Russell Roberts's Blog, page 12

Some Adam Smith Links

(Don Boudreaux)

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David Friedman, writing in Reason, defends Adam Smith from the many attempts by today’s progressives to claim him as one of their own; Friedman also exposes Murray Rothbard’s carelessness (to put it mildly) in assessing Smith’s work. Two slices from Friedman:

Not only did Smith not endorse a progressive income tax, he did not endorse any sort of income tax. “Capitation taxes,” he warned, “if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary. The state of a man’s fortune varies from day to day, and without an inquisition more intolerable than any tax, and renewed at least once every year, can only be guessed at. His assessment, therefore, must in most cases depend upon the good or bad humour of his assessors, and must, therefore, be altogether arbitrary and uncertain.”

…..
Noah Smith, of the Noahpinion newsletter, has offered this quote to claim that Adam Smith favored income redistribution: “Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.” He neglects the sentences that follow: “The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security.…Where there is no property, or at least none that exceeds the value of two or three days’ labour, civil government is not so necessary.” Smith is not arguing against inequality. He is saying that inequality is what makes government necessary.

Russ Roberts, Eamonn Butler, Tom Palmer, Charles Koch, and my intrepid Mercatus Center colleague, Veronique de Rugy, are among those who offer their favorite Adam Smith quotations.

My emeritus Nobel-laureate colleague, Vernon Smith, describes Adam Smith’s “emergent rules of justice.” A slice:

The violation of justice is the violation of fair play rules. The resentment felt is proportioned to the evil inflicted, and the justified punishment response is proportioned to the resentment felt. Consequently, the greatest evil is for one person to cause the death of another. Hence, humankind, and the relatives and friends of the person slain, harbor the greatest resentment for murder and seek its maximal punishment. To be deprived involuntarily of things in our rightful possession “is a greater evil than to be disappointed of what we have only the expectation. Breach of property, therefore, theft and robbery, which take from us what we are possessed of, are greater crimes than breach of contract, which only disappoints us of what we expected.” (TMS, p 121)

Gary Galles celebrates Adam Smith’s “cooperative capitalism.” A slice:

People, however, who are protected by private property rights and the derivative right to contract, are united by the vast mutual benefits production and exchange with one another can make from our dramatic differences in interests and abilities. Instead of a zero-sum game, market competition produces an incredibly positive-sum “game” in which each benefits him- or herself by finding more and better ways to benefit others, which George Reisman recognized as producing a situation where “one man’s gain is positively other men’s gain.” And it comes through the ability to create and exchange with others, which Smith noted, is “common to all men, and to be found in no other race of animals,” which is why for man, “the greater part of his occasional wants are supplied by…treaty, by barter, and by purchase,” which, in turn, “gives occasion to the division of labor,” and the massive expansion of output that makes massive expansions of consumption possible.

Writing in National Review, Mark Skousen asks “how much of Adam Smith’s hand is still visible.”

Quotation of the Day…

(Don Boudreaux)

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… is from page 232-233 of Liberty Fund’s 1982 edition of Adam Smith’s profound 1759 classic, The Theory of Moral Sentiments:

The great body of the party are commonly intoxicated by the imaginary beauty of this ideal system, of which they have no experience, but which has been represented to them, in all the most dazzling colours in which the eloquence of their leaders could paint it. Those leaders themselves, though they originally may have meant nothing but their own aggrandisement, become many of them in time the dupes of their own sophistry, and are as eager for this great reformation as the weakest and foolishest of their followers. Even though the leaders should have preserved their own heads, as indeed they commonly do, free from this fanaticism, yet they dare not always disappoint the expectation of their followers; but are often obliged, though contrary to their principle and their conscience, to act as if they were under the common delusion. The violence of the party, refusing all palliatives, all temperaments, all reasonable accommodations, by requiring too much frequently obtains nothing; and those inconveniencies and distresses which, with a little moderation, might in a great measure have been removed and relieved, are left altogether without the hope of a remedy.

DBx: Adam Smith’s gravestone, in Edinburgh’s Canongate Kirkyard, gives as his birthday, “5th June, 1723.” Because of the replacement of the Julian calendar by the Gregorian calendar in 1752, June 5th in 1723 is, on our calendar, June 16th. But there is also dispute about whether Smith was born on June 5th or on that day baptized, having been born several days earlier. If June 5th, 1723, is the day of his baptism, then the date of his birth might well be June 5th as we today reckon dates. Given these complexities and uncertainties, I have long chosen to take Smith’s gravestone as having the final word: June 5th is Smith’s birthday.

