Money talks
“No. It’s too far off for me to entertain the thought.”
Barry Humphries, aka Dame
Edna Everage (pictured), then aged 88, on whether he had considered saving for retirement. Humphries died this week aged 89. Quoted in The Times
“If they are bright, they go to bonds, if they are personable they join equities, and if they are neither I send them to corporate finance.” The head of securities at an investment bank on placing new graduates, quoted on Twitter
“Sex is like money. Only too much is enough.” John Updike, quoted in The Times
“I’ve always wanted to have my own business because my parents were very hard workers – they had fashion stores. I’d work on the tills on the weekend and that would be my pocket money. I liked seeing my mum and dad interact with the customers and build that community, so I knew I wanted to have a business and for it to marry my two loves – I love lattes and health-food drinks, and something that was also sustainable, that was aware of the animal issues.” Former pop star Leona Lewis on her plant-based coffee shop, quoted in Metro
“Four divorces. In total I’ve probably spent £5m on four ex-wives, but it doesn’t bother me. I’ll get another £5m. All I have now is living money. I don’t have £10m stuck away. I’ve got a mate who’s got £500m, and he doesn’t know what to do with it. He’s a nervous wreck. I never look back and think I was earning that much and now I’m earning this much. You can’t go forward looking back.” Comedian Jim Davidson on his worst investment, quoted in The Sunday Times
aier.org
Those who advocate an industrial policy – that is, that the government rather than the market should set the overall direction of travel for a country’s economy – do not fully appreciate why it won’t work, says Donald Boudreaux.
The economist F.A. Hayek argued that top-down economic planning is impossible because the information needed to do it is diffused throughout society and is inaccessible to the planners. Trying to replace markets with a rational, hierarchical planning process is therefore doomed to failure.
Some argue that this is all very well, but that Hayek was arguing against the possibility of socialist states achieving optimal – that is, the most efficient – resource allocation. Industrial policy, on the other hand, does not seek economic efficiency at all. It just aims to raise employment and output in certain specific manufacturing sectors, not because this is the most efficient policy, but because it is in the national interest. There is no knowledge problem here. If governments want to do that, they can.
This argument is, though, misleading. The meaning of economic efficiency is “that allocation of resources that achieves the maximum possible satisfaction of human wants”. Those advocating for industrial policy surely believe that what they are advocating will deliver that, even if they choose not to call it economic efficiency.
The trouble is, they have no way of knowing whether they will have succeeded. A state can always direct subsidies, tax credits and so on to a favoured industry. But the story doesn’t end there. Once it has done that we need to know whether the transfer of resources was worth the cost. If we ignore market prices, however, as industrial policy necessarily does, there is no way of determining that. All we will know, in fact, is that at the time the resource reallocation took place, the market was placing a higher value on the sectors and activities being taxed than it put on the additional manufactingsector outputs that will now be produced instead. If that were not true, market participants themselves would have carried out the redirection of resources.
There is simply no good answer to this and so advocates are left with nothing but an assertion that their own personal tastes and preferences are in the national interest. The only way in which the knowledge problem would not be a problem would be if they were to say: “We want to achieve our desired outcomes and let the rest of the country be damned!” If they say that, then and only then could we agree that industrial policy is not subject to the knowledge problem.