The coronavirus lockdowns demonstrated our leaders’ ignorance of economic interdependence. After the riots, that ignorance has been shown to run far deeper. It is an ignorance about government’s most fundamental obligation: to safeguard life, liberty, and property. It is an ignorance about human nature and human striving.
“…the coronavirus has exposed the fault line between those who are subsidized by government and those who pay for government.
In her Wall Street Journal column, Peggy Noonan opines about how the “protected” don’t have to worry about the consequences of economic shutdowns.
“…Since the pandemic began, the overclass has been in charge—scientists, doctors, political figures, consultants—calling the shots for the average people. But personally they have less skin in the game. The National Institutes of Health scientist won’t lose his livelihood over what’s happened. Neither will the midday anchor. I’ve called this divide the protected versus the unprotected. …“
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
“The economy is the people, and the people are the economy. The ability to continue to function in a market system does matter to individuals within the system, particularly when the ability of business to remain open and continue to employ them is in question.”
Source: How Shutting Down The Economy Could Kill Tens Of Thousands
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.
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.