And so today, June 5th, 2023, is the 300th anniversary of the birth of this scholar of unsurpassed wisdom and insight. Despite endless attempts by the progressive left to claim him as one of their own – and despite attempts by “national conservatives” to twist Smith’s message to fit their bill – Smith is and will forever remain one of history’s greatest and most influential true liberals.

Happy Birthday, Prof. Smith. The world is greatly indebted to you.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 525 of Bruce Caldwell’s and Hansjoerg Klausinger’s excellent 2022 Hayek: A Life, 1899-1950; this passage is from Caldwell’s and Klausinger’s chapter on Hayek’s great 1944 book, The Road to Serfdom; the discussion here is about publication of the American edition (original emphasis):

The University of Chicago Press also wanted to change the title to Socialism: The Road to Serfdom, but both [Fritz] Machlup (who was handling many of the negotiations) and Hayek resisted, on the grounds that central planning could be undertaken by either the left or the right: after all, that was why the dedication was to socialists of all parties.

DBx: This point is important. People on the political right typically assume that support for socialist interventions comes uniquely from people on the political left, but this assumption is mistaken. While conservative interventionists don’t call themselves “socialists,” many of their proposed interventions – for example, industrial policy – are indeed socialist interventions. These interventions are socialist because, in their attempts to improve the overall performance of the economy, proponents of these interventions advocate that market-directed allocations of resources be replaced with allocations carried out by government diktat.

People who are sympathetic with the political left (or who are singularly hostile to the political right) sometimes assert that Hayek’s message in The Road to Serfdom applies only to interventions imposed by overtly fascist regimes, such as those that in 1944 reigned in Germany and Italy. This assertion, too, is obviously mistaken. It is mistaken not only because Hayek understood to be ‘socialist’ all attempts to improve the economy by replacing market-directed resource allocations with state-dictated allocations, he also – especially because he was by then a loyal British citizen living in England – feared what might come at the war’s end as a result of the enormous amount of sympathy that British left-socialists were accorded at the time he was writing his soon-to-be-famous book.

As Caldwell and Klausinger write on page 526 of their book, “The Road to Serfdom is dedicated to ‘the socialists of all parties,’ signaling its author’s perception that people from across the political spectrum were being seduced by the same set of ideas.”

Also relevant here is footnote #10, on pages 532-533, of this Caldwell and Klausinger chapter. This footnote reads in part:

In the unpublished postscript [for The Road to Serfdom] Hayek wrote that much of the first draft of Road had been completed by spring 1941, but then Hitler invaded Russia. He put the manuscript aside for a while, and when he returned to it he eliminated “most of what would have been offensive to our temporary Ally and to all those Left-wingers whom I hoped to persuade and whose admiration and enthusiasm for Russia was then at its height.”

Some Links

(Don Boudreaux)

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My GMU Econ colleague Vincent Geloso warns against falling for the calamitous message of the “de-growthers.” A slice:

To make this claim, they (sometimes unknowingly) rely on the “Preston Curve” – named after Samuel Preston in a famous article in Demography. To visualize the curve, imagine a graph where life expectancy is depicted on the vertical axis and income is depicted on the horizontal axis. The line that draws the relation between both variables shows that for each additional increment in income, the associated increase in life expectancy is less than the previous increment. This phenomenon reflects the law of diminishing marginal returns. However, once a certain point is reached, there are no gains to be had. The curve is essentially a flat line after that point.

From this, the inference made by many de-growthers is that we do not need more income than a certain fixed level. Anything beyond that brings little fruits and many harms.

This is a bad inference, however, because they forget many things. The first is that when it was first drawn, back in the 1970s, there were few “exceptionally rich” countries to draw the Preston Curve. Today there are far more countries that are exceptionally wealthy as seen from the vantage point of the 1970s. Over time, the curve has moved up and right. This means that not only is each dollar now more effective at improving health than before, but each additional dollar is more effective than it was before. True, the effect of an additional dollar is less than the effect of the previous dollar of income, but the effect remains positive. As such, de-growthers are understating the fruits of economic growth.

