If You’re Going to Argue Against Free Markets, Please At Least Understand the Free-Market Argument
The familiar question is appropriate: If you’re so smart, why aren’t you richer than you are?
Editor, AmericanCompass.org
Editor:
Writing about troubles at (subsidized and protected) Boeing and Intel, Oren Cass avers (“The Case of the Disappearing Industrial Crown Jewels…Cracked.” Oct. 25):
One can argue that tariffs and subsidies won’t work in the sense that they won’t succeed in altering investment incentives. I disagree, but it’s an interesting and important argument. What you can’t say is that tariffs and subsidies don’t address our loss of manufacturing expertise—the loss occurred because other countries were using these tools and we were not, it will be reversed if and only if we counter those distortions and restore the incentives to invest in making things here.
This paragraph begins with a straw man and ends with hubris mixed with blindness to what economics reveals.
First to expose the straw man: No serious opponent of tariffs or subsidies has ever argued that these “won’t succeed in altering investment incentives.” Indeed, crucial to the case against tariffs and subsidies is the very fact that they succeed in altering investment incentives. Specifically, tariffs and subsidies incite the creation of production capacity that ought not exist by drawing resources away from uses that are more productive than are the lines into which they are drawn.
This reality brings us to the second point: Whatever additional manufacturing expertise is created at the likes of Boeing and Intel by more heavily subsidizing and protecting these firms reduces the expertise available at U.S. firms that are less heavily subsidized and protected. Mr. Cass writes as if government can engender more expertise at Boeing and Intel for free. But of course it can’t; any such additional expertise created at these companies must come from human minds and other resources drawn away from other companies.
Unable to deny this point – which, after all, is just arithmetic – Mr. Cass can try to save his argument only by insisting that the value to the country of the additional expertise created by government intervention at Boeing, Intel, and other U.S.-based manufacturers will be greater than the value of whatever expertise is lost as a result at other U.S. companies. But how can he know this? He can’t. If Oren Cass’s knowledge of the details of the unfathomably complex modern economy is such as to enable him to be sufficiently confident that forcibly transferring some amount of resources away from firms A, B, and C and toward firms, X, Y, and Z will yield net economic gains, he’s in the wrong business. He should immediately quit American Compass, become a player in the financial market that he so dislikes, and use his singular knowledge to improve the allocation of resources in America. In the process he would make himself one of the richest people in the world and he’d achieve the economic outcomes that he desires without having to bother with persuading politicians to heed his counsel.
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
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