TGIF: Does Nearly Everyone Favor Industrial Policy?

Over the years I've heard countless arguments about which word best describes the American economic system. Some insist it is essentially socialist, while others favor the word fascism. (Fascism is socialism with a private-property and market veneer.) Still others describe the system as a mixed, or interventionist, economy.

We need not decide among these because the huge system has many facets, at least some of which at some time or other have fit one or more of these terms.

One term we might all agree on, however, is industrial policy. That's because it is general enough to cover almost anything except the market unmolested by the state. And yet it's a good term for the whole basket of objectionable policy sets. It fits most people along the conventional political spectrum, even if they differ in degree.

Think about it: in the current system virtually any government activity can be defended on the grounds that it's good for "the economy," including locking it down in the name of public health. This goes for both more and less government intervention. So even reducing government control in a particular matter might be favored by an interventionist under particular circumstances, with the understanding that if circumstances change, control would be increased. We're talking about a policy orientation and motive more than any particular measure. Industrial policy is frequently equated with "picking winners," which it is certainly part of it. But picking winners will then be defended as a way to make the economy healthy, notwithstanding obvious crony-serving features.

You can see this engineering orientation in trade policy. Even some people who are usually on the free-trade side of the spectrum can see free trade as a government policy, not the absence of policy. This even was true in the early years after the American Revolution. The Articles of Confederation did not empower the central quasi-government to regulate trade, and since it had no power to tax, it could not levy revenue tariffs. Of course, the Articles were replaced by the Constitution, which explicitly gave Congress the power to regulate trade and to tax. Those issues were important in propelling the movement to scrap the Articles in favor of a far more powerful central government. (See my America's Counter-Revolution: The Constitution Revisited.)

For the governing class the power to regulate trade was indispensable to the policy arsenal, even if free trade was favored at any particular moment. Rulers could imagine many circumstances in which they would need to impose tariffs, quotas, or sanctions on other countries "for the good of America," which always included economic concerns. As George Will wrote long ago, free trade is not a principle; it's an expedient"--but not necessarily always. (Will may think differently today.)

Trade is certainly not the only area where this engineering mindset is at work. The country's infrastructure is another popular area, as we can see today. Nearly any government requirement can be imposed in the name of upgrading roads, bridges, and the rest. Crazy levels of spending, borrowing, and taxation can be supported as necessary to the health of the economy even if the resulting legislation actually has little to do with the infrastructure. We can also see where trade and infrastructure intersect: President Biden, like past presidents, has a "Buy American" provision in his infrastructure bill, which would push the price tag higher than it would be without that provision,

Immigration is another area where more or less restriction will usually be defended in the name of American economic well-being. The issue is hardly ever related to individual liberty for aspiring immigrants and Americans. This should need little elaboration.

At the root of this mentality is the pretense that "the economy" is a machine. Any machine needs tending; it cannot be left to run itself indefinitely. Ergo, the economy needs tending by government officials. If pressed, people who think this way would have a hard time clinging to the trope, but that does not stop them from operating as though the economic system were literally a machine. Notice how often they talk about an economy's potential for overheating, stalling, cooling down, braking, and so on.

But if an economy is not really a machine, why is it useful to pretend that it is? I'll venture a guess. When one speaks in those terms, it's easier to obscure the fact that it's not a machine that will be tended; rather, it is people who will be monitored, controlled, and penalized for disobeying government directives. If the economy is just a machine that is being regulated, no one need worry about rights abuses. You might criticize the regulators on competency grounds, but not on moral grounds.

Yet when you walk around, you see no economy. It is not a thing like a machine, a building, or a vehicle. When we say economy, we mean individual persons acting in a series of continuing and more or less regular relationships that involve money in the transformation of stuff from less-useful to more-useful forms, as consumers view things. Government officials don't regulate an economy; they regulate individuals--us!--thereby interfering with our lives, liberties, purposes, and pursuit of happiness.

That's the moral case against industrial policy. The technical case involves the familiar public-choice and Austrian knowledge-related critiques of central planning: namely, that the politicians and technocrats, first, can't know what they'd need to know to regulate our activities for our own good, and, second, even if they had that knowledge, they couldn't be counted on to act appropriately, given that they are human beings with personal interests, for example, power, prestige, and career advancement. (Hence, the familiar mission creep.)

That one-two critique has never been satisfactorily addressed. We must oppose industrial policy in all its forms.