Today the fatal conceit is expressed in “industrial policy,” a specialty of “new Democrats.” In the name of industrial policy, the tax code will acquire many curlicues of “targeted” incentives for behavior that disinterested government knows, just knows, meets an “unmet need.” Government, fancying itself wiser than mere markets, will allocate capital to what it is sure will be “strategic” industries years hence. Solomonic government knows the right number of airlines and the sort of planes they will need next century. (It is subsidizing research on a supersonic passenger plane.) Government knows the correct market share for this or that import. (It soon may say it knows how many Japanese cars Americans should be allowed to buy under “managed” trade.) Government knows the “fair” share of foreign markets for U.S. exports. It knows what “countervailing subsidies” are required to combat other nations’ “unfair” industrial policies.
Government can direct the training of workers because government knows the skills that will be in demand down the road. Government knows the precise percentage of GDP that should be spent on health care, the “reasonable” cost for particular medical procedures. Government knows the proper price for pharmaceuticals and insurance. (Bill and Hillary Clinton, although peripatetic campaigners for 20 years, have nevertheless found time to master the intricacies of those last two industries and have pronounced their pricing policies unjust.)
Clinton says his industrial policy will keep America “on the cutting edge” of progress. Never mind the antic implausibility of the government, that author of agricultural subsidies, the welfare system and many other misadventures, serving as a reliable guide to the fast-unfolding future. This government, which hardly excels at such basics as delivering mail and budgeting, is going to divine the rapid evolution of our science-driven economy? Please.
Government has occasionally been a catalyst for technological advance. In “Second Thoughts: Myths and Morals of U.S. Economic History,” published by Oxford University Press for the Manhattan Institute, economist Paul Uselding notes that the technology of mass production-machinery producing standardized products with interchangeable components of high quality and low unit cost-was advanced by the 19th-century firearms industry organized around government armories. And firearms mechanics took their skills to other industries, making clocks, sewing machines, agricultural machinery. War, government’s largest undertaking, has always stimulated technologies, from revolvers to computers.
But today the pace of technological, and hence economic, change is swift and accelerating, and the creaking unwieldiness of government is worsening. So is government’s entanglement with economic interests resistant to change. Any time and everywhere, government is unsuited to supervise economic life, and modern government is spectacularly unqualified for guiding a modern economy. Socialism, which fancied itself especially modern, shattered under the strain of modernity because socialism was systemically ignorant. It blundered around blindfolded because it did not have the billions of bits of information, essential for efficient allocation of social energies, that markets signal every day.
Today’s “new Democrat” turns out to look a lot like a Gilded Age Republican. Back then, Republicans controlled a government swollen with the confidence and prestige conferred by victory in the Civil War. Industrial capitalism, revved up by the war, was poised for continentwide expansion and Republicans were hot to help it with an industrial policy. That policy included tariffs, land grants and bond issues for railroads, the Homestead Act and Land Grant College Act to spread scientific agriculture and other remunerative knowledge. Even war was industrial policy when used to encourage Indians to see the virtues of the westward migration.
Back then, Democrats, true to their Jeffersonian pedigree, were disgusted by industrial policy. They understood, as had Jefferson, a careful reader of Adam Smith, that tariffs were government devices for transferring wealth from consumers to corporations. Historian Robert Kelley writes that Samuel J. Tilden, that undeservedly unremembered Democrat (New York’s governor; scourge of the Tweed Ring; presidential nominee in 1876), understood the primary cause of the carnival of corruption in government in the Gilded Age: “It simply flowed, he said, from the cozy relations between Republicans and the business community, and the centralist, big-spending doctrines Republicans preached as they sought to aid business in every possible way.”
Today it is a Democratic administration that desires relations between business and government more “cooperative” than during the Republican years. Trouble is, the dynamics of democracy are apt to cause “cooperation” to result in “lemon socialism”– government assistance that does not midwife promising new industries but rather props up faltering old ones. The Wall Street Journal knows why: Unborn industries do not have lobbyists; old ones do.
The fundamental flaw in industrial policy-in picking industrial “winners” rather than allowing the market to pick them-is this: If the payoff from an investment is clear to government, why won’t the private sector pursue it? One instrument of Clinton’s industrial policy is called Advanced Research Projects Agency. But how advanced is a project if bureaucrats in Washington can fathom it?
The fatal conceit partakes of the childlike faith that the world is plastic to our touch and the future is transparent to our gaze. This conceit gives rise to government that treats society like a Tinker Toy, to be played with and put into whatever shape we wish. It is a beguiling attribute of children that they do not understand what life does to plans. But that is not a beguiling attribute of a governing class.