Second, and far more importantly, the curve’s shape is somewhat unsurprising because of biological considerations. Indeed, a large number of deaths in low-income countries are tied to preventable diseases and malnutrition. The role of a “natural” boundary to life expectancy matters little in these situations. As such, extra income (which allows for better nutrition, better water quality, better health care, and the like) makes it easy to improve life expectancy when it is “below” the biological boundary. Once one is closer to the boundary, improvements are harder to secure. At least, they are harder to secure unless one pushes the boundary further. And yet, pushing back that boundary is exactly what economic growth allows. In a recent article in Economics & Human Biology, economic historian Leandro Prados de la Escosura pointed out that it is far more impressive to improve life expectancy by one extra year when the statistic stands at 85 years rather than at 45 years. This means that we should give more “weight” to an extra year near the top rather than an extra year closer to the bottom. When this is done, we observe a totally different Preston Curve. Rather than seeing diminishing marginal returns, we see increasing ones!

Here’s the abstract of my GMU Econ colleague Dan Klein’s new paper on misinformation. A slice:

The policing of “information” is the stuff of Naziism, Stalinism, Maoism, and similar anti-liberal regimes. To repress criticism of their dicta and diktats, anti-liberals label criticism “misinformation” or “disinformation.” Those labels are instruments to crush dissent.

This paper offers an understanding of knowledge as involving three chief facets: information, interpretation, and judgment. Usually, what people argue fervently over is not information, but interpretation and judgment.

What is being labeled and attacked as “misinformation” is not a matter of true or false information, but of true or false knowledge—meaning that disagreement more commonly arises over interpretations and judgments as to which interpretations to take stock in or believe. We make judgments, “good” and “bad,” “wise” and “foolish,” about interpretations, “true” and “false.”

On that understanding, the paper explains that the projects and policies now afoot styled “anti-misinformation” and “anti-disinformation” are dishonest, as it should be obvious to all that those projects and policies would, if advanced honestly, be called something like “anti-falsehood” campaigns.

But to prosecute an “anti-falsehood” campaign would make obvious the true nature of what is afoot—an Orwellian boot to stomp on Wrongthink. To support governmental policing of “information” is to confess one’s anti-liberalism and illiberality. The essay offers a spiral diagram to show the three chief facets of knowledge (information, interpretation, and judgment) plus a fourth facet, fact, which also deserves distinct conceptualization, even though the spiral reminds us: Facts are theory-laden.

Pierre Lemieux isn’t impressed with Oren Cass’s recent op-ed in the Financial Times. A slice:

A recent oped in the Financial Times bears a strange title: “On America’s Ramshackle Railroads, Republicans Concede the Limits of the Market.” Although this sentence does not appear in the piece itself, it does reflect its author’s opinion. Oren Cass, president of American Compass and a proponent of industrial policy and protectionism, argues that the frequent derailments of private freight trains in America justify more regulation of railroads. He congratulates Republicans like J.D. Vance, Marco Rubio, Josh Haley, Donald Trump, and Mitt Romney for supporting more regulation. Conservatives like them, Cass argues, have fortunately “become increasingly cognisant in recent years that regulation can be far from perfect and yet still far better than the status quo.” He does not mention the accidents of passenger trains of Amtrak, a heavily subsidized and money-losing corporation established by Congress in 1971 (under Richard Nixon), and whose major shareholder is the federal government.

In fact, it can probably be said that American railroads have been a major part of federal industrial policy, without the name, for a century and a half, not to mention heavy regulation by state governments (including, in the South, forcing them to discriminate against Black passengers).

David Hoopman’s letter in the Wall Street Journal is spot-on:

My only quibble with “Your Coming Summer of Blackouts” (Review & Outlook, May 27) is its reference to “the green-energy transition,” as if this transition were well under way. The Energy Information Administration might differ. It expects worldwide reliance on electric generation from coal to remain unchanged over the next three decades, while reliance on natural gas increases modestly.

A major reason might be that prehistoric energy sources like wind and solar can be counted on to perform as needed only between a third and a quarter of the time, and never mind their environmental downsides—extractive mining, extravagant land-use requirements, etc. To voluntarily depend on them for all our energy requirements is to consent to returning to a Medieval—and dirtier—economy.

