Helping Central America means getting DC out of the way

Many on the political right have found it difficult to resist the national industrial policy’s siren song of restoring American blue-collar manufacturing and restoring widespread prosperity. However, industrial policy has a long history of crushing its followers under the rocks of economic hardship. Ideas of Friedrich Hayek, Nobel Prize winner in economics 50 years agocan help us counter this. Hayek clearly explained why government officials are unable to successfully design 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 Ps”: people, property and promises. It must be predictable, stable, general and impartial; it must give individuals, organizations and communities the freedom to pursue their own goals and use their localized knowledge of time and space. Hayek believed that the true “legislators” codified existing customs that arose naturally from peaceful interaction. They search “simply to state what the law is and always has been.”

Hayek contrasts “law” with mere “legislation.” The law evolves over time through repeated interactions and gradual modifications through amendment and judicial review. Legislation, however, results in legislators or bureaucrats replacing the decentralized decisions of millions of people with their own plans and goals. While Hayek did not say that all laws are bad, he did note that the more a government tries to deliberately shape laws, the more problems arise.

When legislators prescribe specific actions or behaviors, they ignore the diversity of citizens’ resources, circumstances, and goals. Their plans are usually failure because the necessary knowledge for organizing society is distributed in time and space. This knowledge is transmitted through prices that change in real time based on market exchanges. Without such exchange, the necessary information transmitted through the price system is not available.

No government can match Amazon or Walmart in providing people with goods and services at a price they are willing to pay. At best, governments make allocation decisions without prices, throwing darts at a target while blindfolded. At worst, governments allocate resources based on which interest groups can exert the most pressure.

Industrial policy is “legislation”, not “law”. Government subsidies from federal, state, and local governments in the form of grants, loans, and tax breaks replace the judgment and planning of ordinary men and women with the plans of a few in the District of Columbia. Like David Goldman mentioned last September: “Innovation cannot be budgeted and planned, it can only be stimulated and encouraged.”

Look no further than the Biden-Harris administration. “Build America, Buy America” A program under the Infrastructure Investment and Jobs Act or the Inflation Relief Act. These programs offered billions of dollars in subsidies, but all the money came with strings attached, such as meeting climate regulations or hiring based on diversity, equity and inclusion criteria. Recipients of these programs had to comply with numerous federal regulations, often slowdown down projects and a sharp increase in taxpayer costs. Even if conservatives remove these demands from infrastructure policy bills, there will be little to prevent them from being reinstated the next time the left gains political power.

Moreover, the money to fund these programs comes from hardworking Americans paying taxes or from issuing new debt to be paid for by our children and grandchildren. One analysis The $280 billion CHIPS and Science Act semiconductor program has shown that it will generate virtually no economic benefit. Instead of stimulating the American economy, “legislators” made America poorer.

Conservatives concerned about workers and American families should remember how one program after another designed to help American families failed miserably—whether it was subsidized housing or other welfare programs that discouraged work and marriage, or the huge public school bureaucracy that inspires as many ideas as it teaches. These government programs fail because, as Hayek showed, the programs in Washington fail to take into account the wide range of circumstances, goals, values, and constraints that millions of American families face when they create prescriptive legislation.

Another problem with regulation through legislation relates to lack of adaptation. People have strong incentives to quickly adjust their plans when they encounter unexpected obstacles or when their circumstances change. The creators of the legislation, on the contrary, have other priorities. Elected officials want to get elected and re-elected. Bureaucrats want to increase the number of people working under them and increase their department’s discretionary budget. Government officials will work to ensure that their goals are realized, regardless of their impact on ordinary Americans.

Remember that the dismal results of government programs have 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 make the laws usually bear very few consequences for their rules and therefore rarely feel the need to modify or change those rules, leaving us and our posterity materially poorer and under the control of a government that already regulates everything under the sun.

Conservatives who are skeptical of free markets should keep this in mind when crafting policy proposals. They are often rightly concerned about very real problems. But misunderstanding the source of these problems, such as blaming free trade or free market competition for economic ills, leads to misguided decisions. Vast plans or blueprints for how to use federal power and federal money to rebuild communities affected by blight and unrest will backfire. Government officials cannot know the circumstances, limitations and capabilities of millions of people, let alone how these things change in real time.

Instead, the newly created Department of Government Effectiveness (DOGE) has a historic opportunity to help Americans get back to work and maintain their hard-earned incomes by reducing regulation, tightening Social Security, and cutting taxes. Devoting time and energy to this project would be a much better investment than spending time coming up with creative legislation that would complement the widespread existing legislation that binds American communities. While lower taxes, deregulation, and a smaller federal government may not sound as tempting as the siren song of industrial policy, they will keep us from failing and keep us on the path to sustainable economic growth and prosperity.