A thread that began with you criticizing Deirdre McCloskey’s attempt, by using the example of different ice-cream flavors, to explain the importance of the information conveyed by competitively set prices. Several commenters on your thread astutely pointed out flaws in your interpretation of Deirdre’s explanation. But there’s another flaw that I think was not flagged, at least not explicitly – to wit: Listening in a fair and open-minded manner to Deirdre’s explanation would have immediately revealed that her core point is not about different ice-cream flavors but about differences in consumer preferences for goods and services. For example, if consumers’ tastes in desserts switch more in the direction of ice cream (of any flavor) and away from (say) sorbet, they’ll buy less sorbet and more ice cream. The relative prices of ice cream and sorbet will change – specifically, the price of ice cream will rise and that of sorbet will fall. This change in relative prices will both inform and incite producers to produce more ice cream and less sorbet.
Take note that, as some of the commenters on your thread realized, the final result might be that the price of ice cream and of sorbet will wind up the same. How close or far these two prices are from each other after the market adjusts to the change in consumer preferences is irrelevant to Deirdre’s point, which is that changes in prices, and the existing pattern of relative prices, are indispensable sources of information about how scarce resources should be allocated.
The above misunderstanding would normally not be worth calling out. But in your case it is. The reason is that, while those of us who oppose industrial policy point to specific sources of information (prices, and profits and losses) that the market accesses and uses to allocate scarce resources, you have yet to tell the world where the industrial-policy mandarins who you propose to empower to override market signals will get the information they will use to allocate resources and how these mandarins will then process and act on this information, and why you believe that the information gathered and acted on by industrial-policy mandarins will be more reliable than are market prices as a guide for satisfying the enormous, diverse, and often changing range of human desires.
Like many people, you excel at finding flaws in market outcomes (some of which flaws are real, many of which are imaginary, and others of which seem to reflect only your own preferences that you then project onto millions of your fellow Americans). But identifying flaws in market processes, even only real ones, is not sufficient to justify overriding the market with government interventions. You must also show that your proposed interventions will plausibly result in better processes, or at least in processes that aren’t worse. To succeed in this latter task, you must – I repeat – identify how government officials will get the information they will need to outperform the market. Until you do so, you ask us to take on faith that government will achieve what you claim it will achieve. With the market, no such faith is needed. Theory and history supply ample justification for its continued operation.
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***************************
To undertake the direction of the economic life of people with widely divergent ideals and values is to assume responsibilities which commit one to the use of force; it is to assume a position where the best intentions cannot prevent one from being forced to act in a way which to some of those affected must be immoral.
DBx: One of the important achievements of free markets is that they peacefully prompt individuals not only to respect the preferences of others, but also to help others achieve their goals even when those preferences and goals are not widely shared. Furthermore, no one is compelled to offer such assistance; such assistance is given voluntarily; it is elicited through commercial offers.
Industrial policy, in contrast, conscripts everyone into serving the vision of the architects of the industrial policy. Many NatCons today, for example, long for an economy featuring more factory jobs. Never mind that most Americans don’t want such jobs (as we can tell because most Americans would not agree to take the pay cuts that would be required to ‘purchase’ the privilege of having many more such jobs). But if these NatCons ever manage to grab enough political power, they’ll try to impose their vision – an imposition that will be impossible to achieve without the NatCons threatening coercion on anyone who is prone to act in ways that would undermine the NatCons’ scheme.
The very existence of a concrete ‘vision’ for what an economy ‘should’ look like in its details implies that the visionary believes that something is amiss if the actual economy fails to satisfy his vision. It’s a short step from the disappointment that the visionary experiences at the failure of reality – at the failure of his fellow human beings – to live up to his ideals to the visionary’s conviction that he is entitled to coerce his fellow human beings to behave as he has divined they ‘should’ behave.
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