Editor of Technology Review David Rotman strays into territory far removed from his magazine's titular mission by reviewing Rethinking Capitalism:
A series of essays by authors including Joseph Stiglitz, an economist at Columbia University who won a Nobel Prize in 2001, and Mariana Mazzucato, a professor of the economics of innovation at the University of Sussex… Together, the essays provide a compelling argument that we need more coherent and deliberate strategic planning in tackling our economic problems, especially in finding more effective ways to reduce greenhouse-gas emissions…What keeps me coming back to it are the straw men, unconscious assumptions and the anti-scientism buried throughout. Economics is neither technology nor science, nor does Mr. Rotman even understand it.
[The book attempts] to counter the view that free markets inevitably lead to desirable outcomes and that freer markets are always better: the faith that “the ‘invisible hand’ of the market knows best.” In fact, she argues, we should admit that markets are created and shaped by government policies, including government support of innovation.
First up, "[T]he essays provide a compelling argument that we need more coherent and deliberate strategic planning in tackling our economic problems, especially in finding more effective ways to reduce greenhouse-gas emissions."
Government intervention never works out to be either coherent or strategic: Obamacare is an example where the government lent its full weight in time, expertise, money, subversion of the political process and publicly repeated big lies. Thank god it was health care and not the "Affordable Energy Act."
Fracking for natural gas has done more to reduce carbon emissions than a dozen Solyndras - despite government opposition.
Second, I know of no one who claims “free markets inevitably lead to desirable outcomes." Free markets lead to better outcomes than manipulated markets, and that includes failure when freely invested private money is lost. This Obamaesque straw-man premise additionally implies that if free markets aren’t perfect we must turn to government for such perfection.
Admitting that “markets are created and shaped by government,” begs a question while assuming a conclusion. It’s true that governments choose to create and shape markets. No natural law says they have to, but if Rotman’s admiring analysis is correct, Mazzucato takes this as a given. However, it is something governments choose to do. As Rotman later grudgingly concedes, this choice is rife with drawbacks.
In fact, placing the average bureaucrat as market arbiter is only better than the free market if that bureaucrat’s decisions are consistently better: More informed, more enlightened, more efficient, than free choice market decisions. This never happens. Assuming command-and-control industrial policy as an immutable consequence of having government indicates such endeavors aren’t market-based at all.
Finally, “government support of innovation,” can be accomplished passively. Ask John Cowperthwaite.
Mazzucato and Rotman only see government support as beneficial when it is active market intervention. A fair look at this question would also include examination of the ways in which government stifles innovation with command-and-control industrial policies, not the least of which is the misdirection of resources and prevention of new ways of doing business. Examples are growing corn for ethanol and taxing Uber to protect existing taxi businesses.
To summarize, Mr. Rotman proposes that government should do a better job when it actively creates and shapes markets. No one would disagree government should do better. The question begged is whether government should be actively involved at all. It would "do better" if it weren't.
Free markets are not perfect nor ever claimed to be. They are better than any alternative, and, as repeatedly demonstrated, vastly better than command-and-control industrial policies.
I think I’ll be doing more detailed fisking of other bits of this horrendous MIT article in future posts.