Government meddling is the problem, not the solution.
National industrial policy’s siren song of rebuilding blue-collar American manufacturing and restoring widespread prosperity has been difficult for many on the political right to resist. Yet industrial policy has a long history of crashing its followers onto the rocks of economic hardship. The ideas of Friedrich Hayek, who won the Nobel Prize in economics 50 years ago, can help us resist it. Hayek clearly explained why government officials were incapable of successfully engineering a society, no matter how well-intentioned their plans may be.
Hayek argued that free societies flourish best under an organic “rule of law” rooted in tradition. The rule of law primarily protects the “Three P’s”: persons, property, and promises. It should be predictable, stable, general, and impartial; it should leave people, organizations, and communities free to pursue their own goals and make use of their localized knowledge of time and place. Hayek thought that true “law” givers codified existing customs that emerged naturally from peaceful interaction. They seek “merely to state what law was and always had been.”
Hayek contrasts “law” with mere “legislation.” Law evolves over time through repeated interactions and gradual modifications through amendments and judicial review. Legislation, however, entails lawmakers or bureaucrats replacing millions of individuals’ decentralized decisions with their own plans and goals. While Hayek did not say that all legislation was bad, he noted that the more government attempts to consciously shape the law, the more problems arise.
When legislators prescribe specific actions or behavior, they ignore the diversity of resources, circumstances, and goals of the citizens. Their plans usually fail because the requisite knowledge to organize a society is spread out across time and space. That knowledge is communicated through prices, which change in real-time with market exchanges. Without such exchanges, the necessary information conveyed through the price system is unavailable.
No government can match Amazon or Walmart at providing goods and services people want at a price they are willing to pay. At best, governments make allocation decisions without prices, throwing darts at a dartboard while blind-folded. At worst, governments allocate resources based on what interest groups can exert the most pressure.
Industrial policy constitutes “legislation” rather than “law.” Government subsidies from federal, state, and local governments in the forms of grants, loans, and tax credits replace the judgment and planning of ordinary men and women with the plans of a few in D.C. As David Goldman mentioned last September, “Innovation can’t be budgeted and scheduled, only fostered and encouraged.”
Look no further than the Biden-Harris Administration’s “Build America, Buy America” program within the Infrastructure Investment and Jobs Act or the Inflation Reduction Act. These programs offered billions of dollars in subsidies, but all the dollars came with strings attached, like complying with climate regulations or hiring based upon diversity, equity, and inclusion criteria. Recipients of these programs had to comply with numerous federal regulations, often slowing down projects and dramatically increasing costs on taxpayers. Even if conservatives were to strike these requirements from infrastructure policy bills, there is little stopping them from being reinstated the next time the left gains political power.
Furthermore, the money funding these programs came from hardworking Americans paying taxes or from issuing new debt, which will be paid for by our children and grandchildren. One analysis of the CHIPS and Science Act’s $280 billion semiconductor program found that it will yield little to no economic gains. Instead of stimulating the American economy, “legislators” made America poorer.
Conservatives concerned for blue-collar workers and American families should remember how one program after another intended to help American families failed miserably—whether subsidized housing or other welfare programs that discouraged work and marriage or the massive public-school bureaucracy that indoctrinates as much as it teaches. These government programs fail because, as Hayek showed, those in D.C. cannot incorporate the wide array of circumstances, goals, values, and constraints faced by millions of American families when they create prescriptive legislation.
Another problem with governing via legislation involves lackluster adaptation. Individuals have strong incentives to adjust their plans quickly as they run into unforeseen obstacles or when their circumstances change. Creators of legislation, on the other hand, have other priorities. Elected officials want to get elected and reelected. Bureaucrats want to grow the number of people working under them and their agency’s discretionary budget. Government officials will work to see their goals realized with little regard for their impact on ordinary Americans.
Remember that the dismal record of government programs has less to do with the goals and priorities of those who create them than with the inevitable knowledge and incentive problems they face. Those who create legislation usually bear very few of the consequences of their rules, and so rarely feel the need to modify or change those rules—leaving us and our posterity materially poorer and under the thumb of a government that already regulates everything under the sun.
Conservatives who are skeptical about free markets should keep this in mind as they craft policy proposals. They are often rightly concerned with very real problems. But misunderstanding the source of those problems, such as blaming free trade or free-market competition for economic malaise, leads to wrong-headed solutions. Extensive plans or blueprints for how to use federal power and federal money to rebuild communities that have suffered decay and dislocation will backfire. Government officials can’t possibly know the circumstances, constraints, and opportunities of millions of people, let alone how those things change in real time.
Instead, the newly created Department of Government Efficiency (DOGE) has a historic opportunity to will help Americans get back to work and keep their hard-earned income cutting back on regulations, tightening welfare conditions, and reducing taxes. Devoting time and energy to that project would be a far better investment than spending time imagining creative legislation to add to the pervasive existing legislation tying American communities down. Although lower taxes, deregulation, and less federal government may not sound as enticing as the siren song of industrial policy, it will keep us off the rocks of failure and keep us on course for sustainable economic growth and prosperity.
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