Monday, April 9, 2012

Industrial Policy

Ezra Klein asks if the debate about it is back. Hopefully not. I think reasonable economists who understand that some interventions correct rather than create market distortions should be very careful how they talk about these things, because discussions about "industrial policy" very quickly become big tents that everyone can latch on to. We need to make specific cases for externalities that need to be addressed, so that people understand why one action that may help manufacturing firms is reasonable while another action isn't. We can't let people get away with the idea that anything that helps American manufacturing is good policy. And we really, really need to drop this term "market failure" (which Klein uses in the post). It's a terrible term. Markets haven't "failed", they're distorted or operating sub-optimally for one reason or another. If people start questioning the validity of market allocation, that too will become a free for all.

We should be talking about specific externalities and helping people understand them - we shouldn't be sowing seeds of doubt about markets writ large.

1 comment:

  1. They are "Market Failures"-unbridled markets, without the action of government, have not succeeded in producing the "optimal" outcome. Changing the name doesn't change the substance of the argument.


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