Industrial Policy Bureaucrats As Hedge Fund Managers
An old saw in finance research is what you might call the “monkeys at a typewriter” problem. If you put an infinite number of monkeys at an infinite number of typewriters, one of them is going to bang out Hamlet. Does that mean that monkey is a great writer?
Or, if you put a thousand people in a room and tell them to flip coins, one of them is going to flip heads 10 times in a row. Does this mean this person has particular skill in flipping coins?
By the same token, if a hedge fund manager has even a long track record of success, is that due to skill or to random chance?
It’s possible to see how this applies to industrial policy. If you have over a hundred countries pursuing industrial policy for the past 60 years, even by random chance a handful of those countries are going to end up with successful policies in a number of key areas. But that shouldn’t strike us as an endorsement of industrial policy as such, any more than we should listen to Ray Dalio when he says correlation doesn’t exist.
Looking at my own country, I’m struck by how right we’ve gotten some policies (VAT, energy, transportation) and how wrong we’ve gotten others. Is there some overriding logic behind those successes and failures that another country could draw inspiration from to replicate the successes and not the failures? It’s doubtful, at least.
