It’s no surprise that I haven’t written on this blog for quite some time. I guess I’d been experiencing a bit of “writer’s block.” Of course, life changes at a rapid pace and here I am writing my first post in almost one year as we face the greatest public health crisis in several generations. Coronavirus has swept through the planet like a wildfire, causing entire continents to virtually seize to a grinding halt. Governments around the world have intervened with desperate policies and altruistic intentions that will deliver serious blows to our global economy. Here are just some of the policies that have been instituted:
- The Federal Reserve decreased the federal funds rate from 1.75% to 0% in 13 days, making it the most drastic rate cut in the Fed’s history
- The Federal Reserve also offered more than $2.2 trillion in additional “liquidity” to the markets, in an effort to keep asset prices afloat as a result of Coronavirus
- Bars, restaurants, and gyms have been shut down with the stroke of a pen, invoked by a slew of vague legislative powers that we just learned about within the last couple weeks
- Congressmen across both sides of the political spectrum have recommended what might be our first glimpse at “Universal Basic Income” – a monthly $1000 check to Americans below a certain level of income
This brings me to the main point of this post. At some point, we will defeat Coronavirus, however long that takes. However, like any battle, this will come at a significant cost. I’m not talking about the direct body count, which is clearly devastating, but rather a sort of indirect body count, one that arises as a result of the economic equivalent of plagues: periods of considerable inflation, hyperinflation and/or mass unemployment. It has always struck me that at times like these, society seems to throw away the morals and empirical lessons we’ve painstakingly built from centuries of economic advancement. The general decline of economics has been occurring for decades now, but I guess it’s all the more demoralizing seeing literally trillions of dollars printed within the span of mere days by the very people who call themselves “economists.”
When the Coronavirus pandemic comes to an end, we will be left with a gaping hole where our economy once was, a result of the monetary blitzkrieg we’ve waged within mere weeks of identifying this short-term enemy. What’s even more concerning is the fact that sound economics would allow us to weather the Coronavirus without so much as a hiccup. Here is a glimpse at how the world would react when adhering to economic principles:
- The FDA would be severely limited. For all of the praise we bestow upon the FDA, their bureaucratic presence has killed many more lives than the ones it aims to directly protect through a drug approval process. A study by Robert Goldberg of Brandeis University looked at deaths in the US due to ailments in which effective treatments were readily available in other countries, arriving at a conservative estimate of 200,000 deaths annually in the US alone, due to a failure to approve effective drugs. Severely limit the size and scope of the FDA and we would see drugs and vaccines moving through the pipeline at a rapid pace. Safety and efficacy would be a decision provided to individual consumers, many of whom would be willing to try an experimental drug if their doctors had no other course of action available to their knowledge.
- Small and large businesses would offer tiered pricing. The degree to which small businesses are currently suffering is nothing short of tragic. The fact that governments that failed to contain this virus in the first place can close entire industries down is nothing short of tyranny. In a society with rational economic principles, small and large businesses alike would be able to alter pricing models for consumers. Instead of governments implementing asinine ideas like curfew and closures, which actually create the unintended incentive for people to swarm to places at the same exact time, businesses could offer elevated prices to anyone who wants to buy a product online or through an app, rather than showing up to the store. In-person shoppers could be offered lower pricing for showing up to the storefront (business owners can add stipulations that shoppers wear a mask if they decide to show up in-person).
- Price controls would be thrown out the window. We have clear historical evidence that price controls have the complete opposite of their intended effect. When price controls are implemented, it virtually ensures shortages will occur, as shoppers do not view price signals as a sign of scarcity and continue to deplete stocks of in-demand items.
- If nothing else, business and individuals could weather periods of quarantine with higher savings rates. US non-financial corporate debt stood at 48% of GDP as of 2019. Household debt stood at roughly 76% of GDP around the same period. What we are now seeing is the inability of households and businesses alike to lose income and revenue without requiring public assistance. Of course, considering the actions offered above, we probably wouldn’t have an economic downturn as a result of a pandemic; however, if nothing else, we should be able to weather this thing without much of a hiccup. Prices would clearly decline as consumers decrease spending and tap into savings, but any economist worth their salt knows that a natural decrease in prices as a result of productivity is ultimately what happens over time.
Now, more than ever, we need an economic renaissance. As the central powers rush to pour more gasoline on this fire in the name of benevolence, please make an effort to research economic philosophy and do your part to educate the world. Of course, feel free to share this blog post or send me a comment if you wish!