The Economy Is Life-Sustaining

Let me be clear upfront. I don’t think coronavirus is “just the flu.” I think the pandemic represents a significant health threat and could potentially overwhelm the healthcare system if the spread isn’t slowed. I think social distancing is wise. But I also think the draconian measures taken by governments that have effectively shut down the economy in many places may prove more deadly in the long run than the virus itself.

As Kerry Baldwin said, the economy is life-sustaining.

In his famous essay “That Which Is Seen and That What Is Not Seen,” French economist Frédéric Bastiat explained the difference between a good economist and a bad economist.

Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.”

Most politicians are bad economists.

Government officials make decisions based primarily on political calculation. They are not wise, nor benevolent. Like all of us, they are driven by self-interest.  And their self-interest involves increasing their power. The best way to do that is to look good on TV, appear decisive, and most importantly, don’t put yourself in a position where you can be blamed for a problem.

This is not a recipe for good decision-making. Since the general public only focuses on things immediately seen, politicians only worry about what is immediately seen. They ignore the potential unseen consequences of their actions. They don’t have the will, or in most cases even the knowledge, to engage in good economic calculation.

Every decision involves tradeoffs. Good decision-making involves considering the benefits and consequences of alternative courses of action and then choosing the one with the greatest benefits.

Consider automobile safety. You could build an armored car with a max speed of 15 mph and it would be virtually 100% safe. It would also be completely useless for getting around. There is a tradeoff between functionality and safety.

The same is true when it comes to fighting the coronavirus pandemic. There comes a point when the harm of shutting down commerce will do more damage than the virus. As Kerry Baldwin said, the economy is life-sustaining. If you squeeze enough life out of the economy, people will eventually die.

Where is that point? I have no idea. But I do know that politicians are the least-qualified people to make that decision.

In an article published on FEE, Jon Miltmore correctly points out that government has a history of making panics worse. He explains how ” the federal government took a small problem (temporary high costs of gasoline in the 1970s) and turned it into a big one (a national shortage). The government “fixed” the cost problem with price controls. The results were less than ideal.

There is no reason to believe that the government will do a better job “managing” COVID-19. Miltmore calls for reason, not panic. It would be wise to heed his warning.

As America endures the most frightening pandemic in a century, the COVID-19 outbreak, it’s important that decisions affecting the lives, liberties, and livelihoods of hundreds of millions of people are being reached through reason, not collective fear.

Pandemics are clearly different from economic depressions and fuel shortages, but some of the same lessons apply. Like an economic panic, pandemics incite mass fear, which can lead to flawed and irrational decision making.

We know that human beings by nature are prone to crowd-following, especially during periods of social unrest and panic. This instinct has resulted in some of the greatest tragedies in human history.

COVID-19 may very well prove to be every bit as dangerous as we’ve been led to believe. Epidemiologists, vaccine researchers, and other medical experts agree it’s highly contagious and deadly, especially for certain at-risk demographics (the elderly and people with compromised immune systems and lung damage, for example). Yet many of the same experts disagree on the scope of the COVID-19 threat.

One of the problems medical professionals are encountering is they simply don’t have a lot of reliable data to work with.

“The data collected so far on how many people are infected and how the epidemic is evolving are utterly unreliable,” John P.A. Ioannidis, an epidemiologist and professor of medicine at Stanford University who co-directs the university’s Meta-Research Innovation Center, recently wrote in Stat.

Let’s face it: pandemics are scary. This is probably doubly true in the age of social media, when the scariest models tend to be the ones most shared, which fuels even more panic. Because of the heightened level of fear, it’s not unreasonable to think public officials could “follow the crowd,” which is a bad idea even when the crowd isn’t totally petrified.

“Crowds do not reason….they tolerate neither discussion nor contradiction, and the suggestions brought to bear on them invade the entire field of their understanding and tend at once to transform themselves into acts,” wrote Gustave Le Bon in his seminal 1895 work The Crowd: A Study of the Popular Mind.

It’s no secret or coincidence that crises—foreign wars, terrorist attacks, and economic depressions—have often resulted in vast encroachments of freedom and even given rise to tyrants (from Napoleon to Lenin and beyond). In his book Crisis and Leviathan, the historian and economist Robert Higgs explains how throughout history, crises have been used to expand the administrative state, often by allowing “temporary” measures to be left in place after a crisis has abated (think federal tax withholding during World War II).

“When [crises occur] … governments almost certainly will gain new powers over economic and social affairs,” wrote Higgs. “For those who cherish individual liberty and a free society, the prospect is deeply disheartening.”

Let’s take the novel coronavirus deadly seriously, but let’s not throw reason, prudence, or the Constitution out the window while doing so.

If we do, we may find the government’s “cure” for the coronavirus cure is even worse than the disease.

The reality is, we have very little control over what the politicians do. State, local and federal governments continue to ratchet up restrictions each day. It appears we’re already in the midst of panic-driven decision making.

President Trump has called for shared sacrifice. And yet the government is in the process of bailing out everybody. It’s going to be bailout nation. Trump wants you to sacrifice without any pain. But it doesn’t work that way. As things unfold, you will sacrifice. And there will be pain.

Peter Schiff says we’ve passed the point of no return. The coronavirus has pricked the bubble. The economy going to deflate no matter what happens to the pin. And it seems likely the government and central bank response will only make it worse. Get ready. It’s going to be a bumpy ride.