This is probably irrelevant to comfortably situated members of the full-time environmental movement, interested mainly in harvesting taxpayer subsidies and immune to any serious personal inconvenience, but it’s a sure path to misery for the working classes. This can be attested to by Germans whose mandated “green-energy transition” has them paying the highest electricity prices in the world for no detectable benefit to the climate.

David Hoopman
Monona, Wis.

J.D. Tuccille decries Congress’s hypocritical compliance in the rise of the use of presidential ’emergency powers.’ A slice:

Which is to say that congressional committees, under both major parties, have held hearings to voice the same concerns about the abuse of emergency powers, hearing warnings and calls for reform by overlapping experts who largely repeat their testimony. They draw from research done specifically for them that documents a never-ending state of “emergency” that has long been the norm. Surely, there must be bipartisan consensus by now that the presidency’s monarchical tendencies need to be curbed so that nobody need live “their entire lives under emergency rule.”

Well, maybe there is. But there’s also a consensus in both parties in favor of winning at all costs. A Republican-dominated House might hold hearings on the dangers of emergency powers now, but as that 2020 Congressional Research Service report pointed out, “President Trump invoked the National Emergencies Act to declare a national emergency concerning the Coronavirus Disease 2019…. The President subsequently invoked additional national emergency statutes.” And last year’s Democratic majority hosted hearings on abuses of executive authority just days after their own colleagues called on President Joe Biden to declare a “national climate emergency” and to wield unilateral power over wide areas of life without the messy business of legislative debate. Biden has made a habit of rule by decree.

“If emergency decrees promise to solve some problems, they threaten to generate others,” U.S. Supreme Court Justice Neil Gorsuch recently warned in a statement about the growing use of emergency authority to impose policies. “And rule by indefinite emergency edict risks leaving all of us with a shell of a democracy and civil liberties just as hollow.”

Here’s the abstract of the just-published final version, in the May 2023 issue of the Journal of Political Economy, of Phil Magness’s and Michael Makovi’s excellent paper “The Mainstreaming of Marx: Measuring the Effect of the Russian Revolution on Karl Marx’s Influence”:

Karl Marx’s high academic stature outside of economics diverges sharply from his peripheral influence within the discipline, particularly after nineteenth-century developments rendered the labor theory of value obsolete. We hypothesize that the 1917 Russian Revolution is responsible for elevating Marx into the academic mainstream. Using the synthetic control method, we construct a counterfactual for Marx’s citation patterns in Google Ngram data. This allows us to predict how often Marx would have been cited if the Russian Revolution had not happened. We find a significant treatment effect, meaning that Marx’s academic stature today owes a substantial debt to political happenstance.

From my former Mercatus Center colleague Bob Graboyes comes insight about “gigs, jobs and smart machines.”

Jay Bhattacharya tweets:

Global public health moved resources from vaccinating kids against measles — a disease very deadly for them to instead address covid, which is much less deadly for kids than measles.

Predictably: “COVID-19 pandemic-related disruptions have delayed the introduction of the second dose of the measles vaccine in many countries.” Next pandemic, kids’ interests need to be better represented.

Quotation of the Day…

(Don Boudreaux)

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… is from page 144 of Thomas Sowell’s important 1990 volume, Preferential Policies: An International Perspective:

A wide variety of moral arguments has been used to justify preferential policies for majorities and minorities. Some of these arguments have little in common, except for being largely unexamined in the excitement of crusading zeal – and being politically successful.

Creative Destruction Is Not An Externality, Part 1

(Don Boudreaux)

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Here’s a long-overdue letter to a new correspondent.

Mr. J__:

Thanks for your e-mail, and please accept my apologies for the tardiness of my reply.

Responding to my several “critiques of common good capitalism,” you write that I “don’t give enough credence to apprehensions that unregulated markets force many changes on us that most of us may not want.” It is such changes, you add, that “Alex Salter probably was thinking about when he warned of political externalities.”

Judging from the context in which Alex used the term “political externalities,” I agree that what he likely means by this term is economic change that results from free-market innovation and competition. But I disagree that such change is an externality. It’s not, for at least two different but related reasons. The first of these reasons operates at the micro level; the second of these reasons is broader and more philosophical. In the interest of time I share here today only the first of these reasons. I’ll share the second in a follow-up letter.

