Top down economic ‘moonshot’ incompatible with bottom up ideals

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In her book Mission Economy: A Moonshot Guide to Changing Capitalism, economist Mariana Mazzucato proposes rebranding the United States's economy.

An advocate behind Biden's Build Back Better agenda, Mazzucato crusades for "top-down direction" to catalyze innovation and tackle issues like climate change. While they may sound nice on paper, her influential ideas raise concerns.

Government: player, or referee?

Mazzucato advocates for the government to play the economy, creating, not just fixing, markets. China's pencil industry is a model, where industrial policy fostered international dominance despite limited material resources.

Fabricating this market was unnecessary. If there was demand and supply for pencils, production would already be underway. From a global perspective, China's resource scarcity makes it an inefficient pencil producer.

A purchasing, investing, and problem-solving government neglects its traditional injunction to protect rights and act as referee. Policies like sacrificing patent rights to expand medical access and privacy rights to track carbon footprints become legitimate suggestions.

If a referee plays a game while officiating, he performs both tasks poorly. The government should stick to maintaining a level playing field on which businesses compete fairly.

Private risk, private reward

Mazzucato suggests private investors avoid high-risk projects, and government needs to fill in the gap.

The only projects private actors won't invest in are high-risk, low-reward ones. By picking up the slack here, the federal government gambles taxpayer money when failure is likely.

Private actors invest better than government because it's their own money at stake. Mazzucato wants socialized risk through bailouts and socialized reward through government stock ownership. While presented as fairer, her solution ignores the just as fair and more efficient alternative: stop bailouts and privatize risk once again.

The domino effect

Mazzucato downplays planning's ripple effect. Regulations, price controls, and subsidies affect supply chains downstream, creating two new problems for each one the government "fixes."

The UN's struggle to reach sustainability goals, Biden's empty microchip factories, and positive results from British privatization initiatives in the 1990s challenge the illusion that governments can marshal dynamic market forces.

Additionally, Mazzucato doesn't consider consumers. Invention alone isn't enough - marketing technologies into usable and desirable products precedes reaping societal benefits.

For example, NASA scientists created small cameras, but entrepreneurs integrated them into smartphones for everyday use. The profit incentive catalyzes this crucial final step and minimizes time between discovery and deployment.

Trade-offs and the illusion of democratic control

Expanding government means contentious policy tradeoffs. Wealth transfers to one place mean foregone investments and opportunities elsewhere, so who decides what's important? As agencies' power expands, intellectual elites dictate priorities for society.

Mazzucato admits that elite control dominated past initiatives like the moon landing and The New Deal. She maintains that citizens should inform local solutions, but her top-down system is incompatible with her bottom-up ideals.

In reality, the economy is most democratic and "local" when individuals decide for themselves where to allocate resources.

Men are not angels

In a utopian society, Mazzucato's proposals might work. But, as James Madison noted, men are not angels.

When government has its hand in everything, lobbying and rent seeking become the path to power. As with the subsidized railroad companies in the 1860s that lobbied Congress instead of operating trains, lost production would be a major cost of Mazzucato's agenda.

Political failure is also likely. As imperfect and greedy as any entrepreneur, government workers' profit increases with spending rather than efficiency, and lobbying rather than successful delivery of a product or service. Mazzucato doesn't address the likelihood that government greed would outweigh mission-oriented zeal.

Outcomes-based budgeting's hidden costs

Mazzucato prioritizes moonshots over sensible budgeting, noting the government's ability to print money to fund missions.

While growing economies can absorb some inflation, printing money on the scale Mazzucato imagines would cause prices to skyrocket.

Also important are opportunity costs. In Spain, one job created by green initiatives cost four jobs elsewhere in the economy. Since government projects crowd out private innovation, it's unknown what technologies the private sector would produce with the same funds currently redirected to agencies.

Climate change

Climate change is the first mission Mazzucato would like to tackle. However, the free market is already improving the environment. The profit incentive has inspired agricultural innovations that conserve forests, streamline production to minimize material usage and reduce deaths from indoor pollution through electrification. Additionally, towns and farmers are discovering that green initiatives are profitable on their own because they cut costs.

Long term, the degrowth from mission-motivated regulations could have consequences for the environment. A strategy that prioritizes growth first is worth exploring.

In conclusion, Mazzucato's moonshot economy is not just unstable and unimplementable, it's unnecessary. The free market possesses the right incentives to produce solutions to significant problems and will continue to do so if allowed.