.

Consider it the latest misguided foray into government-determined industrial policy.

Oh, it sounds so, so economic development-minded, doesn’t it? But it’s really a situation in which “beneficent” government has no place being — other than to get out of the way and let the free market determine such things.

The P-G says Pittsburgh was singled out for its emerging robotics, biomanufacturing and clean energy industries. In addition, it received a federal grant “to ensure that residents of Southwestern Pennsylvania’s rural communities, hurt by the decline of coal-fired energy, benefit from the new industries taking its place.”

That “decline,” by the way was, and continues to be, forced by government regulations, regulations that are regulating coal-fired energy out of business. The government now is prepared to do the same thing to natural gas.

The Biden administration says it will work with “local officials, companies, labor unions and educational institutions in Pittsburgh and four other cities — Augusta, Georgia; Baltimore; Columbus, Ohio; and Phoenix.”

“The goal is to develop a skilled and diverse workforce,” the P-G reported.

So, what’s wrong with that? Just read between the lines and it’s nothing more than industrial policy.

So, what’s wrong with that?

As Don Boudreaux, the highly regarded economics professor at George Mason University, reminds:

“In a free market, in which people spend and invest their own (and only their own) money, resources are allocated by market prices and asset values that convey at least some information about consumers’ preferences, resource scarcities and expected economic changes.

“This information isn’t perfect, but at least it’s real, objective and – judging by the success of market economies compared to nonmarket ones – pretty darn good.

“In contrast, with industrial policy the only ‘knowledge’ used to allocate resources is the mix of personal preferences and hunches of politicians, bureaucrats and their intellectual shamans.”

Continues Boudreaux:

“Industrial policy censors the vital information that markets continually extract from the economic actions of millions of market participants and replaces it with the armchair speculations of a handful of individuals who arrogantly believe that they possess the God-like power not only to fully enough survey the present but also, from their think-tank suites or political chambers, to accurately foresee the future in all of its unfathomable detail.”

That, in a word, is impossible.

Boudreaux, who also chairs the Mercatus Center’s Free Market Capitalism program, says that when government uses industrial policy to allocate resources into the particular kinds of manufacturing operations favored by industrial-policy designers, a few questions must be posed:

“How many of these resources come from other manufacturing operations? How many come from the service sector? How many come from agriculture and the extractive industries?

“The unfathomable complexity of a modern economy makes acquisition of such knowledge impossible.

“Yet even if we did know that X tons of steel, Y acres of land, and Z hours of labor were diverted from the service sector (say, from the building and staffing of medical-research facilities and on-line-retailer warehouses), how can we know that this altered allocation of resources will redound to the country’s net benefit?

“How can we know that the value of the outputs lost from these diminished service-sector operations isn’t greater than the value of the additional outputs made possible in the manufacturing sector?

“How can we know that the particular jobs destroyed in the service sector are inferior to the particular jobs created in the manufacturing sector?”

“How can we know what effect this forced reallocation of resources will have on innovation in the manufacturing sector or in other sectors?

Are we to expect subsidized and protected firms to become more innovative? And how can we know what effect will be visited on the country’s overall well-being by this changed pattern of innovation?

Simply put, “We can’t know. No one can.”

Boudreaux gives the final word on the folly of industrial policy to Adam Smith:

“The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

The P-G notes that the White House will use the five cities as models for similar programs in other areas.

Help us all. For experience tells us that governments that attempt to pick economic winners invariably create more losers while sucking scarce dollars out of the economy.

Yet again – and as always – such “progressive” policies lead to regressive results.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).