At the ‘micro’ level, new and innovative economic opportunities are almost always offered alongside older and familiar ones. Older and familiar goods, services, and economic arrangements are discarded in favor of new and innovative ones only if and when enough individuals – spending their own money – choose the latter over the former. As the great economic historian Stanley Lebergott observed in 1993,

the array of available goods changes slowly. The high-button shoes of 1900 were still for sale in 1905. Vacuum tubes were stocked in the 1950s, even as transistorized appliances began to replace them. Twentieth-century consumers could therefore usually choose last year’s budget items this year if they desired. Yet real consumer expenditure rose in seventy of the eighty-four years between 1900 and 1984, as consumers continually switched to new goods. Such repetition reveals consumers behavior as if the newer goods did indeed yield more “worthwhile experience.”*

In almost all cases, people can for a time choose to continue to buy an older good or instead to buy a newer alternative. Because the consumer, when choosing to buy the newer good, personally forgoes whatever benefits he or she would have reaped had the older good been purchased instead, there is in such choice settings no externalities.

The same is true of choosing where to shop. Consumers who value the intimate, cozy feel of mom’n’pop retailers are free to continue to shop there when the likes of Walmart and Amazon arrive on the scene. If consumers value this cozy feel more highly than they value the additional goods and services they’d be able to buy were they to take advantage of the lower prices offered by the larger retailers, consumers would continue to patronize moms’n’pops. But consumers who instead shop at the larger retailers thereby reveal that they do not value the cozy feel highly enough to pay for it. There is here – contrary to the explicit claim of Robert Reich, and to the strong suggestion of Alex Salter – no externality.

You’ll likely, and not unreasonably, respond by correctly noting that moms’n’pops will survive only if enough consumers value the cozy feel sufficiently highly to pay for it. If too few consumers value this cozy feel highly, moms’n’pops will give way eventually to the Walmarts and Amazons, imposing – I predict you will say – an “externality” on the small number of consumers who do value the cozy feel highly enough to pay for it.

This point will be addressed in my follow-up letter.

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

* Stanley Lebergott, Pursuing Happiness: American Consumers in the Twentieth Century (Princeton: Princeton University Press, 1993), page 15.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 186 of Ludwig von Mises’s 1948 memo to Leonard Read, published for the first time in its original English as chapter 42, under the title “The Objectives of Economic Education,” in the 1990 collection of some of Mises’s shorter essays, Economic Freedom and Interventionism (Bettina Bien Greaves, ed.):

The survival of civilization can be jeopardized by the misdeeds of individual dictators, Fuhrers, or Duces. Its preservation, reconstruction, and continuation, however, require the joint efforts of all men of good will.

DBx: Pictured here – I believe on the grounds that the Foundation for Economic Education then occupied in Irvington-on-Hudson, New York – are (from left to right) Lawrence Fertig, Ludwig von Mises, Leonard Read, and Henry Hazlitt.

Some Links

(Don Boudreaux)

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Wall Street Journal columnist James Freeman celebrates the discrediting of ESG ‘investing.’ A slice:

The so-called ESG movement has had a very disappointing week, and that’s great news for the world economy and human flourishing. “Environmental, social and governance” activists try to shame companies into adopting destructive political agendas that voters reject. Now it’s clear that shareholders reject them too. In March this column asked if ESG had peaked, and the answer appears to be yes.

“When is efficiency not efficiency? When the government claims to achieve it” – so explains James Hanley. A slice:

The U.S. Department of Energy has just announced a proposed rule to make dishwashers more “efficient” by limiting them to a maximum of 3.3 gallons per wash cycle, a reduction of one-third. (A similar Obama-era rule had sought to limit the machines to just 3.1 gallons, but that was nixed by the Trump administration and replaced with a rule allowing up to 5 gallons per cycle.)

The implicit perspective of the DOE is that reduced use of resources is necessarily a gain in efficiency. But efficiency is not achieved just by using less of some resource. It is about the ratio of costs (the value of resource inputs) to benefits (the value of the output). If the benefit is reduced by more than is saved by reducing costs, there is no efficiency.

My GMU Econ colleague Bryan Caplan imagines a woke Sermon on the Mount.

