John Daniel Davidson of the Federalist echoes the benefits of having choices made at the state and local level.
The founders wisely chose a federal republic for our form of government, which means sovereignty is divided between states and the federal government. The powers of the federal government are limited and enumerated, while all powers not granted to the feds are reserved for the states, including emergency police powers of the kind we’re seeing states and localities use now. …Much of the media seems wholly unaware of this basic feature of our system of government. …Trump explained that many governors might have a more direct line on this equipment and if so they should go ahead and acquire it themselves, no need to wait on Washington, D.C. This is of course exactly the way federalism is supposed to work. …We should expect the government power that’s closest to affected communities to be the most active, while Washington, D.C., concern itself with larger problems.
Source: Coronavirus and Federalism | International Liberty
April 9, 2020. New unemployment claims surged to 6.6 million today in face of the COVID-19 shut down.
The joblessness rate will remain high until July when subsidies for non-work end.
Timing is key. The study of recessions shows us that employment usually rises (mysteriously) when unemployment benefits end. The connection should be obvious, especially for millions whose unemployment is more than their previous wages. This is the case for a family member of mine who is making $600 more per month now than before he was laid off.
This is why Germany’s approach during the recession of 2008 made sense. They paid employers to keep people on payroll. This had psychological and economic benefits.
Without question, remuneration/compensation to pay bills for those who’s jobs have ended due to mandated shelter at home and mandated closures (gov’t should reimburse those it shuts down) is justified. From the employer’s standpoint, unemployment benefits act like a tax on labor in addition to wages for each employee; they essentially have to pay premium to make it worthwhile for employee to return.
Sure, workers realize the benefits are temporary and many, if they liked their jobs, will return sooner if called back. And the astute workers will save the excess unemployment payments or pay off debt; most will spend it or, worse, incur more debt. History tells us that many will delay returning to work as long as possible if they are making more by not working. And who could blame them. This can force employers to hire possibly less qualified people at a higher wage than the value they produce.
And furthermore, history also tells us that as unemployment remains high, the political response is to extend the unemployment benefits longer, further prolonging recovery; and the cycle is perpetuated.
On the macro-economic level and policy level, this is why we need incentives to become a nation of producers and savers, rather than spender and debtors. From a tax policy perspective, we must stop punishing savings and investment and create incentives to save and proper disincentives for debt. This includes a “debt brake” for the federal government like they have in Switzerland.
The commonality between the insatiable rise in both healthcare costs and college tuition, post 1965, should be obvious: Massive amounts of other people’s money in the form of government programs, payments, subsidies and loan guarantees; which economists call the 3rd-party payer effect.
As exposited in the FEE article below, the U.S. Higher Education Act introduced “incentives” into the market for higher education, encouraging both the supply side and the demand side to make decisions that they would not be as likely to make under “non-stimulated” market situations.
Similarly, the passage of Medicare in 1965 sent huge surge of money into the healthcare system. The predictable consequence of this massive revenue stream was an incentive for healthcare providers to enter the market and expand services at an unprecedented magnitude and rate. Essentially, demand was spurred by new source of financing. Amy Finkelstein, et.al have done excellent work in this area. Her work indicates that Medicare funding may have allowed hospital to spend 6-fold more than what individual levels of insurance would have predicted. And that the spread of 3rd party insurance from 1950 – 1990 may explain about 50% of the increase in real per capita spending over that time period. https://economics.mit.edu/files/788
“As Bernie Sanders tweeted last year, the cost of education, in nominal dollars, has increased by roughly 3,800 percent since the mid 1960s.
What Sanders didn’t mention was that this was when the US Higher Education Act was passed (1965), which directed taxpayer dollars to low-interest loans for students pursuing college. This increased accessibility to higher education, but the flood of federal money also caused a surge in demand and costs.
The problem isn’t unsolvable, but it will require significant changes to universities and the federal loan program. “Free” tuition and student debt forgiveness will only make the problem worse.
Instead, as University of Maryland economist Peter Morici recently argued, market discipline must be brought back to our institutions of higher learning as part of any debt forgiveness.
While policy wonks offer no shortage of proposals for tweaking the federal loan program to improve it, perhaps the best solution would be to get the federal government out of the loan business all together.”
By Mark Hornshaw
“Economics studies human choice under scarcity. Humans must act in the present to provide for the future. Informed choice relies on market data in the form of prices—specific prices for specific things, as we assess various different means to satisfy our ends—that is what economics is about.
Macro-statistics such as GDP and CPI, whether they are rising or falling in the aggregate, do not help much with this vital task. These statistics are compilations of vast amounts of data to come up with averages across entire countries and time-periods. It’s a dilution of the data, not an enhancement.
” “What a country wants to make it richer, is never consumption, but production. Where there is the latter, we may be sure that there is no want of the former,” said John Stuart Mill, citing Say’s law.
In a tune of rapid change and disruption, we need prices to do their job more than ever so the entrepreneurial process can work. High prices show which industries to move more resources into, and low prices show which ones to move resources out of to free them up for more urgent uses. From the point of view of consumers, high prices show us what we should cut back on, and low prices show where we can pick up bargains.
This process takes time. Interfering with this process just locks in shortages and surpluses.
So-called “stimulus,” just thrown at “the economy” to increase “aggregate demand” in the abstract, cannot work, when there are supply constraints in some industries and prohibitions in others.
Government policy should be on mending holes in the social safety net, compensating those it has forced out of business and jobs, and reducing the tax and regulatory burden it places on businesses, workers and consumers as they try to adjust.
These are all microeconomic responses to relieve suffering and remove impediments.”
Smoot-Hawley and the New Deal are hardly the only examples of government actions making a panic worse.
Thomas Sowell recounts several instances in which governments turned small problems into major ones by using blunt force—often price controls—to respond to public panic about rising costs of a given commodity.
One of the more famous examples of this is the gasoline crisis of the 1970s, which started when the federal government took a small problem (temporary high costs of gasoline) and turned it into a big one (a national shortage).
As Sowell explains, however, there was not an actual scarcity of gasoline. There was nearly as much gas sold in 1972 as the previous year (95 percent, to be precise).
Similar examples kind be found throughout history, from the grain shortages in Ancient Rome brought about by Diocletian’s “Edict on Maximum Prices” to the mortgage crisis in 2007.
It is no 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).
Like an economic panic, pandemics incite mass fear, which can lead to flawed and irrational decision making.
“Little more than a decade after consumers binged on inexpensive mortgages that helped bring on a global financial crisis, a new debt surge — this time by major corporations — threatens to unleash fresh turmoil.
The root cause of the debt boom is the decision by the Federal Reserve and other key central banks to cut interest rates to zero in the wake of the financial crisis and to hold them at historic lows for years.“
Data analyzed from the Fraser Institute’s Economic Freedom Index makes a solid case for the benefits of more individual economic freedom and less central planning.
Across time and comparing all levels of society, be it communities, States or between countries, those with more economic freedom as measured by the Economic Freedom Index enjoy…
- Less unemployment
- Higher incomes
- Less poverty
- Less income inequality
- Less gender inequality
- Less child labor abuses
All six of these factors should tend to maximize cooperation between groups and foster more peace and less conflict. By extension, then, it appears a case can be made that the ideal role of government is to prevent us from harming each other, ensure a fair regulatory playing field, enforce laws fairly, honor contracts and otherwise grant maximal economic freedom to individuals to do as the wish so long as they don’t harm others financially or physically.