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. …“
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 Dan Mitchell
“Communists claim that their ideology represents the downtrodden against the elite, yet the evidence from Cuba shows wretched material deprivation for most people.
In Hong Kong, by contrast, incomes have soared for all segments of the population.”
How important are key individuals in shaping the success or failure of economies? …Neil Monnery’s A Tale of Two Economies is in some sense a polemic against historical determinism, at least insofar as promoting economic reforms is concerned.It stresses the importance of two single individuals, one a great man for many, one an obscure official and political unknown to the most, in shaping the destiny of their respective countries. …Ernesto “Che” Guevara and John Cowperthwaite. …Monnery insists that both of them were “deep and original thinkers.” …The key difference between the two was perhaps that Cowperthwaite had a solid education in economics… Neither the way in which Hong Kong progressed, nor Cuba’s, were thus inevitable.
Monnery points out that Hong Kong’s success happened not because Cowperthwaite and his colleague were trying “to plant an ideological flag,” but because they were “professional pragmatists.” …Then the success of relatively libertarian arrangements in Hong Kong perpetuated itself. …Cowperthwaite tested what he knew about classical economics when he “first arrived in Hong Kong, in 1945” and “was put in charge of price control.… He soon realized the problems with attempting to set prices low enough to meet consumer needs but high enough to encourage supply, and in a dynamic environment.” He opposed subsidies that he saw as “a brazen attempt to feed at the trough of government subsidies.” …Cowperthwaite is a hero to Monnery, who emphasises his competence, and even more, his integrity.
Governor Bradford recorded in his diary that everybody was happy to claim their equal share of production, but production only shrank. Slackers showed up late for work in the fields, and the hard workers resented it. It’s called “human nature.”
The disincentives of the socialist scheme bred impoverishment and conflict until, facing starvation and extinction, Bradford altered the system. He divided common property into private plots, and the new owners could produce what they wanted and then keep or trade it freely.
Communal socialist failure was transformed into private property/capitalist success, something that’s happened so often historically it’s almost monotonous. The “people over profits” mentality produced fewer people until profit—earned as a result of one’s care for his own property and his desire for improvement—saved the people.
If the concept of social justice simply means justice for the individuals who make up society, then it appears the utopian socialist-progressives and the libertarian free-marketeers may have some goals in common.
However, when it comes to the ways & means to achieve those goals, the ideological divide is still wide.
So maybe rhetoric on both side should always start with…
“what is the most effective strategies or economic policies to allow people to optimize opportunity and escape poverty.”
Individual liberty is never fully realized without economic freedom, which includes strong private rights & a climate conducive to self-determination.