EconTalk Michael Munger on Industrial Policy
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Oct 31, 2022 Michael Munger, an economist and political scientist from Duke University, discusses the complexities of industrial policy in a democratic context. He argues that industrial policies often lead to crony capitalism, as attempts to improve the system fall victim to political realities. The conversation highlights how profit and loss influence resource allocation, the challenges of implementing effective strategies, and the cultural barriers to tax compliance in places like Argentina. Munger critiques expert-driven solutions and underscores the unpredictability of political dynamics.
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Profit and Loss System
- The profit and loss system signals social value through profits, incentivizing resource allocation.
- Losses, conversely, lead to business closure, theoretically optimizing resource use.
Creative Destruction and Fairness
- Creative destruction, while beneficial for innovation, can cause unfair job losses.
- Government programs like unemployment assistance mitigate this, balancing system costs.
Market Failures and Profit
- Market failures make profit an unreliable measure of social benefit, argue critics.
- They suggest alternative metrics and interventions for better outcomes.