David Henderson understands the true nature of the so-called “Secure the Border Act.” Here’s his conclusion:

How about this idea? Let’s allow more legal immigrants. We gain and they gain. And, as a side benefit, we especially need them now that the Social Security Trust Fund will likely be out of money in 2033. Remember that the vast majority of immigrants are young. Letting them in would buy us a few years.

Alison Somin and Kyle Griesinger applaud the U.S. Supreme Court’s reining-in of the administrative state. A slice:

In each of these cases, the central question was whether Congress gave the EPA or OSHA the power they were claiming, and, in each case, the Supreme Court said no.

In response to these cases, the apocalypse brigade brayed about the Court’s disregard for science. In West Virginia v. EPA, they insisted that the science was settled, and the EPA’s Clean Power Plan was critical to address climate change. In NFIB v. OSHA, they contended that the science demanded a vaccine mandate to protect workers. And in Sackett v. EPA, they protested that science required the EPA to regulate every sometimes-soggy patch of land from coast to coast or else fish will grow two heads and the Cuyahoga River will catch back on fire.

Of course, these may be reasonable arguments to make to policy makers—if we set aside nagging questions about just how settled the science really is. And those policy makers can, and should, consider arguments based on scientific expertise. But Supreme Court justices aren’t policy makers.

If the law, properly interpreted, is out of step with science, it is not for the Court to ignore a statute’s plain meaning, but for Congress—the legislative branch and the people’s representatives—to fix the problem and make new laws that are grounded in science.

Juliette Sellgren talks with Brian Hooks about believing in people.

George Leef reviews Drexel University professor Stanley Ridgley’s new book, Brutal Minds: The Dark World of Left-Wing Brainwashing in Our Universities. A slice from Leef:

Here’s how Ridgley describes his book: “It’s a tale of how one of history’s great institutions—the American university—is undergoing an infiltration by an army of mediocrities whose goal is to destroy it as an institution of knowledge creation and replace it with an authoritarian organ of ideology and propaganda.”

The word “mediocrities” is carefully chosen. Ridgley shows that the faculty and administrators who are so adamant about imposing their utopian vision of “transformative education” are overwhelmingly the products of our schools of education. Ed schools, long known for their weak students, low standards, and susceptibility to academic fads, have in the last few decades been taken over by a cadre of Marxists who see only bad in America. Worse yet, they have built a pipeline that sends their graduates into faculty and administrative positions in our educational institutions.

Well, at least this young man isn’t dying of covid.

Quotation of the Day…

(Don Boudreaux)

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… is from pages 41-42 of Edward H. Chamberlin’s January 1958 monograph, The Economic Analysis of Labor Union Power (footnote deleted):

If A is bargaining with B over the sale of his house, and if A were given the privileges of a modern labor union, he would be able (1) to conspire with all other owners of houses not to make any alternative offer to B, using violence or the threat of violence if necessary to prevent them, (2) to deprive B himself of access to any alternative offers, (3) to surround the house of B and cut off all deliveries, including food (except by parcel post), (4) to stop all movement from B’s house, so that if he were for instance a doctor he could not sell his services and make a living, and (5) to institute a boycott of B’s business. All of these privileges, if he were capable of carrying them out, would no doubt strengthen A’s position. But they would not be regarded by anyone as a part of “bargaining” – unless A were a labor union.

Industrial Policy Would Ensure Failure

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

“National conservatives” now clamoring for U.S. industrial policy should read your report “U.S. Manufacturers Seek China Alternatives as Tensions Rise” (May 31st). In it, they’d discover that American businesses do not need to be prodded by politicians in order to take account of threats to their supply chains. Your report makes clear that each business has strong incentives to learn the facts on the ground and to weigh the risks of potential supply disruptions that arise from acquiring inputs from countries such as China against the benefits of acquiring inputs from such places.

Not only do politicians and bureaucrats have worse information and weaker incentives than do businesses to get supply-chain diversification just right, the optimal degree of such diversification varies from industry to industry and, indeed, often from firm to firm. Industrial policy would therefore not only strip supply-source decisions from those parties who have the best knowledge and strongest incentives to get these decisions ‘right,’ it would impose on diverse businesses a one-size-fits-all ‘solution’ that would almost certainly be suboptimal for all.

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